Post COVID-19 Impacts and Strategies for the Semiconductor Supply Chain: Insights from SEMI Japan Members Day Webinar Series

Originally posted on SEMI Blog

By Jim Hamajima

Japan’s semiconductor industry has weathered the COVID-19 pandemic to post robust growth. Far from a temporary setback, COVID-19 will lead to enduring change in how we work and live. And just as automation has been a bulwark against the devastating business impacts of the virus outbreak, increasing digitization will lead to new efficiencies in our industry.

These were some of the key takeaways from three SEMI Japan Members Day webinars in June and July that offered the latest updates on COVID-19 impacts to the semiconductor industry and restart strategies for SEMI members. More than 2,000 SEMI members across Japan’s islands attended the webinars featuring the following five speakers:

• Hideki Kanewaka, Marketing Director, Consulting Lead, Japan, Accenture Japan Ltd.
• Takayuki Komori, Manager, Marketing Engineering Dept, SUMCO Corporation
• Taketoshi Hamaguchi, Director, Manufacturing Industry, Microsoft Corporation
• Akira Minamikawa, Senior Consulting Director, OMDIA (Informa Intelligence LCC)
• Yuichi Koshiba, Managing Director & Partner, Boston Consulting Group

COVID-19 Impact on Japan Semiconductor Industry is Modest

The consensus view of the five speakers from various quarters of the industry – consultant, IT service provider, materials supplier, market analyst – was that the Japan semiconductor industry withstood the heavy blows COVID-19 dealt to other industries thanks to strong demand for chips. Shelter-in-place policies and lockdowns spawned by COVID-19 has accelerated the digital transformation rippling around the world as electronics sales have soared to support everything from remote work and education to healthcare and home entertainment including gaming.

The rapid growth of cloud usage for video streaming, gaming and remote work is taxing communications network capacity and placing more bandwidth demands on servers, said Akira Minamikawa of OMDIA. According to a recent report by Nokia, communications network traffic has skyrocketed 300 percent for online meetings and 400 percent for gaming, bringing the networks closer to their capacity limits. Minamikawa sees server shipments increasing at 8 percent CAGR through 2024. For the broader chip market, he expects demand for notebooks, solid state and hard disk drives, and gaming to remain strong in 2020. He also predicts rapid 5G penetration for smartphones will boost semiconductor chip industry growth.

Still, not all semiconductor segments are expanding, said Yuichi Koshiba of Boston Consulting Group. Chip shipments for end products in markets such as automotive, industrial equipment and aircrafts are on the decline. Slowing demand for chips that power automotive applications in particular could pare sales for some chip companies and distributors since the segment accounts for a high proportion of their overall revenue.

State of the Semiconductor Industry

From SUMCO’s vantagepoint as a major silicon wafer supplier, the company’s Takayuki Komori sees a number of changes unfolding in the semiconductor industry:

• Smartphones are driving growing demand for process technology (smaller nodes) and 300mm wafers. Komori estimates the typical high-end smartphone sports 1,700 square millimeters of silicon. 300mm wafers account for 80 percent of that total while more than 50 percent of the devices use leading edge multi-patterning technologies.
• Smartphones will need more RF chips to support 5G’s high-speed communications and added frequency ranges. Substrates for RF switches and tuners have been shifting from gallium arsenide (GaAs) and other compound semiconductors to silicon.
• 5G smartphone penetration will accelerate as the cost of integrating CPUs and modem functions into a single chip sees a swift decline.
• While the sensitivity and resolution of CMOS image sensors have evolved to incorporate innovative backside illumination and stacking technologies, future advances will focus more on products for machine vision applications capable of sensing invisible light bands.
• Rising adoption of electric vehicles and robotics applications will drive growing demand for power semiconductors that control their motors such as IGBTs and MOSFETs as the production capacity for the devices expands and shifts to 300mm wafer lines.

For memory fabs, Minamikawa said utilization remains high as a result of a spending slowdown by major chip manufacturers and will stay elevated even once additional capacity ramps to support robust demand. Foundry fab utilization also remains high despite the pandemic-driven cancellation of smartphone chip orders in March. Minamikawa also sees the utilization rate of micro rising with the surge in demand for notebooks, PCs and servers in the second half of 2020.

Transition to New Normal

As people around the world start to settle into new ways of living and working, there’s a growing acceptance that the transformation will be long-lasting. And no area of people’s lives is changing more than their work. Boosted by government subsidies, many small and midsize companies in Japan have started to implement work-from-home policies, an area where major electronics and IT businesses had already instituted reforms, said Hideki Kanewaka of Accenture. A few examples:

• Nippon Telegraph and Telephone Corporation (NTT) announced that half of its employees will continue to work from home in the future.
• A five-year plan Toshiba launched in 2019 to allow all employees to work from home will likely accelerate.
• Hitachi plans to allow all employees to work from home starting in April 2021.
• dwango, a major internet-based entertainment company in Japan, announced it will allow in principle any employees to work remotely.

In the critical area of remote sales, Kanewaka pointed to the importance of going beyond online business meetings, paperless transactions and virtual events to devise new ways to attract customers and close deals. Creating online communities and providing rich digital content are also important measures to consider, he said.

Manufacturing’s Digital Transformation

Travel restrictions by most countries to curb the COVID-19 outbreak have also raised barriers to chip companies sending engineers overseas sites to service state-of-art equipment and provide other technical support. Microsoft’s remote assist system deployed by ASML is one tool semiconductor makers can use to overcome this challenge, said Taketoshi Hamaguchi of Microsoft.

The system connects a remote equipment service expert with an onsite worker through the internet, allowing the technical expert to provide support through a goggle display with a camera worn by the worker. Guided by the expert, the worker can perform complex services. A Natural User Interface (NUI) helps give the factory worker a clear understanding of the often highly technical instructions.

Using artificial intelligence (AI) to increase automation will also help reduce the reliance of semiconductor factories on onsite workers. For example, AI deep learning can be deployed to calibrate equipment autonomously and reduce downtime after scheduled maintenances, Hamaguchi said.

Corporate Restart Strategies

Beyond factory considerations tied to COVID-19, semiconductor companies will need to adapt their business strategies to new ways of operating. For example, global supply chains will shift to domestic sources and increase redundancy to ensure a steady supply, a change leading to higher overall costs, Koshiba said. Trade routes among regions will also be redrawn as the trade rift between the United States and China and other geopolitical tensions intensify. The total value of those routes is expected to recover by 2023.

Koshiba advised companies to evaluate the supply chain trade-offs between stability and cost and factor in potential risks to improve their short-term resilience and drive mid- to long-term supply chain restructuring.

After past recessions, 14 percent of companies restored sales growth, Koshiba said. He recommended investing aggressively in growth and seizing M&A opportunities during the downturn. Chip companies must also adapt to supply chain changes faster than competitors.