Supply chain bottlenecks and consumers’ shift to goods from services over the past 27 months have combined to fuel the global semiconductor shortage. A combination of high demand and the expected long-term chip shortage is particularly pronounced for 200 millimeter diameter silicon wafers. Those chips are essential components in things that consumers everywhere use every day, such as cars, PCs, smartphones and TVs.
Competitiveness at the edge of semiconductor manufacturing is a concern—additional aid for the CHIPS for America Act† But less complex, still critical, and widely used semiconductors produced on legacy nodes can ultimately hamper delivery. The problem, as automakers have learned the hard way, is that a missing 10-cent chip can still slow the production of a $30,000 car.
semiconductor technology reported in January that current demand for chips at more mature nodes is unprecedented. The pandemic sparked “a buying frenzy for new PCs and TVs. Then, in 2021, demand for cars, smartphones and other products peaked.” Despite the existence of more than 200 fabrication factories (fabs) worldwide that make 200mm wafers, industry analysts say the scarcity of foundry capacity, as well as 200mm- equipment itself is likely to persist for years to come.
The February acquisition from Israel-based Tower Semiconductor by Intel is an example of how chipmakers are grappling with the problem. SEMI, the global association representing the electronics and supply chain design industries, reported in April that semiconductor manufacturers around the world will increase the capacity from 200mm to 6.9 million wafers per month by the end of 2024 to overcome the chip shortage, with five new 200mm plants under construction due this year.
However, even with such additional supply, it is still not enough to meet current and future demand.
The role of the secondary equipment market:
Chipmakers need thousands of new or refurbished 200mm cores to expand factories and build new factories around the world. DigiTimes estimates that foundries and manufacturers will spend $4.9 billion on 200mm equipment this year. But equipment and parts shortages have extended chip manufacturers’ waiting times to 18 months. Such delays are the worst in decades.
Yet there is now an all-too-often overlooked solution: the secondary market.
When it comes to increasing capacity at 200mm and 300mm, the secondary market will be particularly critical.
SEMI projected in December, global semiconductor device sales were set to exceed $100 billion for the first time. Public data for the used semiconductor equipment market is scarce. The secondary market has historically accounted for 5 to 10% of new equipment sales. With increasing demand for out-of-production and hard-to-find equipment, the true value of the secondary market is likely to be much higher.
Used equipment spending within the global market of my own company, Moov Technologies, shot up more than 200% in 2021 compared to 2020. We estimate the annual minimum global secondary market value at $10 billion. We estimate that total will approach $50 billion annually in the coming years.
As nations rush to secure more stable semiconductor sources, a kind of “silicon nationalism” has emerged.
In the United States alone, semiconductor manufacturing capacity has fallen to 12% today, from 37% in 1990, “mainly because the governments of other countries have invested ambitiously in incentives for chip production and the US government has not.” according to the Semiconductor Industry Association (SIA), a trade association and lobbying group in Washington, DC. While the United States is most critically behind on the brink, world leaders are also seeing 200mm foundry capacity falling outside of China. “China will lead the world with 200mm capacity with a 21% share by 2022,” said SIA, “followed by Japan at 16% and Taiwan and Europe/Middle East at 15% each.” The United States did not make the list.
The chip shortage is forcing countries to shorten and domesticate their chip supply chains.
President Joe Biden reiterated in May the urgency the government feels for increasing semiconductor production in the US. Biden said passage of the Bipartisan Innovation Act would “help lower prices, bring jobs home and spur the comeback of American manufacturing.” The legislation includes $52 billion in government subsidies to accelerate domestic chip production. Another bill, the Facilitating American-Built Semiconductors Act, would create a tax credit for semiconductor investments.
Of the European Chips Act to China Made in China 2025 initiative, countries around the world are investing billions of dollars in domesticating chip production.
Investing in domestic manufacturing is a good thing, but silicon nationalism has also led to a protectionist stance — one in which several countries are determined to strengthen domestic supply chains and stock chips for defense, telecommunications and healthcare sectors.
If mercantilism displaces global collaboration in the semiconductor industry, links within the global chip supply chain could begin to shatter. A semiconductor product in today’s ecosystem can cross international borders more than 70 times on the way to the consumer. Some countries’ ability to obtain the chips that enable the daily activities of billions of people could be hampered, as could access to the secondary equipment market.
The secondary market for semiconductor manufacturing equipment is a critical solution to chip shortages. It is global in nature due to the specialization countries have developed to focus on different sections of the semiconductor supply chain. A country’s ability to sell an unused tool to a manufacturer elsewhere is invaluable.
Steven Zhou is the co-founder and CEO of Moov Technologies.