John Young, APAC sales director, EU Automation
The automotive sector has been hit especially hard, but few will escape the clutches of the global chip shortage. Recent predictions, unfortunately, suggest the worst might be yet to come. Singapore-based Flex, the world’s third-largest electronics contract manufacturer, recently released a pessimistic forecast predicting the crisis will last for at least another year. A similar prediction was made by the head of Intel, which itself manufactures chips. So, how did we end up like this?
The COVID-19 pandemic has wreaked havoc in global value chains but is only one factor in this multifaceted drama. The current situation is the outcome of a perfect storm of demand and supply factors, a storm that has decimated what with hindsight looks like a house of cards.
On the supply side of the equation, the following statistic demonstrates the scale of reliance on a small number of Asian chip manufacturers. As much as 70 percent of the world’s semiconductors are manufactured by just two companies, Taiwan Semiconductor (TSMC) and Samsung. In retrospect, economic historians will probably baulk at the world’s over-reliance on one or two companies for the supply of a component that is crucial to so many technologies.
The supply has also been disrupted by an unfortunate series of disasters, from a drought in Taiwan to a flood in Texas, to a fire in Japan. It may be disputed whether these were natural disasters or consequences of climate change brought about by human action. One supply-side factor that is certainly man-made is the ongoing US-China trade war. In anticipation of the measures introduced by President Trump, Chinese tech giants like Huawei had been stockpiling chips in preparation for future shortages.
On the demand side of the equation, we can see the impact of COVID-19 more clearly. Lockdowns led to a surge in demand for consumer electronics, while automakers scaled back production, expecting that the economic downturn would mean fewer sales of new cars.
When demand for new cars rebounded strongly at the end of 2020, the automotive sector, which relies on a fragile just-in-time supply chain, moved to rebook the orders it had previously cancelled. However, the foundries were already operating at full capacity to meet the increased demand and automakers found themselves queuing behind the electronics manufacturers who had taken their place.
The final straw on the demand side of the equation was the sharp rise in Bitcoin prices in early 2021. This had a knock-on effect on demand for the graphics processing units that are used for mining the digital currency, adding further strain to the semiconductor shortages.
The crisis is not expected to abate any time soon, with some of the more gloomy forecasts predicting that these supply and demand issues will not be resolved fully until 2023. Actions by Western governments are indicative of one potential outcome: a move toward reshoring production.
However, semiconductor manufacturing is uniquely complex and expensive. The entry barriers are astronomically high, with upfront investments of over 10 billion USD required to set up a foundry and a minimum wait of three years to become production-ready.
Over 90 percent of the world’s advanced chips are produced in Asia and recent moves suggest that the region will remain the powerhouse for many years to come. US semiconductor manufacturer GlobalFoundries, the third-largest chipmaker in the world, recently announced a fresh four billion USD investment in Singapore.
With no quick fix solution on the horizon, manufacturers might find they have to halt or slow production, but they might also change their approach to equipment purchases. The price of new equipment that uses semiconductors is set to rise. Manufacturers could consider postponing expensive equipment upgrades, by adopting alternative strategies.
Now is a pressing time to make sure your factory’s obsolescence management plan is up to date. If equipment is set to rise in cost due to the chip shortage, then postponing or delaying full system overhauls for the next year or two, until the situation recovers a level of normalcy, might be a preferable option.
Carry out a full audit of all equipment and components, so you can plan ahead for potential shortages of parts. Pairing with a reliable automation parts supplier like EU Automation will mean you can source obsolete equipment parts and keep legacy equipment running longer.
Another viable strategy is to retrofit your legacy equipment. Many automation parts like variable speed drives or smart sensors can be retrofitted to existing legacy equipment, giving your facility the benefits of greater automation without the higher capital costs of full system overhauls.
Of course, the wider lesson in all of this is to diversify your supply chain. Although extensive reshoring might not be likely, there is some talk or regionalization emerging in response to this crisis. We have seen the benefits of having sites in four strategic locations – the UK, the US, Germany and Singapore, allowing us to remain agile in the face of shocks to our supply.
In every crisis lies a lesson and an opportunity. Toyota was able to hold on without halting production for longer than many other manufacturers, in part because it revised its strategy following the Fukushima nuclear disaster of 2011. Let’s hope that manufacturers can derive important lessons from the great chip famine of 2021 and leave global value chains better prepared for the next storm that will inevitably come.
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According to Shim Won Hwan, Samsung Vietnam’s CEO, Samsung is scouting for local companies to join its consulting programmes in order to enhance the company’s supply chain networks. This is a programme that the company had previously collaborated with the Ministry of Industry and Trade (MoIT), government agencies as well as local associations in order to source for qualified local companies that would be able to join.
In comparison with the localisation rate of 25 percent in 2014, Samsung’s current rate has increased to 58 percent this year and the number of local companies that rank as Samsung Vietnam’s tier-1 vendors have increased from 4 in 2014 to 35 in 2018 and this number is expected to reach 50 by 2020.
In fact, over the past ten years, Samsung has invested a upwards of US$17 billion in Vietnam and employed 160,000 locals. In 2017, Vietnam’s export turnover reached US$214 billion, of which Samsung alone contributed over US$54 billion to that figure. Additionally, the company’s four subsidiaries in Vietnam have a combined revenue of US$20.5 billion and a profit of US$2.08 billion in the first quarter this year alone and the same figures have experienced a 50 percent year-on-year increase, according to the company’s quarterly financial statements.
50 percent of Samsung’s smartphones and tablets are now manufactured in Vietnam and exported to 128 countries and territories, including the US, Europe, Russia and Southeast Asia. And since April 2018, Samsung has worked with the MoIT to provide training courses to 200 Vietnamese consultants so that they would be better able to advise local companies on how productivity can be improved and this will in turn help to develop Vietnam’s support industry.
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FRANCE: Dr. Eric Virey, Senior Technology & Market Analyst at Yole Développement (Yole) has commented that, “MicroLED displays could potentially match or exceed OLED performance in all critical attributes.” This includes brightness, contrast, color gamut, refresh rate, viewing angle, ruggedness and durability, resolution and pixel density, lifetime and power consumption etc.
Yole and its partner Knowmade, both part of Yole Group of Companies, have already released two microLEDs reports to reveal the status of the technology and give a deep understanding of the industry, the companies involved and the related supply chain.
Sony’s demonstration of a full HD 55” microLED TV at CES 2012, more than six years ago, was the first exposure for microLED displays and generated a lot of excitement. Since Apple acquired the Luxvue in 2014, many leading companies such as Facebook, Google, Samsung, LG or Intel have entered the game via sizable internal developments and acquisitions, like those of mLED and eLux, or investments in startups such as glō or Aledia.
Analysing Apple’s microLED patent activity shows that the company essentially halted its filing around 2015. This is a surprising finding in the light of the fact that the consumer electronics giant has maintained a large project team and consistently spent hundreds of millions of dollars annually on microLED development. A closer analysis however, brought up the name of a possible strawman entity used by Apple to continue filing patents and shows that the company is still advancing key aspects of microLED technologies.
“Despite a later start compared to pioneers such as Sony or Sharp, Apple’s portfolio is one of the most complete, comprehensively covering all critical technologies pertinent to microLEDs,” explained Dr. Virey from Yole. “The company is the most advanced and [is] still one of the best positioned to bring high volume microLED products to the market. However, it also faces unique challenges”, he added.
Apple can’t afford to tarnish its brand and introduce a product featuring such a highly differentiating technology that would be anything but flawless. Moreover, it requires high volumes, which makes setting up the supply chain more challenging than for any other company. In addition, the company has no prior experience in display manufacturing and due to its need for secrecy, has to develop pretty much everything internally, which requires the duplication of technologies and infrastructures that others have the option to outsource.
The smartphones sector is a good example to illustrate the leadership of Apple. Indeed, smartwatch volumes could reach 100 million units by 2027 and Apple has the potential to remain the single largest smartwatch maker, explained Yole’s analysts in microLED reports. Yole’s scenario assumes that Apple would start using microLEDs in 2021 in a new flagship model, and, as is common with the brand, will propagate the technology in a staggered fashion over the next three years as legacy products are discontinued.
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VIETNAM: Hanoi-based Bao Viet Securities Corp (BVSC) has reported that the Trump administration’s expansion of trade war to Chinese electronics will drastically impact key domestic exports such as mobile phones, smart devices and telecommunications equipment which carry an estimated value of US$256 billion. This equates to 50% of China’s total export turnover to the US.
Furthermore, due to increasing tariffs and labour costs brought upon by the trade war on Chinese mobile phones, Samsung is aiming to decrease its production by 40 million units in China and could look towards developing its manufacturing capabilities in other developing countries. Spurring the speculation that capital flows from Samsung’s operations in China may be diverted to Vietnam due to the country’s current status as the largest manufacturer of Samsung products with 240 million units being churned out per year. Although, India (50 million units), South Korea (40 million units) and Indonesia (8 million units) have also been identified as key mobile phone producers for Samsung.
Currently, China still holds key advantages in processing electronic products due to the presence of a developed infrastructure and auxiliary industries. However, the ongoing trade war may result in a loss of capital flows from large MNCS targeting the US market and this could re-divert foreign direct investment towards other Asian countries such as Vietnam. A trend that would result in increases in Vietnamese exports, growth in industrial zones and new job creation.
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