In this episode of Control intelligence, editor-in-chief Mike Bacidore discusses what organizations have been doing to recover from the pandemic-related microchip crisis.
Transcript
The U.S. CHIPS Act, which was signed into law by President Joe Biden in August 2022, and the European Chips Act, approved by the EU Council in July 2023, established governmental measures on two continents to alleviate the manufacturing dilemma birthed by the semiconductor shortage.
Similarly, two organizations, one from North America and the other from Europe, have taken steps to join forces in a cohesive effort to bolster the availability of microelectronics in the western hemisphere.
The New York Center for Research, Economic Advancement, Technology, Engineering and Science, whose acronym is NY CREATES, is a research-and-development institution for digital technologies and microelectronics. Last year, representatives from Fraunhofer Institute for Photonic Microsystems, commonly known as IPMS, met with their counterparts at NY CREATES’ Albany NanoTech Complex in New York.
Wenke Weinreich, deputy director of the Fraunhofer IPMS, signed a memorandum of understanding, which marked a collaboration that includes the initiation of joint research projects, symposia and workshops, as well as the promotion of scientific exchanges.
This step marks a significant milestone in the international cooperation between the two institutions, which are focused on promoting innovation and progress in the fields of digital technologies, energy technologies and microelectronics.
The microchip crisis brought on by supply-chain restrictions has been a pivotal point of collaboration and innovation globally.
The worst of the supply chain woes brought on by the pandemic are largely in industrial automation’s rearview mirror, but microelectronics remains a sore spot, reported Control Design managing editor Anna Townshend in her article, “Microchip shortage inspires global cooperation,” which can be found on controldesign.com. The supply and demand imbalance for electrical components was reaching another critical point, but industry has largely redesigned its way out of the crunch. The U.S. government continues to support domestic semiconductor manufacturing for those all-important microchips, but efforts will take time to produce real results.
Prior to the crisis, with the economy humming and the global supply chain in sync, many manufacturers had moved toward just-in-time and lean-manufacturing practices in lieu of more traditional statistical methods for inventory control. The development and success of the global supply chain allowed companies to keep fewer products on-site.
These approaches reduced costly stockpiles of inventory and coordinated flows of components across multiple locations to meet demand as close to the predicted time as necessary, explained Steve Fales, director of marketing at ODVA. At the same time, offshoring was kicking into high gear, making supply chains both longer and leaner. As a result, it became normal for components to be overnighted because the inventory savings outweighed the cost of expediting, noted Fales.
When COVID-19 shut down the global supply chain, it drove widespread product shortages, hampered by worker shortages, delivery-equipment breakdowns and border challenges. Demand for industrial automation products increased during the pandemic, but unfortunately this further strained the industrial supply chain. Across all industries, the global demand for electronics to support remote workers increased demand substantially. And the semiconductor industry, which was under strain, began to focus on producing the most complex, and most profitable, chips, leaving the supply of simple and low-cost microcontrollers lagging, explained Fales. This led many industrial automation companies to redesign electric circuit boards to consolidate the number of components. Additionally, system-on-a-chip designs that could support industrial automation networks reduced the need for automation vendors to stock multiple chips for different networks, added Fales.
Pepperl+Fuchs, which works in nearly every industry, didn’t see a single industry that wasn’t affected by global supply-chain issues following the pandemic, said Perry Hudson, market manager of packaging at Pepperl+Fuchs. The fundamental issues of COVID-19 compounded supply-chain issues because states had different policies across different industries, combined with policies from companies and countries around the world. The result was that the production of materials and most importantly electronic components came to a standstill, noted Hudson. Countries closed their doors, shipping came to a halt, and nothing moved from Point A to Point B.
At the same time, cryptocurrency was increasing its use of electronics for mining; and gaming systems, new phone development and media technology for remote workers all demanded more microelectronics, right when the pandemic slowed production. Eventually, the automotive industry suffered its own supply chain-crisis because it didn’t have enough microelectronics to produce the cars consumers demanded.
The world is largely based on electronics, explained Hudson. At the heart of all electronics are microchips. If you shut down a microchip plant due to a global pandemic, you stop producing microchips. But the orders kept coming 200 times faster than before because of panic and impulse-buying. It takes time to get a chip factory up and running, and, as the order book grew, so did the crisis. Over time, the demand for all things was affected, said Hudson.
As an example of the microprocessor supply-chain issues, Hudson points specifically at application-specific-integrated circuits, or ASICs, and field-programmable gate arrays, known as FPGAs. FPGAs are very popular because they are reprogrammable and can be configured to implement various digital circuits and functions, Hudson said. ASICs are custom-designed and have a fixed function, so they are used for a specific application. Both were in short supply and had an incredible backlog because they are used in all industries in all fields. That being said, FPGAs were used by far more in most industries.
This made FPGAs harder to find as production slowed and demand increased. FPGAs could not be easily replaced with something else in current designs, so many industries that made automobiles, CAT scans, programmable logic controllers, PS5s, missile controllers and blood analyzers all needed FPGAs. Hudson said the FPGA problem first came to light around April 2022, and by October 2022 the current supplies were taken. By the beginning of 2023, the situation was critical, Hudson noted. Many plants that had shut down were back up and running, but production takes months to restart and more to reach the needed production levels.
Companies, once again looking ahead, began to redesign their circuit boards, said Hudson. This single but monumental task helped lead the world out of the microprocessor crisis. Demand also declined post-pandemic, which has helped microprocessor supplies. Hudson said, for companies that took the necessary steps early on to secure multiple microprocessor suppliers so that they’re not dependent on one single source, the crisis is over already.
Microchip production has rebounded from the crisis, but it has yet to return to pre-pandemic levels for many. The U.S. government has taken many efforts in the past few years to shore up domestic production for semiconductor chips and support new production facilities for microelectronics.
The CHIPS and Science Act plans to make a nearly $53 billion investment in U.S. semiconductor manufacturing, research and development, and workforce development. It also created a 25% tax credit for capital investments in semiconductor manufacturing. The Biden Administration says the United States produces about 10% of the world’s global supply of chips and none of the most advanced chips. It wants the CHIPS Act funding to change that. One year after enactment, the administration says that companies have announced more than $166 billion of private investment in semiconductor and electronics manufacturing. At least 50 community colleges in 19 states have announced new or expanded programming to develop the semiconductor industry workforce.
The first round of funding applications was launched in February 2023 by the Department of Commerce at $39 billion and focused on companies already making large investments in semiconductor facilities or larger supply-chain projects. On September 29, 2023, the Commerce Department’s CHIPS for America program released another funding opportunity, seeking applications for projects for the construction, expansion or modernization of commercial facilities for semiconductor materials and manufacturing equipment with capital investments less than $300 million.
In July 2023, the Department of Commerce and Department of Defense also signed a memorandum of agreement to strengthen the U.S. semiconductor defense industrial base and facilitate close coordination on the CHIPS for America incentives programs. Advancing U.S. national security is a top priority, said CHIPS Program Office Director Michael Schmidt, who signed the MOA on behalf of the Department of Commerce. The agreement will enable teams to coordinate the national security review of applications, to produce semiconductor chips in America that the military relies on and to bolster domestic supply-chain resiliency, said Schmidt.
The CHIPS Act also includes $11 billion for semiconductor research and development. This effort includes the development of the National Semiconductor Technology Center, a National Advanced Packaging Manufacturing Program, or NAPMP, and up to three Manufacturing USA institutes to advance research and commercialization of semiconductor technologies. Research-and-development efforts also include the CHIPS R&D Metrology Program to advance measurement science, standards, material characterization, instrumentation, testing and manufacturing capabilities, established by the National Institute of Standards and Technology, also known as NIST.
In September 2022, NIST published a report called “Strategic Opportunities for U.S. Semiconductor Manufacturing,” which identified seven challenges that need critical attention from a metrology perspective, including 32 elements for the path forward. In October 2022, the CHIPS R&D Metrology Program consolidated the 32 elements into 20 programmatic focus areas, and by November 2022, had narrowed the priority focus areas.
Approximately $3 billion will fund NAPMP, designed to drive U.S. leadership in advanced packaging. In November 2023, the Department of Commerce said an initial funding opportunity for this program is expected to be announced in 2024. At this time it also defined advanced packaging as a cutting-edge design and manufacturing method that places multiple chips with a variety of functions in a densely interconnected two- or three-dimensional package. This design paradigm can help the sector achieve the ever-denser, smaller dimensions that the most advanced semiconductors require. Advanced packaging brings together chip designers, materials scientists, process engineers, mechanical engineers and measurement scientists to expand both conventional and advanced packaging capacity in the United States.
The Department of Commerce has received more than 550 statements of interest and almost 150 applications or concept plans for CHIPS incentives. One of the first preliminary agreements was announced December 11, 2023, with BAE Systems Electronic Systems. The non-binding preliminary memorandum of terms will provide about $35 million in federal incentives under the CHIPS and Science Act to modernize the company’s Microelectronics Center, a mature-node production facility in Nashua, New Hampshire. The project will replace aging tools and quadruple the production of chips necessary for critical defense programs including the F-35 fighter jet program.
Pepperl+Fuchs’ Hudson noted that the CHIPS Act has both economic and political motives, as well. The CHIPS Act prohibits recipients from expanding production in China and in countries that pose a threat to national security, so it is both an economic incentive and a political countermeasure. He said the main beneficiaries are the semiconductor manufacturers.
The success of the program is that more than 600,000 jobs have been created since 2021, and construction has increased by 116%, said Hudson. To date, companies have invested $166 billion in manufacturing, so they are doing what they are supposed to do. The problem is that building plants takes time, so we won’t see the actual results of these investments until 2024. Hudson noted the investment efforts could reduce costs, but long-term supply issues for all microelectronics might persist beyond these initial efforts.
Looking outside of the United States, with Fraunhofer IPMS’ expertise and technologies in advanced microelectronics, Weinreich believes it will complement the capabilities of NY CREATES and, together, make significant progress in the development of future semiconductor systems.
NY CREATES representatives had visited the Fraunhofer Institute in Dresden and the Silicon Saxony office where Fraunhofer IPMS and NY CREATES had agreed on concrete dates for a joint exchange earlier.
NY CREATES plans to partner with Fraunhofer IPMS to pursue common goals, such as the ways in which they can further enable next-generation semiconductor research, a highly qualified workforce, and economic advancement, said NY CREATES President Dave Anderson, who anticipates large-scale growth at the Albany NanoTech Complex site, including the new High NA EUV Lithography Center.
Overall, microchip production has increased and supply demands have eased, but lead times still remain longer than pre-pandemic, said Max Bänziger, chief operating officer at EAO. Increased inventories across industry reduced the availability of special components and in many cases resulted in last-time buys, where a supplier stops producing a certain part or component. In the long term, Bänziger foresees lowered volatility for microchips due to Asian production coming to the west.
