WASHINGTON (Pakistan Point News / Sputnik - 15th July, 2022) Inflation fueling a reduction in orders for higher end smartphones may ease the supply-demand crunch for advanced semiconductors, but mature node chip constraints exacerbated by the Ukraine crisis will likely continue unabated for a few more years, analysts told sputnik.
On Wednesday, Labor Department data revealed that US inflation has reached a 41-year high of 9.1%, which Commerce Secretary Gina Raimondo told CNN could be countered in some industries by boosting semiconductor capacity as called for in a $52 billion funding bill that has stalled in Congress.
A global semiconductor shortage that cost the US economy $240 billion last year has hit especially hard companies in the automotive, consumer electronics, power generation, and technology sectors. These industries braced for more problems after Moscow in May announced export restrictions on inert gases used in the production of semiconductor chips.
Russia has started to limit exports of neon, argon, and helium gases to certain countries in retaliation to sanctions. In addition, some factories used to purify these gases in Ukraine were destroyed in the ongoing conflict.
Before the Ukraine conflict began in February, Russia and Ukraine together produced about 30 percent of the neon gas needed by the US computer chip industry, CNN reported last month, citing data from the Bain strategy consulting firm. The report also said the restrictions could drive up chip prices and cripple major US industries like auto manufacturing.
"Concerns of inflation and uncertainties have perhaps reduced the orders for higher end smartphones," veteran semiconductor analyst Arun Mampazhy told Sputnik. "This might ease the crunch for chips made using advanced technology node, but I feel that the crunch for mature node chips may continue for a few more years."
Mature node chips are made using older and lower-cost manufacturing processes compared to advanced node semiconductors, which are produced with leading-edge technology.
Overall, the microchip expert said he agrees with forecasts that the world-wide shortages of semiconductors will continue until 2024, driven by factors such as tool supply delays.
With respect to Russia's export restrictions, Mampazhy said chipmakers could find alternate, temporary supply options such as air separator units (ASU) present in industries like steel, which end up producing inert gases as a byproduct.
Texas A&M University Electrical and Computer Engineering Associate Department head Stavros Kalafatis, a former senior director with Intel, last November projected that the semiconductor chip industry may not get back to more normal operating procedures until the middle or end of 2022 after spending hundreds of billions on increasing capacity to meet the demand.
The prediction came, however, before Russia's move to restrict shipment of noble gases, which Kalafatis told Sputnik will "definitely" have an impact on semiconductor supply chains.
CHINA GRABBING MARKET SHARE AMID CRISIS
Earlier this week, Intel CEO Pat Gelsinger, while urging Congress to pass the semiconductor funding legislation, noted that in 1990 about 40% of the semiconductor industry was located in the US alongside a similar share in Europe. However, today, he added, 80% is based in Asia and only 12% in the US and 8 percent in Europe.
However, Mampazhy pointed out that in 2021 US companies dominated the top of the $614 billion global semiconductor market, excluding pure play foundries. In fact, he noted, seven of the top 10 on the list were headquartered in the United States - including three integrated device manufacturers (IDMs) and four fabless or design-only firms, with none based in China.
On the other hand, the $108 billion foundry or contract chip manufacturing market, he continued, has some Chinese firms in the top 10 showing the highest growth despite lacking the most advanced technology.
"In other words, they are showing big growth even by offering mature node tech," Mampazhy said.
Hence, he added, the United States may be concerned that if China can increasingly capture chip fabrication market share with mature node technology, it may catch up in advanced node tech as well, which the US has been trying to prevent or slow down by not letting the Chinese get extreme ultraviolet lithography (EUV) tools.
According to Dutch-based ASML, the sole supplier of the systems, EUV lithography tools are used to pattern the finest details on the most advanced microchips that are able to provide more processing brainpower with less energy. It is the most expensive step in making advanced microchips used in products like smartphones, smart cars, homes, and other products, analysts told CNBC. So costly, in fact, that most chipmakers cannot even afford them, the report added.
Mampazhy said the United States is also concerned about China taking control of Taiwan, which has so many key companies in the industry such as TSMC - the world's largest semiconductor foundry - United Microelectronics, Powerchip, and Vanguard, in addition to fabless suppliers like MediaTek.
And, at the strategic level, he added, the United States is likely worried China could duplicate semiconductor chips with malicious modifications that could cause devices to malfunction.
