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Recommended by Chipmaking requires hundreds of machines, materials and chemicals. In this TSMC plant in Taiwan, an engineer in protective clothing holds a Front Opening Unified Pod (FOUP) for transferring the wafers used in chips safely between machines. © Photo courtesy of TSMC THE BIG STORY
The resilience myth: Fatal
flaws in the push to
secure chip supply chains
From China to the U.S. to Europe,
semiconductor makers are being showered
with subsidies, but to what effect?
CHENG TING-FANG and LAULY LI, Nikkei Asia tech correspondents JULY 27, 2022 06:00 JST TAIPEI -- In the sweltering Asia summertime of mid-June, Taiwan Semiconductor Manufacturing Co. urgently dispatched a team to Japan to visit some of the company's equipment
suppliers. Why, it wanted to know, were these companies saying they could not deliver vital machines on time? TSMC is the world's largest chip manufacturer, and its suppliers had always bent over backward to provide what the powerful company was demanding, but for the first time, it was being met with apologetic messages. The situation was highly sensitive. TSMC is in the midst of a $100 billion expansion, spurred on by governments in the wake of last year's alarming shortages of crucial chips. But the Taiwanese giant has found its own supply chains to be plagued by bottlenecks, affecting items that range from lenses so precise they could focus a laser beam on a pingpong ball on the moon, to apparently mundane valves and tubes. The June mission followed on the heels of a similar trip by the company's supply chain management chief, J.K. Lin, and a task force to the U.S. in March, to investigate why the chipmaking machines TSMC ordered there were taking up to 18 months to turn up. In Japan, suppliers including Tokyo Electron, the country's largest chipmaking equipment manufacturer, and Screen Semiconductor Solutions told TSMC they might miss even the elongated delivery times they have promised, sources familiar with the tricky meetings told Nikkei Asia. Screen -- one of the few companies in the world making the chemical cleaning machines that are vital in chipmaking plants -- reeled off a list of obscure components that it was having trouble securing from its own supply chain. Valves, tubes,
Some of the complex components and machines needed for chipmaking. From top left, clockwise: High- precision ball screws, an EUV illumination system by Zeiss, an ultra-high purity gas cylinder valve by Rotarex, a wafer sorting machine at an Infineon Technologies factory. (Source photos by Getty Images and courtesy of Zeiss) While a globalized semiconductor industry used to run smoothly across dozens of countries, the effort to replicate this architecture inside single countries or regions has revealed and exacerbated bottlenecks in the supply chain, according to Nikkei Asia's investigations and interviews with more than two dozen senior industry executives from the major chip economies of the U.S., European Union, Taiwan and Japan over the past five months. At the same time, there are questions over the long-term wisdom of the policy, and fears about whether, if they can be gotten up and running, many of these factories might ultimately sit idle. JT Hsu, head of semiconductors and materials at Boston Consulting Group, said even a goal of reaching 70% to 80% self- reliance is "extremely tough. ... It could be extremely
challenging for any country or region to get all the fronts covered." "It's not only the [factories] that manufacture the chips but it's everything that goes in there," said Jens Liebermann, vice president of semiconductor materials at the electronic materials business unit of BASF, the German chemical group. "All the materials, chemicals, gases and their raw materials. All have to be there. It comes down to, where is the source, where is the raw material, where is the manufacturing, and who can handle the logistics?" Morris Chang, an elder statesman of the semiconductor industry who founded and formerly chaired TSMC, put it most bluntly in remarks addressed to the U.S. "If you want to reestablish a complete semiconductor supply chain in the U.S., you will not find it as a possible task," he said at an industry forum last year. "Even after you spend hundreds of billions of dollars, you will still find the supply chain to be incomplete, and you will find that it will be very high cost, much higher cost than what you currently have." Bottlenecks upstream Despite how insignificant they might sound, those valves, tubes, pipes, pumps and containers are a case study in complexity -- and they are driving executives mad. "I am not kidding! We are still receiving valves and tubes that we ordered more than a year ago," one executive with a Taiwanese supplier to TSMC told Nikkei. "When opening the
With only a handful of specialist suppliers able to meet anti- contamination standards and deal with the red tape of manufacturing items that also have potential military use, it has been no easy task to increase capacity, especially with limited supplies of the raw materials behind them. These items are made of special plastics called fluoropolymers and are indispensable to the handling of corrosive chemicals and ultrapurified water that flows in all chip manufacturing facilities and chipmaking machines, where standards keep going up and up. The most advanced chips, those used to build the latest iPhone and MacBook processors, for example, are now at the 5- nm level. Nanometer size refers to the line width between transistors on a chip. A nanometer is roughly 1/100,000 of the thickness of a piece of paper or human hair. The smaller the nanometer size, the more cutting-edge and powerful the chips are, and thus more challenging to develop and produce. In turn, chipmakers need to place billions of transistors on a chip. The tolerance for a defect or microcontamination is extremely low. "The size of a COVID virus is about 100 nm," Kevin Gorman, senior vice president of integrated supply chain transformation with Merck Electronics of Germany, told Nikkei. "You can then see how refined the chip manufacturing work is and why all the materials are critical." When it comes to semiconductor-grade valves and tubes for handling chemicals, it is crucial they do not become a source of contamination. Only a few suppliers worldwide have the capability to reach the exacting requirements, according to
Japan. It requires extensive know-how to process, and no competitors are on the horizon. Other key fluoropolymer material makers include Solvay of Belgium, 3M of the U.S., Gujarat Fluorochemicals of India and HaloPolymer of Russia. But not all of them are qualified to build semiconductor-grade materials and they must supply to a wide range of other industries beyond the tech sector. Sources from Russia have dropped away due to the disruption and sanctions caused by the Ukraine war. Hsu Chun-yuan, chief business development officer of United Integrated Services, a leading cleanroom builder for TSMC and rival chipmaker Micron Technology, told Nikkei that "sources of fluoropolymers are constrained" and there have been "demand hikes from both the chip and battery industries, driven by the electric vehicle boom." And further upstream still? Fluoropolymers are processed from fluorspar, also known as fluorite, a mineral of which China controls nearly 60% of the global production output, according to data from market research company IndexBox. China has long identified fluorspar as a strategic resource and back in the late 1990s limited exports due to its importance to industries from agriculture, electronics and pharmaceuticals to aviation, space and defense. The mineral is often labeled as a "semi-rare earth."
explosions. It would take "10 to 20 years" for a new entrant to meet the standards and tests of different government authorities for certification, some industry executives told Nikkei. Trade tension, pandemic and war The call for chip supply chain resilience emerged amid the U.S.- China tech war when former U.S. President Donald Trump's administration clamped down on Chinese tech champion Huawei Technologies in 2019 and blocked its use of American technologies, especially chips, citing national security. The drastic move spurred an aggressive nationwide Chinese campaign across sectors to cut dependence on the U.S. and build a secure, self-controllable supply chain. The self-sufficiency movement evolved into a global campaign in late 2020, as unprecedented chip shortages stalled car production and hurt a wide range of industries, crimping global economic growth and threatening jobs. The U.S. Department of Commerce said the shortages wiped an estimated $240 billion off the country's gross domestic product in 2021. The automobile industry alone made 7.7 million fewer cars than the year before. The Ukraine war has further amplified demands for supply chain security. The war drove up prices of energy, metals, chemicals and crucial gases that many chip-related suppliers needed. It also increased the sense of urgency. For most major economies, chips are essential for building everything from computers and data centers to appliances and
cars. They are central to the battle for supremacy in space, science, artificial intelligence and EVs, and will be crucial to the military and defense equipment of the future. Advanced chips are integral to an array of critical national security capabilities "including sophisticated weapons systems such as the Javelin antitank missiles the U.S. is supplying to Ukraine to defend itself against Putin's invasion," the U.S. Department of Commerce pointed out in a recent report. Governments so far have promised to pour more than $ billion into subsidizing the building of local chip supply chains. As well as the U.S. CHIPS Act, the EU adopted the 45 billion- euro ($46 billion) European Chips Act, Japan had budgeted 600 billion yen ($4.42 billion) and India set up a $30 billion funding program for semiconductors and other tech sectors.
Major chipmakers from Intel, Micron and Texas Instruments in the U.S. to TSMC and South Korea's Samsung Electronics have separately announced more than $650 billion in investments. These include several outside their home bases. TSMC is building in the U.S. and Japan, Intel plans to expand in Europe and Southeast Asia, and Samsung has construction plans in the U.S. According to SEMI's estimate, some 91 new chip plants are set to go online worldwide from 2020 through 2024. When the European Chips Act was enacted earlier this year, European Commission President Ursula von der Leyen acknowledged that "no country -- and even no continent -- can be entirely self-sufficient." The hope is that parts of the supply chain that cannot be brought onshore will at least run through friendly nations. "Europe will always work to keep global markets open and to keep them connected. This is in the world's interest; it is in our own interest, too," she said. "Europe will build partnerships on chips with like-minded partners, for example the United States or for example Japan. It is about balanced interdependencies and it is about reliability." U.S. Treasury Secretary Janet Yellen has floated "friendshoring" as a compromise concept. "We cannot allow countries to use their market position in key raw materials, technologies, or products to have the power to disrupt our economy or exercise unwanted geopolitical leverage," she said in April. "Let's build on and deepen economic integration and the efficiencies it brings, on terms that work better for American workers. And let's do it with the countries we know we can count on."
Trainees at ASML Holding in Tainan, Taiwan learn to build and operate an EUV machine. (Photo by Cheng Ting-Fang) ASML has extended the waiting time for several models to two years due to constraints on vital parts including optical mirrors and lenses, people familiar with the matter told Nikkei. A company spokesperson acknowledged some delays and said constraints on the industry were "very diverse and across multiple tier suppliers." Creating EUV light inside a vacuum chamber within a machine is exceptionally challenging, relying on Germany's Trumpf for a powerful laser source and another German partner, the optics specialist Zeiss Group, for a system of mirrors to reflect and direct the light. Since even the smallest irregularities cause aberrations, Zeiss boasts that its product is the world's "most precise" mirror. "If one of these EUV mirrors were to redirect a laser beam and aim it at the moon, it would be able to hit a pingpong ball on the
moon's surface," CEO Andreas Pecher told Nikkei. Zeiss and ASML have been working together for nearly 30 years. Even if ASML wants to strengthen its own supply chain resilience and looks for other optical partners, it will require at least five to 10 years of co-development work before getting initial results, several executives told Nikkei. "Actually it's almost not replaceable in the many years to come," Nikkei heard from one executive from a Japanese lens maker. There is almost no part of the chipmaking process that does not require deep specialization and no part of the supply chain that can be simply and quickly duplicated. Complex machines are required at every stage of the chipmaking process. This is a machine used for checking wafer structures, at a Bosch semiconductor factory in Germany. © Getty Images Chemicals and solvents used in chip plants need to reach the so-called part-per-trillion (PPT) grade -- one particle to 1 trillion
