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Semiconductor Capacity Constraints
Prepare To Think Beyond The Semiconductor Capacity Constraints
by: Chris Phelan | April 25, 2023

2 semiconductor industry challenges all manufacturers must solve

If you could see the future and know that the semiconductor market will double in the next 7 years, would your company be prepared for the challenges?

That’s a big question the semiconductor industry needs an answer to right now.

While the global demand for semiconductors has relaxed slightly, many semiconductor companies like yours will see a significant spike in product demand in the near future. This spike will result from an abundance of new chip applications on the horizon — from electric vehicles, industrial applications, edge computing to data storage and wireless technologies. As new opportunities arise for your semiconductor company, will you be prepared?

Let’s first mention what is most likely at the forefront of your mind – production capacity. Certainly, it’s not your only challenge, but you’re most likely wanting answers to questions like:

  • How will we expand fab capacity to meet future demand?
  • How will we secure the required materials needed to meet demand?

The race is on
Adding significant capacity – whether at your own fab or at a supplier – can easily take up to 2 years. And in the wake of the recent chip shortage, automotive OEMs and Tier-1 suppliers are busy negotiating supply agreements with semiconductor manufacturers that will ensure they will be able to lock in needed production capacity. So, the race is already on.

While increasing production capacity is a major need, 2 specific challenges affect capacity capabilities that chip companies must overcome. We want to address 2 big challenges that may not be what comes to mind first for you and your company. If you can overcome them, you will put your company in an optimal position to take maximum advantage of opportunities now and in the coming years.

Challenge #1: The matter of talent
While it may not get near the attention of the CHIPS (Creating Helpful Incentives to Produce Semiconductors) and Science Act and the pending EU Chips Act in Europe, the talent shortage is a potential threat to the overall growth of the semiconductor industry. New talent is key to sustaining robust growth in an industry that continues to break revenue records. Success in the semiconductor industry depends on creating smaller, faster and cheaper products. When you don’t have enough engineers and scientists, you can’t make as much technological progress.

[BannerQuote quoteauthor="Source: Deloitte" quotetext="The United States currently makes about 10% of all chips and aspires to 30% share by 2030. The European Union is sub-10% and aspires to 20% share by 2030."]

A narrow pipeline
Despite the enormous efforts to invest in STEM education, the talent pipeline for the semiconductor industry continues to remain narrow. When you bring into play demand and the competitive landscape, the quality of talent you have will not compensate for the quantity of talented specialists you’ll need to compete. That’s because a few years of this traditionally cyclical industry going down a few points is less important than the predictive growth of more than 80% by 2030.

A diverse variance of skills is required to grow the industry and fill the gap between current capabilities and future requirements, not just on the manufacturing side but also on the business side. Skills such as analytics, AI, digitalization and cloud will meet long-term needs for both manufacturing and business initiatives. Growing the talent pipeline will rely on an advancement in business processes to attract talent away from other technology companies with the appeal of hyperscalers and top consumer technology companies that attract talent pools based on brand equity and the willingness to invest in technology in order for their teams to collaborate and grow.

Challenge #2: Channel management
If you’re in the business of making chips, you probably derive a significant portion of your revenue through distributor channels in the pursuit of design wins. Competition for new business in channel will also be fierce, and the amount of data generated will multiply rapidly. Speed and flexibility will be increasingly important to your entire ecosystem, including your channel partners, whether it involves developing and launching a new product, manufacturing a batch of wafers, or capturing a design win with the best pricing and terms.

Digging deeper into the business side of your challenges, big data and predictive analytics are becoming more prevalent on the channel management side as well. What we sometimes refer to as go-to-market programs – all the financial programs that are used to drive product demand and revenue – will become a challenge without employing a single source of truth technology solution that keeps you transparent and operating with accuracy to support near-future and long-term objectives.

Consequently, the industry needs not only the talent that designs the chips but also the talent that designs and runs the go-to-market programs. This talent needs to have a certain level of technical competency, along with an appreciation of the power of strategically using data analytics to improve your company’s bottom line.

Both production capacity and chip design engineers are indeed critical, and their ongoing shortage is a significant issue.

The semiconductor industry needs to understand not only the engineering gap, but also the talent gaps that go beyond chip design, and involve the revenue generating side of the business. This is the talent that will ultimately be needed to attain that lofty $1T revenue mark for the semiconductor industry.