Bottlenecks in Semiconductor Manufacturing: Global Inter-dependence
Globalization has shaped our world and has created what we term as modern life. The import-export of goods and services across borders allow countries to fulfil their basic needs like food and fuel. Yet what happens when this balance is broken? The recent United States of America and Iran conflict is a textbook example. The blockade of one small channel of water called the Strait of Hormuz managed to raise oil prices by 20%. LPG shortage was felt the world over with households not receiving gas for cooking food. Hotels and restaurants had to stop serving some items or close down altogether. Another little industry being caught in the crossfire was the semiconductor industry, the same industry producing your mobile phones, laptops, televisions, solar panels, and all your day-to-day appliances.
To begin with, let us be clear about the difference between LNG and LPG. Liquefied natural gas is methane stored in cryogenic conditions; the container is cooled to 167 degrees Celsius. Liquefied petroleum gas is a mixture of propane and butane stored in ambient temperature and under moderate pressure i.e. 100-200 psi. LNG is used for generating electricity. An LNG shortage could spell doom for a country's electricity supply if they are dependent on it. Countries like China, Japan, South Korea, Taiwan, and dear old India depend on a large percentage of LNG imports for their electricity demands.
The world's largest LNG and Helium generating plant is located in Qatar. Its name is Ras Laffan complex. It was attacked by Iran on 18 March 2026 in a bid to destabilize the region and hit back at the United States for its aggression. That complex controls around 30-38% of the world's Helium. Helium is used for cooling EUV systems used for lithography. Without helium, the machine would overheat and damage itself in normal operation. The artificial intelligence boom resulted in memory demand to blow up (pun very much intended). Suddenly, the growth of the semiconductor industry as a whole has ground to a screeching halt. Giants like TSMC, Samsung, and SK Hynix are trying to ration what they have left. Our search for faster and more advanced devices has led us to be unintentionally dependent on this one noble gas whose production is currently at risk.
Helium was still tolerable since only a handful of industries find usage in it. LNG is a bigger problem. Taiwan currently possesses 11 days of strategic LNG, this was published on 8 April 2026. Taiwan had the genius idea of importing a majority of their LNG from Qatar. South Korea is at a lower risk of LNG shortage, they imported around 20% of their total LNG imports. Semiconductor industry for these countries is like the IT industry for India. Cutting off something this critical will destroy their economy.
The destruction of this one complex having such massive shockwaves got me thinking. Just how fragile is this multi-trillion dollar industry? When have incidents like this occurred before?
Indians will remember one such incident, that is the 2020-2023 semiconductor shortage which hit the automobile industry. Mahindra was the first one to get hit by supply issues. During the lockdown period, when the supply chains faced difficulties due to COVID restrictions and also the semiconductor manufacturers started targeting electronics for computers due to the rise in work-from-home arrangements. It was forecasted that the demand in cars would drop off so automobile makers cancelled orders. Renesas, Texas Instruments, Infineon, STMicroelectronics, and other companies fabricating these chips shifted production to display driver ICs, communication chips, processors, and the like. In other words, they started focusing on components that are either too powerful, or incompatible with automotive functionalities. This caused massive wait times for order deliveries and massive losses for Mahindra since they predicted incorrectly.
Granted the automobile shortage was more of a global issue so let us focus on more single-minded and non-substitutable chokepoints. ASML's EUV scanners have been mentioned on this blog multiple times now. They are the only company till now which sells scanners required for cutting edge hardware. All high performance, high transistor density chips require a machine that can pattern at such small scales. Every company working in fabricating AI hardware sources its lithography machines from ASML. A small delay from their end will cause quite a hit to a company's profits. One tool may malfunction and sending for a repair technician takes some time. Meanwhile the company is bleeding money.
Keeping in line with lithography, EUV photoresists happen to be another bottleneck for this process. Only three companies in the world can make it at an industrial scale and all of them are located in Japan. JSR Corporation, Tokyo Ohka Kogyo, and Shin-Etsu Chemicals are the leading market leaders in this domain.
Ceramic substrates are used in packaging the device. Ceramic provides good thermal conductivity, high insulation, amazing stability in high temperature and mechanical stress. It is highly favoured in AI device packaging. Kyocera is the company with the largest market cap and they are highly over-burdened with the task of carrying the entire packaging ecosystem for next generation hardware. Curiously enough Kyocera also makes other ceramic utilities like toilets, wash basins, and more. This is an example of a company which gained mastery of one area and expanded it laterally. Who doesn't use ceramics?
The semiconductor industry has a David and Goliath problem; one rock in the right place can topple the system down. These were just a few examples of where the industry can run into trouble; there are many more deficiencies in the system. A lot of crucial materials are concentrated in just one or two countries. This can be a case study on planning and logistics simply due to the sheer amount of caveats present.
Comments
Post a Comment