Guest Blog : Mario Morales, Group Vice President, Enabling Technologies and Semiconductors, IDC
As the world continues to cope with the COVID-19 pandemic, technology suppliers and vendors have been critical in maintaining the productivity of IT (Information Technology) and OT (Operational Technology) organizations by enabling remote work, extending resiliency across all operational functions in an organization, and accelerating digital transformation.
During this time, ongoing semiconductor shortages have also illustrated the dependency of systems and value chains on non-leading-edge semiconductors, and the importance of well-timed investments, inventory management, close collaboration with supply chain, and consistent business planning to balance supply with demand.
Through the end of 2020 until now, the key product sectors in the semiconductor industry experiencing shortages in varying degrees have been automotive integrated circuits (ICs), power management and analog, image sensors, display drivers, and SSD controllers. The common denominator here is that each product area uses the same mature process technology from merchant foundries and integrated device manufacturers (IDMs). Other supply chain shortages have occurred in materials, substrates, power supplies, chemicals, raw wafers, and even system chassis. Underinvestment in various supply chain areas during a market correction in 2019 -- along with the pandemic’s disruptions -- left suppliers unable to respond to a broad-based surge in demand.
The shock to the automotive industry supply chain was largely self-inflicted due to conservative planning by OEMs, supply chain inefficiency, production shutdowns, and supply pushouts during a period when inventories were low, and most vendors operated with a just-in-time philosophy. This disconnect was compounded by the long lead times IDMs and foundries require to plan for current and future capacity.
Shortages are slowly easing now, but it's still taking longer than normal for parts to move upstream. Logistics and transportation are the choke points in moving chips upstream into subsystems and finished goods, while monitoring CO2 consumption and calculation for compliance.
OEMs and tier 1 vendors are adapting to the environment. They are reestablishing partnerships with technology suppliers, a process that includes evaluating long-term supply guarantees. They are also investing more in their own chip designs and platforms in new subsystems within the vehicle. In addition, OEMs will hold more buffer inventory and prioritize flagship and high-volume vehicle production over fleet management and service businesses that have lower margins and volumes until the automotive and semiconductor industry is aligned.
Automotive semiconductors are now seeing a strong rebound, and IDC expects that Auto ICs will be the fastest-growing industry segment over the next five years with a CAGR of 10.6%. By 2025, automotive semiconductors will reach $65.4 billion in revenue, accounting for 10% of the total semiconductor industry.
Mitigating the risk that comes with each supply disruption
IDC offers the following guidance for suppliers and OEMs that are purchasing or are a part of the value chain. OEMs that rely on secure semiconductor supply must work in strategic partnership with suppliers by establishing business continuity plans that directly link manufacturing, sourcing, investment, redundancy, and crisis management. Transparency is essential across the supply chain because it mitigates risk and delivers efficiencies for both customer and supplier.
The ability to assess overall business demand is also important. If you’re a supplier, work with customers to validate demand and rationalize inventory to decrease the amplitude of a mismatch in supply and demand. In looking at today’s overall technology requirements for automotive semiconductors, 77% of products are using mature process technologies (40nm and higher). IDMs and foundries play an integral role in supplying the mix of technologies required for automotive subsystems. Only 8% of the technology requirements are using leading edge (16nm or below) nodes, and these technologies are expected to be used for next-generation digital cockpit platforms, advanced driver-assistance systems (ADAs), vision processing, and artificial intelligence (AI) inside future electric and autonomous vehicles.
As the industry looks ahead, organizations will continue to leverage technology to underpin every process, prioritize key business initiatives, and stabilize their value chain as the journey to overcome the shock from the pandemic continues into 2022. Enterprises will need to optimize performance by investing in platforms and tools that provide insights to both the business and to operations, enabling collaboration across a complex global manufacturing network with full transparency and visibility across the value chain. Finally, organizations will pour funding into new digital business assets and align with the best practices of their key technology suppliers, as the supply chain continues to be a critical part of the broader ecosystem.
To learn more, read the IDC Analyst Connection, Semiconductor Supply Chain Insights: Invest in Technology to Stabilize Business, sponsored by SAP.
About the Analyst
Mario Morales is the group vice president of IDC's enabling technologies, semiconductor, storage, and DataSphere research.
He is responsible for in-depth analysis, evaluation of emerging markets and trends, forecasting, and research into major semiconductor industry segments such as embedded and intelligent systems, wireless, personal computing, networking and cloud infrastructure, automotive electronics, and AI semiconductors.
Mr. Morales is a trusted advisor to leading high-tech company executives, financial investors, and bankers on market landscape and direction, product and technology positioning, competitive benchmarking, M&A, hardware and software technology, and brand health and sustainability.
As the world continues to cope with the COVID-19 pandemic, technology suppliers and vendors have been critical in maintaining the productivity of IT (Information Technology) and OT (Operational Technology) organizations by enabling remote work, extending resiliency across all operational functions in an organization, and accelerating digital transformation.
During this time, ongoing semiconductor shortages have also illustrated the dependency of systems and value chains on non-leading-edge semiconductors, and the importance of well-timed investments, inventory management, close collaboration with supply chain, and consistent business planning to balance supply with demand.
Through the end of 2020 until now, the key product sectors in the semiconductor industry experiencing shortages in varying degrees have been automotive integrated circuits (ICs), power management and analog, image sensors, display drivers, and SSD controllers. The common denominator here is that each product area uses the same mature process technology from merchant foundries and integrated device manufacturers (IDMs). Other supply chain shortages have occurred in materials, substrates, power supplies, chemicals, raw wafers, and even system chassis. Underinvestment in various supply chain areas during a market correction in 2019 -- along with the pandemic’s disruptions -- left suppliers unable to respond to a broad-based surge in demand.
The shock to the automotive industry supply chain was largely self-inflicted due to conservative planning by OEMs, supply chain inefficiency, production shutdowns, and supply pushouts during a period when inventories were low, and most vendors operated with a just-in-time philosophy. This disconnect was compounded by the long lead times IDMs and foundries require to plan for current and future capacity.
Shortages are slowly easing now, but it's still taking longer than normal for parts to move upstream. Logistics and transportation are the choke points in moving chips upstream into subsystems and finished goods, while monitoring CO2 consumption and calculation for compliance.
OEMs and tier 1 vendors are adapting to the environment. They are reestablishing partnerships with technology suppliers, a process that includes evaluating long-term supply guarantees. They are also investing more in their own chip designs and platforms in new subsystems within the vehicle. In addition, OEMs will hold more buffer inventory and prioritize flagship and high-volume vehicle production over fleet management and service businesses that have lower margins and volumes until the automotive and semiconductor industry is aligned.
Automotive semiconductors are now seeing a strong rebound, and IDC expects that Auto ICs will be the fastest-growing industry segment over the next five years with a CAGR of 10.6%. By 2025, automotive semiconductors will reach $65.4 billion in revenue, accounting for 10% of the total semiconductor industry.
Mitigating the risk that comes with each supply disruption
IDC offers the following guidance for suppliers and OEMs that are purchasing or are a part of the value chain. OEMs that rely on secure semiconductor supply must work in strategic partnership with suppliers by establishing business continuity plans that directly link manufacturing, sourcing, investment, redundancy, and crisis management. Transparency is essential across the supply chain because it mitigates risk and delivers efficiencies for both customer and supplier.
The ability to assess overall business demand is also important. If you’re a supplier, work with customers to validate demand and rationalize inventory to decrease the amplitude of a mismatch in supply and demand. In looking at today’s overall technology requirements for automotive semiconductors, 77% of products are using mature process technologies (40nm and higher). IDMs and foundries play an integral role in supplying the mix of technologies required for automotive subsystems. Only 8% of the technology requirements are using leading edge (16nm or below) nodes, and these technologies are expected to be used for next-generation digital cockpit platforms, advanced driver-assistance systems (ADAs), vision processing, and artificial intelligence (AI) inside future electric and autonomous vehicles.
As the industry looks ahead, organizations will continue to leverage technology to underpin every process, prioritize key business initiatives, and stabilize their value chain as the journey to overcome the shock from the pandemic continues into 2022. Enterprises will need to optimize performance by investing in platforms and tools that provide insights to both the business and to operations, enabling collaboration across a complex global manufacturing network with full transparency and visibility across the value chain. Finally, organizations will pour funding into new digital business assets and align with the best practices of their key technology suppliers, as the supply chain continues to be a critical part of the broader ecosystem.
To learn more, read the IDC Analyst Connection, Semiconductor Supply Chain Insights: Invest in Technology to Stabilize Business, sponsored by SAP.
About the Analyst
Mario Morales, IDC
Mario Morales is the group vice president of IDC's enabling technologies, semiconductor, storage, and DataSphere research.
He is responsible for in-depth analysis, evaluation of emerging markets and trends, forecasting, and research into major semiconductor industry segments such as embedded and intelligent systems, wireless, personal computing, networking and cloud infrastructure, automotive electronics, and AI semiconductors.
Mr. Morales is a trusted advisor to leading high-tech company executives, financial investors, and bankers on market landscape and direction, product and technology positioning, competitive benchmarking, M&A, hardware and software technology, and brand health and sustainability.
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