Semiconductors – the new force driving the global economy

Nowadays, practically every form of­ ­innovative technology is based on micro-electronics. ­Semi­conductors are essential for most ­sectors of the economy and for almost all areas of life. But producing them requires more and more ­expertise and complex value chains. That means the world of semiconductors is very ­sensitive to any disruption.

Oil was previously considered to be the lifeblood of national economies around the world. However, with the ever-advancing wave of digitalisation, semiconductors are increasingly taking over this role. “Micro-electronics is a key technology in the digital age, and semiconductors are the basis for almost all future digital technologies,” says BITKOM President Achim Berg. Microchips form the miniaturised core elements of complex, electronic circuits. From industrial production, to medical technology, right up to fully automated driving – hardly anything would be possible nowadays without semiconductors. Processors and memory chips have also long conquered people’s private lives. They can be found in smartphones, kitchen appliances, TVs, credit cards and also passports. From chips with an older design, which are still used in many applications, to high-end chips required for premium products such as PCs and smartphones, semiconductors are essential components in all electronic devices. In 2021 alone, 1.1353 trillion semiconductor units were supplied according to the analysts at IC Insights, who specialise in the semiconductor market. 

Fast progress

Semiconductor technology has made fast progress in the last five decades. During its mission in 1969, the Apollo lunar module used several tens of thousands of transistors with a total weight of around 30 kilograms. By way of comparison: in 2021, IBM presented new semiconductor chips with the smallest transistors ever produced. With their new 2-nanometre transistor, the company can fit 50,000,000,000 transistors on a chip the size of a fingernail – 2 nanometres is narrower than a strand of human DNA. 

Demand much greater than supply

Just how dependent the global economy now is on these small electronic components is demonstrated by the supply bottlenecks which have been slowing the economy since the end of 2020. The launch of new smartphones was delayed; industrial robots, notebook computers and even gaming consoles were difficult to get hold of. The automotive industry was affected in particular. Production lines came to a standstill in car factories and employees had to work reduced hours. According to the consulting company AlixPartners, the global automotive industry lost around 210 billion dollars in revenue in 2021 due to the shortage of semiconductors. BITKOM President Achim Berg: “The ongoing chip shortage is posing a risk for the entire economy, ­especially in Europe and Germany.”

In fact, the gap between supply and demand for semiconductors is getting ever larger, as Michael Alexander, partner at Roland Berger, explains: “There are no signs of imminent improvement. This is because the bottleneck is caused by structural issues in the current set-up of the supply chain. The shortage of chips will remain until 2023 – and probably even longer.”

Lengthy production process

Manufacturing chips is a lengthy and complex process – from the design to the production plant, chemicals, manufacture and packaging, no country alone can produce state-of-the-art semiconductors. To manufacture a semiconductor device, first of all, a monocrystalline semiconductor blank – a so-called ingot – is sliced, ground and polished to produce a thin shape. Various insulating or conducting layers are then gradually created on this wafer. These are each structured using so-called lithographic processes. The wafers are finally metallised so that current can flow and they can be bonded. In this way, integrated circuits are created on a wafer with conductor strips – the ICs – for a large number of components in parallel. The ICs are then separated and placed in a housing. During the entire process, as well as at the end, the work steps are checked over and over, and the quality of the ICs and chips tested.

Complex value chain

The manufacturing process of a single semiconductor pro­duct can take around two months and comprises approximately 700 individual steps, according to Hagen-Holger Apel, Senior Client Portfolio Manager at DNB AM: “In the process, international borders have to be crossed more than 70 times before an end user/customer is reached. A semiconductor company based in the USA can have up to 16,000 suppliers around the world.” This complex structure is the result of optimisation of the value chain as regards skills and costs spanning decades. But it also makes the semiconductor industry very sensitive to disruption in the supply chain. 

In 2020, different factors all came together at the same time which affected this structure: supply bottlenecks with the suppliers of raw materials, geopolitical tension between China and the USA, as well as a market distorted by the Covid pandemic. “The current supply bottlenecks are a reason to question one-sided dependencies and to improve your starting point when it comes to global competition for digital technologies,” says BITKOM President Achim Berg.