The semiconductor roller coaster - 5 lessons for systems engineers

When the coronavirus pandemic began, many everyday products suddenly became scarce. While toilet paper was sold out in supermarkets, companies were worried about another "raw material": microchips. At the time (2020), it was predicted that semiconductors would be in short supply for many years until new "fabs" were built to meet demand. How wrong you can be...

The variety of semiconductors is enormous. In the digital sector, we have CPUs, GPUs, memory chips, AD and DA converters and a wide range of customized chips, to name but a few. In the analogue sector, we have high-voltage semiconductors, high-current semiconductors, specialized circuits and, of course, simple components such as transistors and diodes. The cost of production also differs drastically in some cases. Expensive fabs are usually only required for the most complex microchips.

In line with this diversity, there were occasional supply problems in various areas, such as memory chips, GPUs and specialty chips for the automotive industry. However, there was actually no widespread shortage across all industries.

Lesson: If possible, we should not make ourselves dependent on just one semiconductor component. This decision should be incorporated into the development requirements at an early stage as a framework condition.

Point 1 was about not becoming dependent on a specific component. But in practice, this does happen. When it happens, how can we minimize the impact?

Lesson: The answer is (of course) systems engineering. Sensible systems engineering decouples the parts of the system from each other, which makes it considerably easierto deal with the change caused by the lack of chips.

Good systems engineering has even more advantages. The Complexity of systems is increasing dramatically (which I have mentioned here many times) and systems engineering helps us to master this complexity.

Intel invests 40 billion in Ohio

New fabs are being built. For example Intel is currently building two fabs in Ohio. The site has enough space to build six more plants there. And that brings us to the second lesson: geopolitics must be taken into account in procurement.

Intel is investing in the USA for a reason. It has been apparent for years that there could be a war between China and Taiwan. In 2020, around 25% of all semiconductors came from China and Taiwan, today just under half:

The war in Ukraine has clearly shown how dangerous the dependence of a strategically important raw material on one country can be. Semiconductors are also of great strategic importance.

Lesson: Today, it is no longer enough to have several suppliers. If possible, they should also have their production facilities in different regions.

There was a time when it was unthinkable for a product manufacturer to produce the semiconductor components themselves. However, this has changed, especially for products with larger quantities. More precisely, such companies can devalue the semiconductors and have them produced by suppliers without becoming heavily dependent on the supplier. The best-known example of this approach is Tesla, but also Cruise has not only alleviated bottlenecks in the supply chain through this approach, but has also reduced costs by 90% can.

Lesson: Teams should regularly question what they do themselves and what suppliers do. There may be many more advantages to doing it yourself.

Well, easier said than done. Not losing your nerve is not only important for chip buyers, but also for manufacturers.

To give an example: Intel and Samsung together invested $92 billion in 2021, an increase of 73% compared to 2019. This frenzy was created, among other things, by the demand for graphics cards, which in turn was driven by the gold rush in the crypto industry. But when China banned the mining of cryptocurrencies last yearthis market collapsed.

Lesson: It is important for companies to realize that their competitors also have similar problems. Panic and short-sighted actions do not help. Instead, decision-makers must not lose sight of the product strategy, while they have to master acute crises with tactical wisdom. We live in complicated times.

Photo by Vishnu Mohanan on Unsplash