Infineon boss warns of the next chip bottleneck

Munich First the pandemic, then the storms, now the war in Ukraine: One crisis after the other is showing the chip industry how vulnerable its global supply chains are.

“In some cases there are strong dependencies on individual materials and countries,” warned Infineon CEO Reinhard Ploss in an interview with the Handelsblatt. In principle, his company makes sure that raw materials and preliminary products are obtained from several independent sources. However, the dependencies cannot be completely resolved.

For decades that wasn’t a bad thing: the supply of the right raw materials at the right time seemed to have become a matter of course. Now, however, the question of raw materials is back on the agenda of corporate executives with renewed force. Huge demand meets growing shortages. And almost every day a new substance is noticed whose replenishment seems to be in acute danger for the industry.

The gas neon, which is important for the production of semiconductors, is currently threatening to become scarce due to the war in Ukraine.

For the chip industry, this is just the latest in a series of bad news in terms of supply chains: the industry has not been able to meet demand for some time. If you order today, you won’t get the components for a year. With the corresponding consequences for other branches of industry that depend on semiconductors.

If the chip manufacturers deliver too late, the customers can often no longer produce. Any further bottlenecks caused by a shortage of raw materials would be hard to cope with. Cars and electronic devices from many manufacturers are already being delivered in fewer numbers and on time than in the past. Just last week, Audi announced that production in Bratislava was closed due to a lack of chips.

Despite this enormous risk, the chip industry is reluctant to give up the global division of labor. “If we turn back globalization, we will have to accept massive inefficiencies,” warns Infineon CEO Ploss. Chip production would become more complex and therefore more expensive. Simply stocking up is not enough. Ploss explains: “We sometimes maintain significant reserves. But some substances have expiration dates.”

Reinhard Ploss

The Infineon boss registers that customers are more willing to pay for security of supply.

(Photo: dpa)

Manufacturers are trembling about a gas from Ukraine

Chip manufacturers are currently concerned about the supply of the gas neon, which is important for their production. Up until a few weeks ago, half of the world’s resources came from companies in the embattled Ukrainian port cities of Odessa and Mariupol – whose production is now failing.

Neon is used for helium-neon lasers, which are used to expose the silicon wafers, called lithography. The neon stocks are still enough. But the consulting company Alix Partners warns: “If the conflict between Ukraine and Russia lasts longer, there could be significant delivery bottlenecks for neon and thus a new crisis in global chip production.”

The chip industry cannot do without neon in the short term, explains Infineon boss Ploss: “We cannot simply exchange certain chemicals.” It can take a year to substitute them or to adapt the processes. “Some things can hardly be replaced.”

The microchip industry is particularly globalized. Important raw materials are extracted from mines in African countries, but also in Latin America and China. The raw materials are mostly used in Japan and Europe to produce chemicals and silicon wafers, from which the chips are made.

The software for chip design mostly comes from the USA, as do the machines for production, more rarely from Japan and Europe. It all comes together in Taiwan and South Korea, where the chips are made. This is followed in China and Malaysia by what is known as the back end, i.e. packaging and testing.

If there are problems with one of the production steps, the entire system comes to a standstill. Last year, several back-end factories in Malaysia closed due to the corona pandemic, including Infineon’s largest such site. As a result, automakers from Ford to General Motors to Toyota had to cut production because they didn’t have the chips. A winter storm in Texas that shut down local factories and a fire at a factory owned by Japanese chipmaker Renesas had previously caused delivery problems.

Read more about the chip crisis here:

Another problem is the production structures on site: The chip companies and their suppliers rely on the largest possible systems. If one fails, this has far-reaching consequences. Infineon boss Ploss explains: “Effects of scale in the chip industry speak in favor of expanding individual locations and not distributing them, that’s part of the dilemma.”

Intel settlement as a signal for the chip industry

In order to become less dependent on deliveries from Asia, Europe subsidizes the chip industry on a large scale. The EU Commission wants to increase Europe’s share of global production from ten to 20 percent. Currently 80 percent come from Asia. The US group Intel is therefore receiving more than five billion euros in support for the construction of two factories in Magdeburg.

However, according to Ploss, technological sovereignty has its limits. “It doesn’t work to position yourself completely independently. Then we would need all capacities worldwide twice.” The chip prices would go through the roof.

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Max Milbredt, semiconductor expert at the federal location agency Germany Trade and Invest (GTAI), also warns: “No region will ever become autonomous in the chip industry.” Nevertheless, one wants to bring more added value to Germany. And the settlement of Intel announced in mid-March is an important signal. “Other companies will also take a close look at what Intel is doing there,” says Milbredt. There are already positive signals: “Even labour-intensive electronics manufacturers are increasingly looking to Europe.”

Alix Partners advisers recommend looking into establishing significant neon production outside of Ukraine. Whether it will come to that and who could invest at all is completely open.

Earthquake paralyzes chip factories in Japan

After all, the buyers of the chip industry seem more willing to dig deeper into their pockets. Infineon CEO Ploss says: “More and more customers are willing to invest in security of supply. The automotive industry and mechanical engineering, for example, have recognized the topic. In other sectors, there is less awareness of this.”

The past week showed again how important it would be to distribute chip factories and their suppliers worldwide. Because of an earthquake in Japan, Intel competitor Renesas had to completely shut down operations in two semiconductor factories and partially shut down another one.

This is bad news for car manufacturers in Wolfsburg, Sindelfingen and Detroit. Because almost a third of all microcontrollers for cars come from Renesas – these are minicomputers without which you can’t even move the window panes up and down.

More: Chip crisis: Apple supplier AT&S is sold out until 2026

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