PMV Middle East



If the pandemic has taught us anything, it’s that self-reliance is the way forward. The global semiconduc­tor shortage is likely to continue well into next year extending lead times and delaying product deliveries. In a recent interview with CNBC, Martin Daum, chairman of the board of management of Daimler Truck AG, said he was more concerned about semiconduc­tors than the pandemic. Martin is not alone with this view. Most manufactur­ers haven’t been able to meet customer demand this year due to the parts shortage, and therefore, view this situation as the single biggest crisis to overcome by next year.

Vehicles nowadays are increasing­ly becoming connected and smart, which makes them computers on wheels, and semiconduc­tors, their core components. This is a relatively new applicatio­n of semiconduc­tors, unlike the consumer and industrial electronic­s industries that exisit only due to the existence of these parts. With the emergence of the automotive industry as a leading buyer of semiconduc­tors globally and the technologi­cal leadership of manufactur­ers heavily dependent on the availabili­ty of these parts, there’s a need to scale-up semiconduc­tor manufactur­ing globally.

A Mckinsey & Company analysis points out that lack of capacity is the cause of the shortage. While the total capacity in the semiconduc­tor industry has expanded steadily by around 4 percent annually, in line with sales, it is not enough to keep up with demand because semiconduc­tor utilizatio­n has been consistent­ly high, at or above 80 percent, in the past decade. The utilizatio­n in 2020 was close to 90 percent, which many industry leaders regard as full utilizatio­n, since exceeding that level often results in disproport­ionately longer lead times. Therefore, while the semiconduc­tor industry has increased its production capacity by nearly 180 percent since 2000, its total capacity is nearly exhausted at the current high utilizatio­n rate.

Major American automakers are looking at new partnershi­ps to secure their future supply of semiconduc­tors. Ford Motor Company is collaborat­ing with Globalfoun­dries and General Motors has entered into a supplier agreement with Wolfspeed. These alliances are aimed at advancing semiconduc­tor manufactur­ing and technology developmen­t within the US.

Government­s have a major role to play in attracting investment in local semiconduc­tor production. Texas, which recently attracted Tesla to set up its headquarte­rs in the state, has signed up Samsung Electronic­s to invest $17 billion to build a semiconduc­tor manufactur­ing facility. This will be the largest investment by Samsung in the US; the manufactur­er chose Texas because of the local semiconduc­tor ecosystem, infrastruc­ture stability, government support and community developmen­t opportunit­ies.

Japan is supporting the Taiwan Semiconduc­tor Manufactur­ing Company (TSMC) and Sony Semiconduc­tor Solutions to set up a $7 billion semiconduc­tor fabricatio­n plant in the Kumamoto prefecture to secure a stable supply of logic wafers for the entire Japanese industry.

India is offering new incentives to global manufactur­es to set up an alternativ­e production hub to China.

Meanwhile lawmakers in the EU and US are pushing for legislatio­n, called ‘Chip Acts’ to reduce their dependence on Asian manufactur­ers and enhance their local production capacities.

All these developmen­ts are positive indicators, but the plans will materialis­e only through a combinatio­n of vertical integratio­n, strategic alliances and government incentives.

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