During the chip capacity restructuring period, how can the resilience of the supply chain be enhanced?

      During the chip capacity restructuring period, how can the resilience of the supply chain be enhanced?

 Under the influence of multiple factors such as market, application, industry cycle and macro uncertainty, the chip industry is undergoing a profound process of capacity restructuring, which will have an important impact on downstream applications. Seemingly independent events in multiple fields have a unified driving force behind them. From this, the basic context of the current changes can be sorted out, and the corresponding supply chain strengthening strategies can be derived.

Three major cases show the structural transformation of the supply chain

      From TSMC's capacity adjustments, the replanning of original production capacity, and the surge in DDR4 memory caused by the original factory shutdown, it represents the intensification of supply chain uncertainty from different perspectives. In the context of accelerated technological iteration and geopolitical reconstruction, the structural contradiction between the alternating period of old and new material demand has exacerbated supply chain tensions.

Case 1: TSMC's production capacity adjustment, process structural leap

     Not long ago, TSMC announced that it will gradually withdraw from the 6-inch wafer manufacturing business within two years and continue to consolidate 8-inch wafer production capacity to improve operating efficiency.

     TSMC's decision reflects the overall trend of process improvement and wafer size expansion in the semiconductor industry. In addition to the foundry industry, traditional IDM companies such as Texas Instruments and NXP have also begun to embrace 12-inch wafers. On the upstream side, the supply focus of silicon wafer manufacturers such as Shenggao and Siltronic AG is also shifting to large-size wafers. It can be said that the transition between wafer size and process is a structural leap in the industrial chain from top to bottom, and will only continue to deepen in the future.

     However, it cannot be ignored that there are still many analog chips and sensor chips that rely on 0.45 or even larger process nodes on 6-inch wafers. For Fabless companies, it is now necessary to follow the pace of upgrading the entire industrial chain, redesign and verify existing products, cooperate with foundries to move to more advanced processes, or transfer orders to foundries that still maintain these mature processes. For end companies, they should also be prepared to deal with the shutdown of materials on the BOM, take advantage of the last opportunity to stock up, and modify the design plan based on the new materials.

Case 2: The change of the original factory's business structure affects market supply

     Taking onsemi as an example, in recent years it has implemented the Fab-Lite model and bet on silicon carbide devices. In the case of the expansion of the proportion of production capacity outsourcing and the reduction of the utilization rate of its own production capacity, more and more commonly used products are suspended, and the overall delivery time tends to be unstable. Even if there is no notice of suspension of production, it is difficult to find a source of goods in the market, which has caused serious trouble to customers who rely on these material numbers for production.

     Under the combined effect of increasing uncertainty and high-profit business drive, chip factories have adjusted their production models to meet the needs of automotive, industrial and other fields, while the supply of basic and consumer materials has been greatly affected. Not only onsemi, but also Texas Instruments, Infineon and other original manufacturers have also concentrated their resources to pursue the high-end market. In particular, the recent price increase of Texas Instruments has the characteristics of raising the price of old products to guide customers to adopt its new products.

     When observing that the proportion of revenue from high-end fields such as automobiles, industry, and data centers continues to grow, it is necessary to realize that its support for the basic market will weaken. The suspension of production of old materials and the price increase of these materials are high probability events. In the face of this trend, application enterprises need to pay attention to the upstream capacity conversion dynamics and obtain capacity allocation and delivery cycles from supply channels at any time. At the same time, we actively look for second sources of goods and develop backup solutions based on alternative materials.

Case 3: DDR4 memory discontinued, revealing supply chain vulnerabilities

     In the second quarter of this year, Samsung and Micron first announced the EOL (end of product life cycle) of DDR4, causing a sharp rise in spot and hard to find. In pursuit of higher profits, memory giants prioritize capital and production capacity in more advanced DDR5, HBM and other fields.

     However, DDR4 memory is still the mainstream application in industrial control, automotive electronics, network communication and other fields, and there are a large number of new solutions and stock maintenance needs. In the face of the rapid chain reaction, application enterprises are often caught off guard, generally expand orders, establish safety stock, and the impact is gradually amplified. At the same time, the transition to DDR5 solutions must be accelerated, adding additional cost burdens. This inelastic supply cut fully reveals the fragility of the semiconductor supply chain.

     As the price of DDR4 memory continues to rise, Samsung has decided to extend the production cycle of this product to December 2026, which will help curb the rapid rise of DDR4 materials and alleviate the panic of 'supply cuts' to a certain extent. But this is only an extension of the stocking window, in the face of DDR4 memory, which has already risen, terminal companies are expected to still carry out alternatives, and only by cutting into the DDR5 solution as soon as possible can they solve the supply problem at one time.

Enhance supply chain resilience and cover short, medium and long-term thinking

     After multiple rounds of changes in recent years, the strength of the supply chain is no longer the lowest cost, but to find the best balance between cost, efficiency and resilience to build a strong value base.

     In the short term, enterprises should achieve all-round visibility of the supply chain. It is necessary not only to pay attention to direct suppliers, but also to track the capacity, investment and strategic dynamics of wafer fabs and raw material factories upwards, and establish an effective risk warning mechanism. In the context of tariffs, it is also necessary to pay attention to the origin of materials, including wafer origin, packaging and other information, to judge the possibility of supply disruptions.

     In the medium term, the optimization of scheme design is the core element. Try to use a general-purpose, pin-to-pin compatible chip so that you can quickly switch when out of stock. Modularize the core functions, and the out-of-stock of a single chip only needs to redesign a sub-module, not the entire product.

     In the long run, technology roadmaps and platform migration planning are the fundamental solutions in the long term. For example, migrating from DDR4 platforms to DDR5, and from 6-inch wafer processes to 8-inch or more advanced nodes. More imported materials should be supplied, and a timetable should be formulated to cut into domestic substitution. And pay attention to the progress of domestic materials, evaluate the availability of suitable products in a timely manner, and switch from passive defense to active adjustment.

Conclusion: The supply chain will surely achieve a new balance

     In recent years, the chip supply chain has increased sharply, the pace of technological upgrading has accelerated, and suppliers are pursuing high-profit markets, which is more challenging than ever. However, there are still opportunities amidst the challenges, and the development of AI technology today is conducive to more information and transparency, and helps enterprises enhance their research and judgment and execution efficiency. The improvement of information flow speed is also conducive to enterprises to respond quickly.

     At the macro level, the localized semiconductor supply chain has become the layout direction of the convergence of the majority of suppliers, and the national policy level is also vigorously promoting the guarantee of localized security supply chain, which is very different from the previous highly globalized supply chain. Looking forward to the future, as domestic chips support more and more local application demand, as well as the in-depth implementation of the localization strategy of international original manufacturers, breakpoints in the chip supply chain will occur less and less.