You’re fabbing it wrong: Chip shortages due to lack of investment in the right factories, says IDC

Semiconductor shortage issues will continue through the first half of 2022 as the industry attempts to build up inventory to normal levels, according to research firm IDC.

It cites limited investment in mature process technology as one reason, with many vital components for the automotive industry and other sectors manufactured using these older processes.

The semiconductor market continues to experience uneven shortages and tight supply, IDC noted, and the research firm highlights that one of the key supply constraints for semiconductors has been in mature process nodes.

By mature process nodes, it means older manufacturing processes at 40nm and above, which are used for low-cost production of automotive semiconductors and other chips such as LCD drivers and power management controllers. These are not as glamorous as the latest high-density CPU chips, but nevertheless are required to build a complete system in many cases.

According to its forthcoming report, Semiconductor Manufacturing and Foundry Services Market and Technology Assessment, IDC said it estimates that 67 per cent of semiconductors were produced using these mature process nodes during 2021, rather than leading edge process nodes, which it defines as 16nm or below.

But while leading edge manufacturing makes up just 15 per cent of semiconductor wafers by volume, it accounts for 44 per cent of the total revenue. Capital investment in the foundry market has therefore tended to focus on bleeding edge, while mature process technology manufacturing has received only limited investment.

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However, one chip manufacturer that has apparently been bucking the trend and making good money from these older process nodes is Texas Instruments, which saw its revenue for the fourth quarter of 2021 grow by 19 per cent compared to the same quarter a year ago.

One effect is that the automotive market continues to be impacted as chips move up the value chain, restricting the supply to automobile manufacturers. This drives the latter to use up their semiconductor supply on higher value vehicles first, which IDC claims raised the average selling price of vehicles during 2021.

The good news is that this situation should start to improve this year, according to IDC’s Nina Turner, research manager for its Enabling Technologies and Semiconductor team.

“Automotive semiconductors will continue to be a limiting constraint on the automotive market through the first half of 2022, but barring any unforeseen shutdowns or semiconductor manufacturing issues, supply should gradually improve through the second half of the year,” she said.

IDC predicts that foundry capacity will continue to grow in the Asia-Pacific region, such that by 2025, it expects South Korea and China will have increased their share of wafer manufacturing capacity to 19 per cent and 15 per cent of the market, up from 16 per cent and 12 per cent respectively.

Despite this, IDC said it expected Taiwan to increase its own share of the foundry market to 68 per cent by 2025, edging up slightly from 67 per cent in 2020, due to the investment and success of TSMC and the other Taiwanese foundry service suppliers.

The overall foundry market is forecast to grow at a five-year compound annual growth rate of 12 per cent between 2020 and 2025.

Those new fabs and their much-needed semiconductor manufacturing capacity will thus come too late to make any difference in 2022, IDC warned. Foundry companies are slowly adding what capacity they can, but improvement will be incremental for the rest of this year, accelerating only in 2023 and beyond. ®