Understanding the Semiconductor Supply Chain

The semiconductor market is experiencing substantial growth. According to Statista, revenue in the semiconductor market is projected to reach US$790 billion in 2025.  Over the next five years, the market is anticipated to experience an annual growth rate (CAGR) of 10.24%, reaching an estimated US$1.3 trillion by 2030, driven largely by AI chips and integrated circuits. However, for the industry to realize these gains, imbalances in the semiconductor supply chain need to be remedied. A major area of concern is the lack of geographical diversity of the supply chain which is today heavily concentrated in East Asia and North America. For companies and governments that are interested in entering the semiconductor industry, a solid understanding of the semiconductor supply chain is the first step in assessing the viability of developing and growing a semiconductor capability.

The semiconductor supply chain is a global, multi-stage network of specialized companies that transform raw materials into the microchips that power modern electronics. It spans research, raw materials, design, manufacturing, testing, and distribution — with specialized players at each stage – and its complexity stems from the immense cost and expertise required at every step.

Components of the global semiconductor supply chain

1. Raw Materials

Raw materials consist of high-purity silicon wafers that are derived from silica sand refined into polysilicon[1], specialty gases[2], photoresists[3], rare earth minerals[4], and metals like copper[5], cobalt[6], and tungsten[7]. Although there are many global suppliers, Japanese based companies are the dominate force in photoresists, silicon wafers, specialty chemicals. It is important to note that in the case of rare earth minerals and metals such as copper, the semiconductor industry is heavily reliant on sourcing of these minerals and metals. For example, the largest copper deposits currently being mined are in Chile, Australia and China. For tungsten, the industry is heavily dependent on China which is currently the world leading provider of tungsten ore. Consequently, there is a supply chain entry opportunity for players that can provide reliable additional sourcing options.

2. Chip Design

Integrated Design Manufacturers or IDMs are companies that manufacture and, in some instances, assemble, test and package the chips they design such as Intel, Samsung and Texas Instruments.

Fabless Companies are companies who focus on chip design and outsource manufacturing and subsequent steps to others. Examples of fabless companies are NVIDIA, Broadcom, Qualcomm, AMD and Apple.

IP Providers are companies that license pieces of “blocks” of IP for various common functions that can be integrated into an IDM or Fabless company’s chip design, allowing them to focus on innovation in differentiated or unique capabilities. Standalone IP providers are those companies that license only (ex: ARM (processor and graphic cores), Ceva (digital signal processors), Imagination Technologies (graphics cores)). Some IDMs and Fabless companies also develop and license IP to the industry such as Qualcomm, Broadcom and Intel.

EDA (Electronic Design Automation) Companies are companies that provide the software necessary for chip design at nanoscale. The leading EDA companies include Synopsys, Cadence and Siemens EDA.

3. Semiconductor “Chip” Fabrication - Front-End Manufacturing

Semiconductor fabrication plants, also known as “foundries” or “fabs,” produce chips on silicon wafers using dozens of sequential steps — lithography, etching, ion implantation, deposition, cleaning, etc. Depending on the capabilities, features, design and/or application of a particular chip, the process or recipe used to design the chip can vary widely. Some fabs focus on “cutting-edge” nodes (TSMC, Samsung, Intel), manufacturing techniques that increase the number of transistors that can be placed on a small chip – today’s advanced nodes are defined as 5nm or smaller. These advanced nodes are used to manufacture advanced logic chips such as the CPUs and GPUs used for AI. Other fabs (Globalfoundries and SkyWater) use larger nodes (>12nm) and focus on innovation in process recipes and materials required for specialized chip designs such as mixed signal ICs (analog and digital capabilities integrated into the same chip), micro-electro-mechanical systems (MEMS) and silicon photonics to name a few. These specialized chips are used in a variety of applications including automotive, medical, communications and AI.

Semiconductor manufacturing requires specialized hardware and software tools that are used for various steps in the manufacturing process. For example, Applied Materials (U.S.) provides tools for deposition, chemical-mechanical planarization (CMP), and ion implantation. Lam Research (U.S) provides the tools for etching, a critical process for removing material from the wafer. KLA Corporation (U.S.) provides control equipment, specializing in inspection and metrology tools. KLA's systems are used to detect defects at every stage of the manufacturing process to ensure high-quality, high-yield production. Tokyo Electron (Japan) also supplies coater/developer systems, etching equipment, and deposition tools. For cutting edge nodes, specialized advanced lithography equipment is required. ASML (Netherlands) is currently the only supplier of extreme ultraviolet (EUV) lithography machines, which are essential for manufacturing chips at nanoscale.

4. Assembly, Packaging & Testing (ATP) - Back-End Manufacturing

Chips are “printed” on the silicon wafers during the manufacturing process described above. The number of useable chips per wafer depends on the size of the chip (which in turn is dependent on the design and application), wafer edge waste and yield.[8] Once the wafer is ready, it is sent to the assembly and packaging step. At this point, the individual chips are cut from the wafer and and enclosed in protective packages with electrical connections. The types of packaging (BGA, flip chip, WLP, 3D stacking, chiplets) vary depending on the chips capabilities and applications. With applications such as AI, chip level packaging innovations such as chiplet packaging utilizing through silicon vias, is becoming a critical capability. Likewise, the ability to adequately test specialized and advanced chips is also a critical capability. At the testing phase, chips are electrically tested for performance, reliability, and defects.

IDMs and some foundries have the ability to do ATP in house but their capacity is limited. Therefore, they rely on OSATs (outsourced assembly test companies) for the majority of assembly, test and, increasingly, advanced packaging capabilities. The majority of OSATs are concentrated in East Asia (ASE (Taiwan) and JCET (China), Powertech Technology (Taiwan)) with the exception of Amkor which has facilities in the U.S.

5. Components & Modules

Once the chips are assembled, packaged and tested, they are usually sent to one of three places:

• OEMs such as Apple (U.S.), Samsung (Korea), Huawei (China), Amazon (U.S.), Google (U.S.) or Tesla (U.S.) for integration into an end products.

• Distributors such as Arrow (U.S.), Avnet (U.S.), Digi-key (U.S.) or Future Electronics (Canada) for sale through the distribution channel

• ODMs (original design manufacturers) such as Compal Electronics (Taiwan), Foxconn Technology Group (Taiwan), Huaqin Technology (China), Flex (USA/Singapore), Jabil (USA) and BYD Electronics (China) are companies that can design and manufacture generic chips or reference designs in the form of chips, modules or mother boards that are then rebranded and sold by other businesses. By purchasing pre-made and tested solutions from an ODM, an OEM such as a automotive company or a consumer electronics company can quickly bring a product to market without having to invest heavily in its own research and design capabilities.

  
  

6. System Integrators & Original Equipment Manufacturers (OEMs)

• System Integrators including are companies that design, manufacture, and integrate the physical electronic products (e.g., smartphones, laptops, consumer electronic devices and industrial equipment) and sub-systems (e.g., power management, communications, I/O) on a massive scale for Original Equipment Manufacturers (OEMs). These companies often specialize in complex hardware integration, using modules, motherboards or other components from an ODM. Some ODMs also provide system integration and EMS (electronic manufacturing service) including Foxconn Technology Group (Taiwan), Flex (USA/Singapore), Jabil (USA).

• OEMs (original equipment manufacturers) refers to the end-product companies that design, brand, and sell the finished end products which incorporate semiconductor chips. For example, some consumer electronics OEMs are Apple (U.S.), Huawei (China), Samsung (Korea), HP (U.S.), Microsoft (U.S.), Lenovo (China) and Sony (Japan), some automotive OEMs are Tesla, Mercedes Benz, BMW, etc. The OEM typically designs the product and contracts out the manufacturing via detailed specifications to ODMs and/or system integrators. Once the final product is ready, the OEM markets the product through relevant sales channels. For example, Apple uses it’s own retail presence in the form of Apple stores to sell its products direct to consumers but also partners with telecommunication companies such as Verizon in the U.S. as a sales channel for its products.

As described, the semiconductor supply chain is an extremely complex, capital-intensive, and globally distributed network involving numerous specialized steps, often taking months and spanning multiple continents to transform raw materials into a finished chip and eventually find that chip integrated into an end product. For those companies and governments that are interested in developing and growing a semiconductor capability, finding a viable entry point into the industry is critical. The semiconductor industry is notoriously capital intensive with long lead times to return on investment, particularly in the areas of silicon manufacturing and chip design. The upfront investment is a daunting barrier to entry. However, there are points along the supply chain where capital requirements are low and entry by new players is not only possible to sorely needed. The U.S. dominates in chip design and tools, Asia dominates manufacturing and assembly, and Europe/Japan provide critical equipment and materials. Any disruption (natural disaster, export restriction, political conflict) can ripple through industries worldwide — from smartphones to cars to defense systems. Geopolitical issues aside, corporations and governments that can offer solutions that are more geographically diverse and less natural disaster prone are in a prime position to play a key role in the future success and growth of the semiconductor industry.

[1] Silicon Wafer Supplier examples: Shin-Etsu Chemical (Japan), GlobalWafers (Taiwan) Siltronic AG (Germany), Soitec (France)

[2] Specialty Gas Supplier examples: Linde plc (Ireland/UK), Air Liquide (France), Air Products and Chemicals, Inc. (U.S.), Nippon Sanso Holdings Corporation (Japan)

[3] Photoresist Supplier examples: Tokyo Ohka Kogyo Co. (Japan), Shin-Etsu Chemical (Japan), DuPont (U.S.), Merck Group (Germany)

[4] Rare Earth Mineral Suppliers are heavily concentrated in three countries – China (ex: China Northern Rare Earth (Group) High-Tech Co., Ltd., Shenghe Resources Holding Co., Ltd., Baotou Steel Union), the U.S. (ex: MP Materials) and Australia (ex: Lynas Rare Earths)

[5] Copper supplier examples: DuPont Electronics & Industrial (U.S.), Umicore (Belgium), Element Solutions (U.S.), Honeywell (U.S.), Luvata (Finland), Mitsubishi Materials (Japan)

[6] Cobalt supplier examples: Tosoh SMD (Japan/U.S.), Kurt J. Lesker Company (U.S.), Applied Materials (U.S.)

[7] Tungsten supplier examples: Plansee Group (Austria), JX Advanced Metals (Japan/U.S.), Elmet Technologies (U.S.)

[8] One 7nm 300mm silicon wafer can yield up to ~80 800mm² advanced logic chips