The Chip Shortage in relation to Industrial Automation

Chips, often called microchips or semiconductors function as the brain of electronics. They are tiny technological marvels, that host billions of transistors within them. The transistors allow electrons to pass through them or otherwise. You will find microchips in nearly all electronic devices you own, from your smartphone to your laptop to your car. They are also found in items that you wouldn’t expect such as your refrigerator, electric toothbrush, and washing machine.

Simply, semiconductors are the backbone of a digital economy; you could say that more than 100 billion chips are used around the world on a daily basis. However, these critical tiny parts which power so much of our lives are now in short supply across the globe. This article looks into how industrial automation is contributing to the global chip shortage and how it can be used to resolve the crisis.

What is Causing the Global Chip Shortage? 

Semiconductors, being the lifeblood of our modern society, their demand exceeded supply even before the Covid-19 pandemic. This is because even though the microchip is an American invention, the number of manufacturers currently producing the chips in the US has declined over the years. In 1990, for example, 37% of the chips used worldwide were made in the US, but by 2020, that number had reduced to only 12%.

Today, America leads in chip design, with South Korea and Taiwan controlling the lion’s share of chip production, particularly, Taiwan Semiconductor Manufacturing Co. (TSMC) and South Korea-based Samsung. The industry’s over-reliance on a small group of foundries, and uneven geographical distribution of certain aspects of the microchip supply chains, were some of the contributing factors to chip shortage before the pandemic.

Additionally, before the COVID-19 pandemic, geopolitical tensions such as the US-China trade war, were also setting the stage for the ongoing chip shortage. The geopolitical tensions resulted in sanctions that leveled against key Chinese tech firms like ZTE and Huawei, cutting them off from buying microchips made with US technology. In response to the US sanctions, Chinese companies such as Hikvision and Huawei scrambled to stockpile chips all through 2019.

When COVID-19 struck, there was a drastic spike in demand for chips due to the increased use of digital technology under lockdown. Businesses and consumers started buying PCs (i.e., laptops) to cater for staff working remotely and for children being home-schooled as schools switched to online learning. As companies around the world pivoted to remote working, the surge in demand for cloud servers meant a higher number of chips were also required.

On the other hand, the pandemic forced factories around the world to shut down because of the stay-at-home orders. This shifted the demand for semiconductors to hyper-scale servers and consumer electronics, it was at the same time that 5G came around. So, whereas the global microchip sales declined between 2018 and 2019, in 2020 the sales increased by 6.5% to revenue of $439bn. According to the World Semiconductor Trade Statistics Organization, the demand for microchips has continued to rapidly increase even in 2021, to $469bn as of May 2021.

As the economy began to recover, the supply of the chips could not keep up with the demand. As previously mentioned, chip manufacturing is majorly carried out by two companies- South Korea’s Samsung and Taiwan’s TSMC, which has been the case for the last 10 years. Therefore, it is no surprise that these manufacturers are struggling to meet the overwhelming demand for the chips on a global scale. And faced with the unusual surge in demand, the semiconductor manufacturing companies could not adjust their facilities fast enough to expand their production capacity.

What are the Effects of the Shortage?  

The ongoing chip shortage has disrupted virtually every industry throughout the semiconductor supply chains, about 160 industries. One of the industries that have been particularly hit hard is the automobile industry, as due to the lack of semiconductors, production lines around the world are having to close for weeks at times. It is estimated that US car manufacturers will make at least 1.5 to 5 million fewer cars by the close of 2021. For example, General Motors and Ford have already announced the shutdown of their production lines across North America. Analyses from GlobalData indicate that the automotive industry has already lost $47bn in revenue from lost production due to the ongoing global chip shortage, and the figure is expected to continue rising. Other companies like Tesla, have had to revise their own firmware to support alternative chips so as to maintain their production levels.

The chip shortage has also affected the production and supply of consumer electronics. For example, the supply of Sony’s new PS5 games console, TV’s and other OLED displays has been delayed. Also, some companies like Apple had stockpiled microchips early on, which saved them from the immense delays and production losses being experienced in the automotive industry. However, Apple recently announced that the global chip shortage is already affecting sales of Macs and iPads, and is expected to delay iPhone production. These delays in the production of electronic devices that require microchips will make the prices of consumer electronics increase drastically.

How is Industrial Automation Contributing to the Global Chip Shortage?

Aside from the COVID-19 pandemic, other factors contributing to the global chip shortage, in terms of massive demand for the chips, are related to industrial automation. They include:

A) Artificial Intelligence: Industrial Automation can be used in tandem with different subsets of Artificial Intelligence such as Machine Learning and Deep Learning to produce even better results. This is possible through AI Process Automation, also referred to as Intelligent Process Automation (IPA). IPA refers to the application of AI and related technologies including Machine Learning, Computer Vision, and Cognitive Automation to Robotic Process Automation.  

This powerful convergence of technologies produces more automation capabilities than pure industrial automation could. In that, the manufacturing plant can reap the benefits of automation such as increased performance, faster throughput time, flexibility and ability to scale, as well as the processing power of AI technology. Also, the AI can stop, start or even alter the process being controlled depending on its operating environment.

However, AI and Machine Learning (ML) technologies require more processing power than simple industrial automation operations. This higher processing power relies heavily on advances in microchip technology. Because of this, the demand for new microchips that specially cater to the needs of Intelligent Process Automation (IPA) has increased over the past few years. Some of the semiconductors that suit the needs of AI and ML technologies include Application-Specific Integrated Circuits (ASICs) and Field Programmable Gate Arrays (FPGA’s). The demand for these AI chips is expected to continue growing, with an eight-fold increase in sales from an estimated $10.14bn as of 2020 to $83.25bn by 2027. Unfortunately, this growth may worsen the ongoing chip shortage crisis if issues within the semiconductor industry like supply chain constraints and manufacturing concentrations are not resolved sooner.

B) 5G and IoT: Internet of Things (IoT) can be used in Industrial Automation as Industrial IoT. Defined as a network of sensors, machinery, and devices connected to the internet and to each other, with the purpose of gathering data, analyzing it, and applying the extracted insights in continuous process improvement. 5G-enabled IoT offers manufacturers the chance to build smart factories and leverage the advantages of AI Process Automation and augmented reality for troubleshooting. In fact, 5G for IoT is a game-changer as it enables faster data-transfer rates, more secure and more stable connectivity that’s advancing industrial automation, especially AI-enabled robots on factory floors. 

In as much as 5G-enabled IoT is revolutionizing industrial automation for the best, the rolling out of 5G technology significantly impacted the demand for semiconductors. The higher data rates and lower latencies made possible by 5G-enabled IoT are driving the demand for more advanced microchips. And as previously discussed, the surge in demand for semiconductors is one of the key contributors to the shortage we are currently experiencing.

How can Industrial Automation Alleviate the Global Chip Shortage?

The half-trillion-dollar semiconductor industry is complex, so there is no immediate solution to end the global chip shortage crisis. But industrial automation can be leveraged as an effective response, easing the tremendous pressure on the semiconductor industry; by increasing the industry’s production capacity. Here is how:
Adopting industrial automation in manufacturing facilities is an investment that will assist in resolving the ongoing chip shortages and in preventing future shortages, as industrial automation isn’t all about replacing human workers with computers. Rather, manufacturing automation handles a series of repeatable production tasks with precision allowing workers to dedicate their efforts towards more complex activities. Also, most of the pressure-point areas in semiconductor manufacturing are suited for industrial automation solutions.

First, if a semiconductor manufacturing facility does not have a Manufacturing Execution System (MES) it should get one. The MES system will connect all parties in the semiconductor supply chain with real-time production information. This will result in complete visibility, control, and manufacturing optimization, ultimately increasing the number of microchips being produced by a given foundry. This will in turn assist in solving the global chip shortage crisis.

Second, labor shortages in semiconductor manufacturing plants have been an issue for quite some time, which can be addressed by industrial automation. Automated factories require fewer workers, and are much more efficient. For example, an Automated Transport System can be implemented instead of wasting a lot of man-hours transferring semiconductor materials and components from point A to point B. Also, rather than manually recording Statistical Process Control (SPC) data into a spreadsheet for analysis, an automated system that collects and analyzes the data in real-time can be used.

Moreover, it would be ideal to use an automated dispatching system to reduce cycle times within the semiconductor supply chains. In addition, a recipe management system would help eliminate material and financial losses due to misprocesses. More importantly, microchip companies that are yet to install equipment integration software should do so, for automating the processing of the semiconductor raw materials. Each of these industrial automation solutions will provide short- and long-term benefits to semiconductor manufacturers, enabling them to expand their production capacities.

At the moment, capital expenditure from microchip manufacturers is on the rise. Given that most of the semiconductor fabrication plants are largely embracing industrial automation, it is possible that much of the increased capital expenditure will go into industrial robots. Some chip manufacturing companies like Samsung and TSMC have increasingly implemented industrial automation in recent years. In 2020, Taiwan Semiconductor Manufacturing Co. (TSMC) developed the world’s first automated transportation system for semiconductor wafers. This system can safely transport wafers from warehouse docks to fabrication plants, thereby reducing manual handling weight by 95%. TSMC first rolled out the automated transportation system in the first quarter of 2020, and plans are underway to roll out the system to all of its 12-inch semiconductor Giga-Fabs in Taiwan by the end of 2021.

Also, as of February 2020, Samsung had started implementing Robotic Process Automation is one of its semiconductors fabs- Pyeongtaek Line 2. In the first half of 2020, Samsung had already automated 12 of its tasks which increased its production capacity. It is also expected that these innovations will be carried over to Pyeongtaek 3 semiconductor foundry that is currently under construction. The fact that the largest semiconductor manufacturers- Samsung Electronics and Taiwan Semiconductor Manufacturing Co. (TSMC) have started automating their manufacturing facilities, is a clear indication that industrial automation is a considerable solution to the ongoing global chip shortage crisis.

Conclusion

The chip shortages are expected to decrease as demand returns to normal levels, and as the semiconductor foundries increase production capacity. The manufacturers are confident that the global supply of the chips will be more balanced in the short term. However, even though the supply of semiconductors is expected to rebound by the end of 2021, analysts forecast that the global chip shortage might last until 2023.
Also, looking ahead to another two years, as many disruptive technologies such as AI, industrial robots, electric and autonomous vehicles, or 5G-enabled IoT devices keep moving up the S-curve, their adoption will rely heavily on semiconductors. So, unless there is a considerable build-out of production capacity, a major global chip shortage may occur by 2025-2027.

Despite short-term solutions to resolve the ongoing semiconductor crisis, we should not lose sight of the expected trends in chip shortage. For this reason, it is important for semiconductor manufacturers to implement industrial automation in their fab upgrades and in the foundries that are under construction. This will be a big step in ensuring increased production capacity of the chips, on a long-term basis.

Industrial automation may not solve each and every problem in semiconductor manufacturing. But one thing is certain; industrial automation will play a key role in differentiating chip manufacturers who can both ramp up the chip output to meet the ever-increasing demands and respond to a changing global economy from those who aren’t capable. For more information or to discuss which equipment might be best for your application, please visit our website here, or contact us at [email protected] or 1-919-535-3180. 

This entry was posted on November 16th, 2021 and is filed under Automation, General, Uncategorized. Both comments and pings are currently closed.