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Semiconductors: A global ecosystem producing essential components for modern day life

Teo Huan Zi
Teo Huan Zi10/7/2021 12:32 PM GMT+08  • 6 min read
Semiconductors: A global ecosystem producing essential components for modern day life
Semiconductors are here to stay with the increased adoption of digital services.
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There are many technologies emerging all around the world with ever improving connectivity, computing and internet speed. Artificial intelligence (AI), automotive electronics, augmented and virtual reality (AR/VR) are some of the common new technologies, expected to change the world in the coming decades.

We should also not discount the chips involved in the process. They make the technologies work, and are vital to the performance and the industry as a whole. These technologies depend heavily on the semiconductor industry to provide the computing power necessary.

Semiconductors play an essential role in our everyday lives. From using our smartphones to snap a photo to converting an image into digital data for it to be further processed into an image file, which can be shared across the different social media platforms.

This process might take a little less than a split second, but the work put into making this possible must have been unimaginable.

A connected home for the masses is no longer a far-fetched idea, with voice controlled assistants connected to lights, fans and various other devices. Meals can also now be cooked unsupervised — even as we make our way back home from a long day at work.

Complexity in the industry

Semiconductors make modern life easy and seamless. However, the process of turning raw materials (such as silicon and rare metals) into finished chips with various patented technologies is far more complex.

For example, each chip might go through thousands of workers equipped with specialised skill sets across various fields and sectors. This also sometimes involves many countries at the same time.

According to research done last year by the Global Semiconductor Alliance and Accenture, each segment of the semiconductor value chain involves 25 countries on average. In the current value chain, it might be categorised by chip design, wafer manufacturing, package, testing and assembly.

Global collaboration for the industry comes with benefits such as the ability to tap on the specialisation of each country and economies of scale. Being able to spread the supplier network also helps to mitigate some risks of overreliance over a certain part of the value chain.

However, the concentration of market share in a specific segment of the value chain will still be hard to avoid during a demand boom across the various technologies. A current example would be the case of the shortage in semiconductors.

Other than generic shortage on a whole across the segments, Taiwan Semiconductor Manufacturing Co (TSMC), market leader in the foundry for chip manufacturing, saw its supply being limited by the capacity it has in meeting the demand for high-end chips which are highly sought after by companies such as AMD and Nvidia.

The evolving landscape

Supply disruptions are also possible due to unforeseen circumstances or natural disasters. The Japan earthquake and tsunami in March 2011 is a good example for this. Japan represented around 20% of the global semiconductor market revenue at that point.

With the help of Japanese government agencies, the value chain and ecosystem of the semiconductor market took a few months to restore production levels back to normal.

In the ever evolving landscape of both the technology and semiconductor industries, R&D is one of the key drivers for companies to maintain their competitive edge. It is estimated that the global semiconductor industry invests over 10% of their revenue in R&D. Focus on Intellectual property is also essential for the ecosystem to thrive.

US semiconductor companies invest about 20% of their revenue in R&D. The US Senate also had a hand in the current situation, by passing the US Innovation and Competition Act (USICA) in June, where US$52 billion ($70 billion) was granted for the improvement of the manufacturing, and R&D of US chips.

Use of semiconductors during the pandemic

To maintain productivity, digital transformation efforts in various industries continue to be pushed — despite the disruptions caused by an ongoing global pandemic. After all, there was an increase in usage of medical devices, testing and tracing systems, creating vaccines while providing virtual workspaces and telecommunication platforms. These devices, applications and items all involve the use of semiconductors in one way or another.

The two essential medical instruments used in our fight against Covid-19 that rely on semiconductors are portable ultrasound devices to identify symptoms swiftly and ventilators, one of the key devices needed to treat patients with severe lung damage.

Semiconductor also played an essential role in enabling medical instruments for the testing and tracing of Covid-19 cases. Temperature screenings, which are commonly used for malls, offices and public facilities are done through thermal cameras or non-contact forehead infrared thermometers which use semiconductors for the sensors which allow for digital readings.

Vaccines are usually rolled out only after years of development. However, the rapid spread of Covid-19 squeezed timelines shorter, pressuring scientists to roll out vaccines as quickly as possible. Semiconductors thus aided scientists in the processing of huge chunks of data and the running of tests that were essential in the development of a cure.

Semiconductors here to stay

It was hard for most to carry on after Covid-19 control measures kicked in. Schools, offices and even retail businesses moved online, using many chips in the form of communication and hosting of data.

Businesses were given a lifeline through the use of technology. Now, owners can meet virtually over video calls, in order to preserve work life continuity. Students were also able to continue their learning journey over webinars and recorded lessons.

Meanwhile, delivery apps and shopping websites were an avenue for people in a pandemic to turn to. Delivery of such purchases uses semiconductors to make the process more efficient for both the user and business owners.

In short, semiconductors are here to stay. With the increased adoption of digital services through smartphones, smartwatches and even smarter home devices, semiconductors will continue to be in high demand to improve the experience and efficiency of such services.

Teo Huan Zi is branch manager at Phillip Investor Centre (Toa Payoh)

Photo: Maxence Pira/Unsplash

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