Some market segments are normalizing, and other market segments may be affected in 2022.

The current wave of semiconductor and IC packaging shortages is expected to continue until 2022, but there are also signs that supply may eventually catch up with demand.

The same is true for manufacturing capabilities, materials, and equipment in the semiconductor and packaging fields. Nevertheless, after all market segments have experienced a period of shortage, the current genre believes that although the shortage of some products such as automotive chips may continue until 2022, chip supply may return to relatively normal in the middle of 2022. It depends on several economic factors. However, all of this may change overnight.

This is a chaotic period in the semiconductor industry. At the beginning of 2020, the business looked bright, but the market fell after the Covid-19 outbreak. Throughout 2020, various countries have taken various measures to alleviate the epidemic, such as stay-at-home orders and closing businesses. Economic turmoil soon followed.

By mid-2020, the IC market will rebound as the home economy drives demand for computers, TVs and other consumer electronics products. There is a shortage of consumer chips and select IC packages. Then, in the first half of 2021, demand for automobiles, smartphones, and other products surged, leading to a shortage of chips in these areas. Today, many chip types are in tight supply and have long lead times, while others are easier to find. It depends on the chip and the supplier.

Global chip manufacturing capacity is also very tight, especially for the more mature processes of 200mm fabs. For some time, 200mm fab capacity has been sold out, and this situation is not expected to change soon. And now, many foundry customers are preparing for another round of overall price increases. At the same time, in terms of packaging, some packaging types will continue to be in short supply, and production capacity in many areas will be tight. The lead time for selected equipment is very long.

The semiconductor shortage situation is not all doom and pessimism. IBS CEO Handel Jones said in a new report: "Except for some products, the supply and demand situation is expected to be resolved mainly in the first half of 2022 or the second half of 2022." "Many factors contribute to the strong demand for semiconductors. However, due to market saturation, some of the factors that have driven past demand growth are weakening. Due to the reduction of stimulus measures and the impact of high inflation, consumers’ purchasing power will be weakened."

Suppliers also have some ominous signs. According to IBS, overcapacity may occur in the second half of 2022 or sometime in 2023, depending on the product.

It is impossible to explain the dynamics of every semiconductor product or package. Each has its own supply and demand scenario. But there are several key products that can provide some insight into this situation. These include application processors, microcontrollers (MCU), power management ICs (PMIC) and WiFi chips, as well as various packaging technologies.

Over the years, the IC industry has experienced ups and downs in the fab structure. The current improvement is one of the biggest in recent memory. According to IBS data, overall, the semiconductor market is expected to reach 542.55 billion US dollars in 2021, an increase of 21.62% over 2020. IBS predicts that this market is expected to grow by 7.13% by 2022.

According to TEL, the wafer manufacturing equipment (WFE) market is expected to grow by 40% by 2021. Toshiki Kawai, President and CEO of TEL, said in a speech: "Due to the sharp rise in demand for cutting-edge logic and memory, the WFE market is expected to expand significantly."

Nevertheless, the semiconductor industry designs and manufactures many different chips, such as analog, GPU, MCU, memory, microprocessor, and power semiconductors. GPUs, processors and other advanced logic chips are produced in 300mm fabs, using various process technologies from 16nm/14nm to 5nm nodes. (Process technology is the recipe used to manufacture a given chip in a fab. A node refers to a specific process and its design rules.)

From 16nm/14nm to 5nm, chip manufacturers rely on finFETs. "Compared with the previous planar transistors, the fins are in contact with the gate on three sides, allowing better control of the channels formed in the fins," said Nerissa Draeger, project director of Lam Research University.

300mm wafer fabs are also used for mature process nodes from 65nm to 28nm. At the same time, other chips are manufactured using 350nm to 90nm processes in older 200mm fabs. Many chips are also produced in fabs with smaller wafer sizes, such as 150 mm, 100 mm, etc.

At present, the mature process nodes of 200mm and 300mm fabs are very tight even if they are not sold out. "In the past few years, whether in traditional CMOS, bipolar CMOS DMOS or RF-SOI-based process platforms, the demand for various chips manufactured at 200mm and mature CMOS technology nodes ≥28nm has surged. These Devices include MCUs, PMICs, digital display driver ICs (DDIC), RF ICs, and image signal processing (ISP) wafers required to manufacture back-illuminated CMOS image sensors. This demand is also supported by technology trends in multiple market segments ," said David Haynes, managing director of strategic marketing at Lam Research.

"The supply of automotive ICs is well documented, but at the same time, the demand for consumer products, new devices that support 5G, and display applications is increasing," Haynes said. "Because many IDMs and foundries that manufacture these chips produce not one product, but multiple products, the situation is further complicated. Historically, they have been able to rebalance the fab capacity to meet the demand for a certain product. Types of growing demand, but when the demand for so many products surges at the same time, it is difficult or impossible to adjust production in this way. Although the global production capacity of some device types (such as display drivers) has increased, the recent The report shows that the entire industry has not yet reached the balance of supply and demand."

All in all, foundry production capacity is tight. "Looking forward to the fourth quarter, we expect wafer shipments and ASP trends to remain firm. UMC Co-President Jason Wang said that the capacity utilization rate of 8-inch and 12-inch facilities will continue to remain at full capacity.

As for the trailing edge nodes and the leading edge nodes, in the foreseeable future, the production capacity of the foundry is expected to be tight. It depends on the process and the supplier. "Although we do not rule out the possibility of inventory adjustments, we expect TSMC's production capacity to remain very tight in 2021 and throughout 2022," TSMC CEO CC Wei said on a recent conference call.

Gartner analyst Samuel Wang concluded the situation: “Most foundries are booked for 1H 2022. Some have signed long-term agreements with fabless customers for 3-4 years. Gartner’s assumption is that the chip inventory will be in 2022. The second quarter reaches normality. Small supplier shortages of various components here and there may last longer."

According to IBS, while applying processor issues, wireless is the largest semiconductor field, accounting for 40% of the business. In the wireless field, 5G smartphones and related infrastructure are the main driving forces for many chips. IBS said that overall, 5G smartphone shipments in 2021 are expected to reach 578 million units, up from 225 million units in 2020. Nevertheless, although 5G is growing in many regions, China's smartphone market is slowing down.

5G smart phones are composed of multiple chips such as application processors, CMOS image sensors, memory, PMIC, and RF. Application processors are cutting-edge devices that integrate CPU, graphics, and AI functions on the same chip. Figure 1: The complexity of application processors continues to grow. Source: Phone/Wikipedia

Apple’s new iPhone 13 uses the A15 application processor, based on the 15 billion transistor design of TSMC’s 5nm process. Many other mobile phones use Qualcomm's Snapdragon 888, which is a 5nm system on a chip.

These chips are produced by foundries. Today, TSMC and Samsung are the only foundries capable of manufacturing 7nm and 5nm chips, and both are developing 3nm. Intel, which recently re-entered the foundry business, is accelerating 10nm and 7nm processes, of which 4nm is used for research and development.

For some time, the demand for 5G-based cutting-edge application processors and chipsets has been strong. However, the foundry capabilities of these chips seem to be slightly insufficient. IBS's Jones said: "The wafer capacity shortage may continue into the fourth quarter of 2021 or the first quarter of 2022."

How long the capacity shortage will last depends on several factors. "The latest design technology such as Apple A15 and Qualcomm Snapdragon 888 is 5nm, and it is planned to migrate to 3nm in 2022," Jones said. "If the 3nm smartphone chipset is launched in the second half of 2022, the 5nm and 7nm production capacity may be overcapacity in the third quarter of 2022 or the fourth quarter of 2022."

That might change. Analysts said that Apple's iPhone 14 is scheduled to be launched in 2022, and its application processor should use TSMC's 3nm process. However, the iPhone 14 is now expected to use 4nm. Analysts said that Apple's iPhone 15 is scheduled to be launched in 2023 and will use a 3nm application processor. In other words, TSMC’s 3nm revenue growth has been postponed to 2023.

All in all, the 3nm production ramp of all parties is an ever-changing goal. "There are signs that both TSMC and Samsung are delaying increasing production of 3nm wafers," Jones said.

For Apple and other smartphone suppliers, this is not the only problem. In the most recent quarter, due to a shortage of chips and manufacturing capacity, Apple’s sales gapped $6 billion. The problem does not involve access to cutting-edge nodes, but the shortage of chips in mature processes.

According to KeyBanc, Apple's sales have been affected by shortages in several areas, including OLED touch screen controllers. The touch screen controller used to control the display is manufactured with mature technology.

Chips from other mature nodes are also in short supply, including Wi-Fi 6 chips. The production process of Wi-Fi and some RF chips is 28nm, 22nm and 16nm. According to IBS, the shortage of Wi-Fi and other RF chips may continue into the second quarter of 2022, or even the third quarter of 2022.

PMICs for smartphones and other products have also been in short supply. PMIC is used to control the flow and direction of electricity, and it is manufactured using a 180 to 40 nanometer process. According to IBS, the shortage of PMICs is expected to continue into the second quarter of 2022 or the third quarter of 2022.

MCU Dilemma When it comes to chip shortages, the automotive industry has been the industry most affected by the disaster. "By 2021, the cost of MCU and other semiconductor shortages in the automotive industry may reach US$5 billion to US$10 billion. However, auto companies have been able to partially offset their losses by focusing on higher-end cars that offer higher prices. And higher costs. Profits are higher than low-end cars," said Jones of IBS.

Cars integrate some cutting-edge chips, but most of the devices are based on mature nodes. According to data from the US International Trade Commission, an ordinary car contains semiconductor components worth about $330, while a hybrid electric car can contain up to 3,500 chips worth about $1,000.

In 2020, during the Covid-19 outbreak, the demand for cars declined, causing car suppliers to reduce chip orders. But by the beginning of 2021, the automotive business rebounded. Faced with low chip inventories, automakers are trying to order more chips from suppliers. But as smartphone suppliers and other suppliers took the lead, suppliers found themselves at the bottom of the parts queue.

Due to the inability to obtain enough chips to meet demand, many automotive original equipment manufacturers have lowered their sales targets. Some even temporarily stopped part of the production line.

When a fab of Renesas Electronics recently caught fire, causing production shutdowns and supply interruptions, the problem got worse. This factory recently resumed production, producing MCUs and other chips.

Today, the shortage of automotive chips is still a problem. There are signs that supply is catching up, but this situation may continue until 2022.

NXP is one of the world's largest automotive chip suppliers and a leader in this area. “For NXP, the delivery time of approximately 75% of our automotive products continues to exceed 52 weeks,” NXP President and CEO Kurt Sievers said on the conference call. "All in all, we believe that the relationship between supply and demand of automobiles will continue to be out of balance in 2022."

Approximately 42% of NXP products are manufactured using in-house fabs. The other part is manufactured by foundries, such as GlobalFoundries, TSMC, etc.

In the automotive sector, the shortage of MCUs is particularly problematic. The MCU provides processing functions in automobiles and other systems, and is processed in fabs at various nodes, such as 180nm to 28nm. Some MCU manufacturers have fabs. Many parts are outsourced to foundries.

In either case, there is still not enough capacity to meet the needs of the automotive industry. According to data from IBS, the current average wafer price is US$1,800 (equivalent to 300 mm), and the current automotive MCU wafer production capacity is approximately 440,000 wafers per month (wpm). But according to the company, the industry needs another 100,000 wpm to solve the MCU shortage in the automotive sector.

In response, foundries and MCU manufacturers with fabs are increasing production capacity. At some point, production capacity will catch up with demand. "Therefore, the shortage of MCU supply should end in the second half of 2022. In the second half of 2022 or 2023, the automotive industry may also experience overcapacity (even with a long design cycle)," said Jones of IBS.

The packaging prospects are the same as before, and the dynamics of the IC packaging market reflect the supply and demand of the semiconductor business. For some time, the continuous surge in demand for chips has led to a shortage of some manufacturing capabilities, various packaging types, key components and equipment.

Take manufacturing capacity as an example. ASE's factory utilization rate in the fourth quarter of 2020 was higher than 80%. By the second quarter of 2021, ASE's packaging/assembly utilization rate will be 85%, and the test utilization rate will be close to 80%.

In 2021, the third quarter is also tight. "We are still operating at full capacity, over 85%. This will continue into the fourth quarter. And the test is above 80%, and (that is) also continues into the fourth quarter," ASE Chief Financial Officer Joseph Tung said in a recent conference call On said.

Therefore, packaging plants are expanding production capacity to meet demand. To meet demand, Changjiang Electronics announced the official opening of its Phase II integrated circuit packaging and testing facility in Suqian, China. "In the second half of this year, Changjiang Electronics' global manufacturing center continued to optimize mass production technology and operational efficiency," said Zheng Li, CEO of Changjiang Electronics Technology.

But a package consists of many components, and these components themselves are in short supply. For example, many packages are composed of base materials or substrates.

Rosie Medina, vice president of sales and marketing at QP Technologies' parent company Promex, said: "The delivery time for substrates has increased from 2-4 weeks to as long as 16-20 weeks.

Today, there are approximately 1,000 package types on the market. Each is aimed at a different application with its own supply and demand situation.

One way to segment the packaging market is through interconnection types, including wire bonding, flip chip, wafer level packaging (WLP), and through silicon via (TSV). Interconnects are used to connect one die to another die in the package. TSV has the highest number of I/O, followed by WLP, flip chip and wire bonding.

According to TechSearch, about 75% to 80% of packages today are based on wire bonding. Wire bonding is mainly used for low-cost traditional packaging, mid-range packaging and memory chip stacking. Over the years, packaging plants have increased their wire bonding capacity, but recently they have underinvested in this area. Then, at the end of 2020, the demand for wire bonding assembly soared, resulting in insufficient production capacity. And this gap has continued into 2021.

Needham analyst Charles Shi said: "The situation has been tense for several quarters." "This can be traced back to semiconductor shortages. The short ones are not advanced process nodes. The shortages involve trailing edge nodes, which often require lead bonds. This leads to a big problem. In the fab, the capacity of the trailing edge process node is insufficient. Then, on the other side of the coin, the wire bonding capability is also very short. They are bundled together because the trailing edge process is used The manufactured chips are usually wire-bonded."

Wire bonding machines are used to manufacture a variety of package types, such as quad flat no-leads (QFN). QFN belongs to the packaged lead frame group. The lead frame is a metal frame. In the production process, the chip is connected to the frame, and the leads are connected to the chip using thin wires.

"Like everyone else, we are seeing shortages and longer delivery times, especially in terms of materials, which affects a number of technologies. For example, we waited much longer for the grinding blades used in wafer back grinding machines. The lead frame delivery time has tripled," said Medina of Promex/QP. "We have added a new wire bonding machine, which has improved our ability and ability to perform thick wire bonding and strip bonding. We have also launched a customized substrate development business. We have been steadily increasing the number of employees and extending shift hours to meet customer needs ."

Others also stay ahead. "The shortage of wire bonding is mainly caused by supply chain constraints on chips and materials. So far, Amkor is managing it with minimal impact," said Siva Mohandass, senior vice president of Amkor Wirebond/Power and Automotive business.

Nevertheless, obtaining wire bonding equipment is still challenging. Analysts said that earlier this year, lead time for wire bonding was 10 to 12 months. They pointed out that currently, the delivery time is about 3 to 6 months.

In addition to wire bonding, the demand for flip chip is also very strong. Flip chip is used to develop BGA and other package types. In the flip chip process, copper bumps or copper pillars are formed on top of the chip. The device is turned over and mounted on a separate chip or board. The bumps land on the copper pads, forming electrical connections.

"Flip chip demand is strong. People have added a lot of capacity," Needham's Shi said. "The delivery time of flip-chip equipment is not as bad as the wire bonder. This tells me that the production capacity of flip-chip must be tight, but not as tight as wire bonding."

At the same time, demand for advanced packaging tools, fan-out packaging, a type of WLP, is gaining momentum in smartphones, watches, and other products. In an example of fan-out, DRAM chips are stacked on logic chips.

TSV is used in advanced 2.5D/3D packages for high-end systems. In 2.5D/3D, the dies are stacked or placed side by side on top of the interposer, and the interposer contains TSV. TSV provides the electrical connection from the die to the circuit board.

Figure 2: Different options for high-performance computing packages, interposer-based 2.5D and fan-out chip-on-substrate (FOCoS). Source: ASE

AMD, Intel, and other companies have been using chiplet models to develop new 3D-like packages. For small chips, the chip manufacturer may have a modular chip menu in the library. Customers can then mix and match small chips and integrate them into existing package types or new architectures.

“Therefore, the system can be optimized by using the best processor components with the best performance/cost process nodes,” said Xiao Liu, Senior Project Manager at Brewer Science.

Using this method, Intel is stacking dies and using fine-pitch copper bumps to connect them. This is done using a system called a thermal compression welding machine (TCB).

The demand for TCB systems is picking up. "As of February 2021, ASM Pacific has shipped 250 TCBs worldwide, and we estimate that most of them have been sent to Intel," Needham's Shi said. Besi, K&S and other companies also sell TCB systems.

At the same time, AMD is implementing a new technology called copper hybrid bonding, which uses copper-to-copper interconnects instead of bumps for finer-pitch packages with more I/O than traditional packages.

AMD will use TSMC's hybrid bonding technology. Shi said that TSMC is installing Besi's hybrid bonding equipment in its new Taiwan plant. "In about a year or two, the hybrid bonding equipment market is expected to take off," Shi said. "Besi announced that the company is building a new plant in Malaysia that specializes in hybrid bonding systems. The design capacity of the plant is ~12-15 systems per month, or ~150 systems per year."

Conclusion The chip/package supply chain is complex with multiple dynamics. A scorecard is needed to keep track of everything.

All of this keeps the purchasing teams of various companies very busy now and in the foreseeable future.

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