Supply and demand is the constant balance that we watch. Sitting where we do along the global supply chain, as distributors, puts us squarely in the middle of this challenge. As a result, we are keenly aware of when the (unfortunately inevitable) mismatch in supply/demand happens. Presently, we see increased challenges now as nodes continue to shrink, as mobile chip solutions become more complex and require more steps in manufacturing, and as Industrial IoT (IIoT), which includes automotive, continues to quickly ramp up and demand older process nodes. Each of these events are adding constraints to an already tightening supply due to the reduction in the number of fabs and complexities in chip manufacturing processes. A recent article in Semiconductor Engineering explains these challenges very well. One of the outcomes of the growing manufacturing processes that we see are pricing fluctuations, additional supply constraints and shortages, and challenges to come due to interoperability issues that will lead to constraints down the road.
Nodes and leaders
It would be hard to overlook the industry news this quarter regarding TSMC and Samsung. Currently, there are a number of challenges and competitive opportunities at the advanced nodes (16nm and 14nm currently in mass production) by these two giants in chip manufacturing. We know these two titans are forever in a competitive relationship, but recently the pendulum has swung to favor TSMC with a leading-node processor, Apple's A9. Apple had previously been relying on Samsung as their major chip manufacturer for their in-house designed processors.
While Samsung was to have had the lion's share of the upcoming A9 processor, roughly 80% of the order, yield problems with Samsung's 14nm node flipped the opportunity, leaving Samsung with only 20% of the share. TSMC will hold 80% of the manufacturing orders for both the next generation iPhone and iPad based on the success of their 16nm yields. So, in light of this week's news that TSMC's second quarter (2Q15) was flat to 5% increase after an impressive, double-digit 1Q15, there is growth to come in 3Q15 with the A9 order ramp.
Older nodes hold and gain
While it is a bit funny to think of 20nm as an "older node" already, it is moving into that position. For TSMC, the success with Apple's processors at 20nm will hold momentum for the company at that node, while adding business at leading-edge with the A9 chip. The momentum base is important because one of TSMC's other major customers at the 20nm, Qualcomm, has recently suffered some hits due to the loss of the Samsung order for the next generation Galaxy S6, as many have reported. According to EETimes Asia, Qualcomm accounts for 40-50% of TSMC's 20nm node business, the recent cutback by Qualcomm will hurt TSMC.
However, just as TSMC won where Samsung lost with Apple, the reverse is true for Qualcomm's business. Also as we all know from industry news reports, including the same EETimes Asia article, Qualcomm is moving their latest Snapdragon chip production to Samsung as Qualcomm works to ramp up new designs at the 14/16nm nodes.
Supply still a key question
While we read through the recent articles and the ongoing story as these global titans juggle amongst themselves, one thing to think about is the impact these shifts and challenges have on the rest of the supply chain. As IIoT ramps up, the "excess" capacity (if there actually is any) will quickly be claimed at older nodes (20nm and greater) by industrial demands for the rapidly expanding IoT solutions. Where is the give in the supply for chips? There really isn't as much as we've known in the past due to consolidations and lean inventory management. Granted, this lean supply chain keeps the industry healthy and enjoying gains, but when constraints due to unexpectedly high demand or a significant disruption of longer duration occur, we should not be surprised at the rippling supply chain problems that will come.
With a relatively quiet period over the summer coming, it's a good time to review disruption strategies and contingency solutions along the supply chain. Smith's Global Services and supply chain solutions provide proactive inventory management and procurement strategies that ensure agility and provide options for both normal and disruptive supply chain events.