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Chip shortage lengthens, now due to Covid outbreak in Taiwan

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The more time passes, the further the expectations that the supply of chips will normalize recede. If until a few weeks ago it was thought that in early 2022 it would return to relative normality, it has now been postponed to 2023 and the Covid outbreak in Taiwan raises the worst for advanced chips. In Europe, the situation is more normalized when it comes to automotive chips and the grand opening of a highly advanced Bosch semiconductor manufacturing plant in Dresden has instilled further optimism.

The problems in the supply of semiconductors are so serious that the most prestigious financial media, such as the Financial Times, Nikkei Asia or the Wall Street Journal, are now echoing the situation on a daily basis, when it was barely a year ago he had talked about the extremely complex and varied global semiconductor supply logistics chain in the mainstream newspapers. Precisely because, until recently, this logistics chain had managed to synchronize in real time to perfection, in a way that, a posteriori, has turned out to be somewhat inexplicable and wonderful. The strange thing, it is said now, is that no major supply problems had arisen before, as they did a year ago.

Precisely, today’s editorial in the Financial Times headlines that “the shortage of chips reveals the difficulties of just in time”. And he subtitles that “to avoid future disruptions, companies need to invest in supply chains.” Real-time production, the newspaper rightly comments, “keeps costs low but provides little security against a break in supply” of one-off components.

On Sunday night, May 30, King Yuan, a Taiwan chip assembler, did the first covid test and by Thursday he had already detected 250 infected, out of a workforce of 7,000 employees.

Even Toyota, which 70 years ago became world famous for its low-stock manufacturing in its warehouses for receiving raw materials and dispatching finished cars, known as “lean production” or real-time manufacturing, has recently backtracked. and you are sourcing materials and components that give you several days or weeks of margin in the event of supply problems, as is the case now.

Also today Nikkei Asia has published a report revealing that Taiwan’s semiconductor production depends on the labor, in sometimes deplorable conditions and marathon hours, of thousands of migrants from the Philippines and other parts of Southeast Asia, as well as citizens who have born on the island of Taiwan. “Taiwan’s Migrant Workers Army Keeps the Chip Economy Running,” headlines the Japanese newspaper, with an equally disturbing caption: “Outbreaks of Covid in the Supply Chain Reveal Great Vulnerability.”

Semiconductor factories, or fabs, are known worldwide for their clean rooms, in which not a speck of dust enters, and with workers with special clothing so as not to contaminate the delicate insolation of the twelve-inch diameter silicon wafers, with fully automated production lines. The most advanced ones, with extreme ultraviolet light lithographic insolation technology, are manufactured by the Dutch company ASML and cost around 120 million euros each, weigh 180 tons, are eight meters long and four meters high.

ASML, which now has a staff of 28,000, takes four to five months to manufacture each line, and at least three months to ship it to its destination. The only ASML customers to whom these advanced wafer insolation lines have been delivered, capable of engraving 5 nanometer chips and very soon 3 nanometer chips, are the Taiwanese ASML, the Korean Samsung and the American Intel.

The Chinese company SMIC, the most advanced semiconductor manufacturer in the country and with government support, has long requested several production lines from ASML, but is unable to obtain the issuance permit, allegedly due to pressure from the United States on the Dutch Government, which in turn receives complaints from the company for withholding the shipment. After all, ASML is a totally private company with its own technology (the United States argues that American software is used in the manufacture of chips with ASML production lines, the same resource used by the Trump Administration and now Biden to prohibit TSMC from selling to Huawei chips made with ASML machines, and with chips designed by a Huawei subsidiary).

Assembly of chips by piecework migrants

The wafer insolation process, with the etching of the tiny circuits that will later give rise to hundreds of chips per wafer, once cut, verified, encapsulated and integrated into components, is performed by highly skilled and well-paid employees, who control the adjustment of the production and the hundreds of kilometers of pipes that carry the necessary gases and the necessary crystalline water, apart from other basic products for doping the silicon wafers and converting them into semiconductor material, before insolating them and etching the tracks of electronic circuits.

Obviously, within the fabs no case of Covid has been detected. Among other reasons, because viruses would probably not penetrate through the strict filters that keep wafer production rooms extremely clean. The problem is not in the production of wafers but, as the Nikkei report shows, in their subsequent manipulation. The wafers, once the electronic circuits have been engraved, are sent to auxiliary companies to be cut into small pieces or chips, then they are checked that they work, they are encapsulated, they are re-verified and then they are ready for surface mounting in various components and assembly plates.

This process of handling and converting the wafers made in Taiwan into chips is usually done on the island itself. It is later, in mainland China or in other countries of Southeast Asia mainly, where the encapsulated chips are assembled in intermediate components or in the final product. The complexity of the logistics chain for the manufacture of a chip lies precisely in the fact that the final product has passed through innumerable phases and assembly plants, sometimes a few meters distant from each other and other times thousands of kilometers, with oceans in between.

On Sunday night, May 30, the company King Yuan Electronics, with a factory in western Taiwan, decided to do a Covid test on an employee of its assembly line, which was positive. King Yuan then decided to test all of its 7,000 employees, including its 2,000 migrants, and although some were positive, the company kept production at full capacity. On Thursday, 250 were already infected and on Friday the plant was closed, although it was partially opened the following Sunday night. The Taiwan government forced all King Yuan migrants into a 14-day quarantine. The company, although few know its name, is a key verifier of the chips that are delivered to Intel, MediaTek, NVidia, Novatek and even the Italian-French ST Microelectronics, as Nikkei tells.


King Yuan employees ready for the Covid test. Image posted by Nikkei Asia and provided by the company.

Covid cases have also been found in at least three other companies close to King Yuan that assemble chips, such as Greatek Electronics, Accton Technology and Foxsemicon, a subsidiary of the well-known Foxconn. The discovery of some 300 cases of Covid infected in the first week of June is a small, but significant proportion, among the 713,000 migrants that he estimates that work on the island, 63% in assembly tasks and the rest in care Of the health. Most of the migrants come from Vietnam, followed by the Philippines, Indonesia and Thailand, Nikkei reports from official sources.

“The uncomfortable truth is that migrant workers keep their chip and tech factories in Taiwan running 24 hours a day, seven days a week.” Migrants are a vital part of the production lines of Taiwanese electronics and semiconductor manufacturers, who work night shifts or from 4 p.m. to midnight, because there is not enough local labor, as a Nikkei assures employee of the international placement company Manpower.

The conditions of the dormitories of these migrants are difficult, as can be assumed, although the infected King Yuan who was tested for Covid considers himself lucky because of the living conditions he has, being a graduate of the University of Philippines The Taiwanese government, alarmed by the situation, which threatens to overwhelm and paralyze the entire manufacturing industry on the island and further aggravate the critical situation of the semiconductor industry, has ordered a review of all the living and working conditions of almost 1,170 companies that They have more than 50 workers and that no more than four people share space in the dormitories. Understandably, no one wants to rent apartments, putting companies under intense pressure. Covid outbreaks have not only been detected in the west of the island but also in the north.

214 new cases and 26 deaths from Covid

The Government of Taiwan has decreed to extend a mild confinement for another two weeks until June 28, although the Covid outbreak shows no signs of abating and there are already 214 new cases and 24 official deaths, according to the Morning South China Post, a Chinese newspaper considered relatively independent. The Financial Times published last Tuesday that the United States will donate 750,000 Covid vaccines to Taiwan as a show of support for the country and “after Taipei accused Beijing of interfering in its efforts to obtain vaccines.”

This announcement was made following a visit Monday by a group of US senators to Taipei and days after Japan donated 1.2 million vaccines to Taiwan. The United States’ contribution to Taiwan represents just over 10% of the seven million vaccines that the Biden Administration has promised to countries in Asia and the Pacific area.

In Tuesday’s report from the Taipei correspondent, the Financial Times cites that Taiwan’s health authorities have announced that 343 new cases had been detected the previous day. The vaccine issue has become politicized: China says it is willing to send the necessary vaccines to Taiwan and has accused Japan of sending vaccines to the country while the nationalist government of Taipei has accused Beijing of blocking it. his country obtains vaccines directly, adds the information of the British newspaper, now owned by the Nikkei group.

Taiwan’s electronics industry is highly dependent on migrant workers, who work long hours, and an extension of the pandemic could further complicate the current shortage of semiconductors and their logistics chain.

Although Taiwan is expected to be able to contain the epidemic, it is clear that the supply of semiconductors and the entire logistics chain, whose epicenter is in Taiwan, will continue to be under strong pressure, especially highly sophisticated chips, such as those used the smartphone and computer and server industries, specifically chips from Apple, Qualcomm, NVidia and AMD, designed in the United States but manufactured by TSMC and largely assembled in Taiwan, at least in their early stages.

The chips for smartphones of the Taiwanese MediaTek, also manufactured by TSMC, can also be affected, as the computer boards that are 80% assembled in Taiwan and include Intel processors. The strong demand for computers in recent months, which is expected to continue into the second half of this year, will not help alleviate the pressure on the supply of computers and their manufacturers.

The ones who seem to have it better are the automakers. In recent months, the big brands have had to stop many production lines due to a lack of chips (Toyota will stop a line in Japan this June). Chips for automobiles, however, are much less sophisticated than those for computers, although they are consumed in greater numbers and include some sophisticated processor. The European and Japanese plants, which are the main manufacturers of automotive microcontrollers, such as the European Bosch, NXP, Infineon and STMicroelectronics, or the Japanese Renesas, are normalizing the supply to automobile factories, such as General Motors, Ford or VolksWagen have recently announced.

Just last Monday, Bosch announced the opening of a very modern semiconductor factory, near Dresden, in the German region of Lower Saxony. In three months it will be operational and 250 people are already working in the wafer factory, with the forecast of reaching 700 employees when it is at full capacity. The factory is fully 5G ready and is actually two plants, one real and the other virtual, operating in parallel. The opening was attended by the German Chancellor, Angela Merkel, and the Vice-President of the Commission, Margrethe Vestager, to underline the importance of the event for the German semiconductor industry and, by extension, the community. In the top image of this article, a view of the Bosch plant in Dresden.