ASML equipment shortage may hit the production of advanced chips

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Joseph P Chacko
Joseph P Chacko
Joseph P. Chacko is the publisher of Frontier India. He holds an M.B.A in International Business. Books: Author: Foxtrot to Arihant: The Story of Indian Navy's Submarine Arm; Co Author : Warring Navies - India and Pakistan. *views are Personal

The global shortage of chips that has been going on for two years now threatens to spill over to the most advanced ones – those used in smartphones and data centres that also provide applications.

Integrated Circuits (ICs) based on state-of-the-art technology have largely avoided the manufacturing and supply problems that have plagued the automotive and other electronics industries. Now, the problems may begin to spread up the technological hierarchy – according to the Wall Street Journal (WSJ), citing analysts, as early as 2024, the deficit of advanced semiconductors may reach 20%. This will slow down the development of areas such as high-performance computing, artificial intelligence and autonomous driving.

Part of the problem is that only two companies worldwide can currently manufacture the most advanced chips: TSMC and Samsung. This is due to the high threshold for entering the sector, which requires enormous material investments and significant experience. Both companies have ambitiously planned their future work, but it seems that some plans are not destined to come true. According to the WSJ, TSMC has begun warning individual customers that it won’t be able to scale up quickly enough in 2023 and 2024 due to problems with the supply of production equipment. Delays in its deliveries are increasing, and in some cases, it takes 2 to 3 years to fulfil orders, and the reason is a shortage of chips.

The technological problems that Samsung’s contracting division had to face are also relevant: the company was unable to produce enough 4nm products, forcing key customers such as Qualcomm and NVIDIA to place their orders with competitor TSMC.

Both players say they are doing everything possible to avoid production disruptions: TSMC CEO CC Wei noted in April that the company will enter 3nm in 2023. Samsung’s executive vice president of manufacturing, Kang Moon-soo, acknowledged that the company had to delay increasing the performance of 4nm lines. Still, it has already “returned to the expected curve”

Moreover, in June, the Korean manufacturer wants to start mass production of chips based on 3 nm technology. And any fears of the market concerning semiconductor production are excessive and unreasonable, says Kahn.

Much of the equipment that TSMC currently needs is used for the production of legacy chips, and this equipment is in high demand, including in China. WSJ sources say that some chipmakers have already approached equipment manufacturers with a proposal to delay the fulfilment of orders for the Chinese to ensure the release of advanced chips but did not find cooperation. TSMC itself recently sent a delegation of top managers to the Dutch ASML, which produces machines for the production of the most advanced chips. The Taiwan side wanted to make sure that nothing threatened its development plans. The ASML spokesman, in turn, confirmed that the demand for its products is now higher than its ability to fulfil orders, and as a compromise, the company has to provide advisory support to customers.

ASML is the only company which makes the extreme ultraviolet lithography machines needed to make advanced chips. The ASML photolithography machine weighs about 180 tons and costs about $170 million. There are other companies in the field, including Japanese Canon and Nikon, but ASML has equipment for photolithography in deep ultraviolet with a wavelength of 13.5 nanometers. Shorter wavelengths allow smaller components to be etched – vital for chip makers who seek to increase the number of transistors on a chip in accordance with Moore’s law. It is said that the number of components in a given area doubles approximately every two years.

The high demand and production capacity shortage will only worsen with the introduction of even more advanced 3 and 2 nm technologies. The head of the consulting company IBS, Handel Jones, said that in 2024-2025. the deficit in these segments will be 10-20%.

Contractor customers are also anticipating some problems. Qualcomm said in a recent quarterly report that the development and support of advanced processes, including the transition to smaller geometries, could adversely affect production volumes and stability. NVIDIA CEO Jensen Huang agreed with his colleagues, saying that supply chains will still be in short supply, but his company has already paid for long-term contracts with major contractors. Intel says it will establish its own contract manufacturing business, but this takes time, and now the company cannot be considered as an alternative to Samsung and TSMC.

Investments in Cutting edge chip manufacturing

A lot of new chip manufacturing capacity is currently being developed, and most of it is going to cutting-edge chips. Gartner released a report in January 2021 that predicted chip makers to invest $146 billion in new capacity in 2021, up 50 per cent from 2019, but only a small fraction will be old for chips.


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