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We’re still stuck in a semiconductor shortage, but the secondary market can help

We’ve learned the hard way that a missing 10-cent chip can delay production on a $30,000 car.

We’re still stuck in a semiconductor shortage, but the secondary market can help
[Photo: sefa ozel/Getty Images]

Supply-chain bottlenecks and the shift by consumers during the past 27 months to goods from services have combined to create the worldwide semiconductor shortage. A combination of high demand and the projected long-term dearth of chips is particularly pronounced regarding silicon wafers that are 200 millimeters in diameter. Those chips are vital components in things consumers everywhere use daily, such as cars, personal computers, smartphones and TVs.

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Competitiveness on the bleeding edge of semiconductor manufacturing is a concern—fueling support for the CHIPS for America Act. But, less complex, still critical and widely-used semiconductors produced on legacy nodes might be those that ultimately impede supply. The problem, as automotive manufacturers learned the hard way, is that a missing 10-cent chip can still delay production on a $30,000 car. 

Semiconductor Engineering reported in January that the current demand for chips at more mature nodes is unprecedented. The pandemic spurred “a buying spree for new PCs and TVs. Then, in 2021, demand spiked for cars, smartphones and other products.” Despite the existence of more than 200 fabrication plants (fabs) globally that make 200mm wafers, industry analysts say the scarcity of foundry capacity, as well as 200mm equipment itself, likely will persist for years.

The February acquisition of Israel-based Tower Semiconductor by Intel is an example of how chipmakers are grappling with the problem. SEMI, the global association that represents the electronics and supply chain design industries, reported in April that semiconductor manufacturers around the globe will boost 200mm capacity to 6.9 million wafers per month by the end of 2024 to overcome the chip shortage, with five new 200mm fabs under construction last and this year.

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Even with such added supply, however, it’s still not enough to meet current and future demand.

The role of the secondary equipment market 

Chipmakers require thousands of new or refurbished 200mm cores for expanding fabs and the construction of new fabs throughout the globe. DigiTimes estimates foundries and manufacturers will spend $4.9 billion on 200mm equipment this year. But the equipment and parts shortages have extended chip manufacturers’ wait times up to 18 months. Such delays are the worst in decades.

Yet, a too-oft overlooked solution now exists: the secondary market. 

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When it comes to boosting capacity at 200mm and 300mm, the secondary market will be especially critical.

SEMI projected in December that semiconductor equipment sales worldwide would top $100 billion for the first time. Public data for the used semiconductor equipment market is sparse. The secondary market historically has been responsible for 5 to 10% of new equipment sales. With demand soaring for out-of-production and hard-to-find equipment, the true value of the secondary market is likely much higher.

Expenditures on used equipment within my own company’s global marketplace, Moov Technologies, mushroomed by more than 200% in 2021 compared to 2020. We estimate the annual minimum worldwide value of the secondary market to be $10 billion. We project that total to approach $50 billion annually within the next several years.

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Potential barriers

As nations race to secure more stable sources of semiconductors, a kind of “silicon nationalism” has begun to emerge.

In the United States alone, semiconductor manufacturing capacity has plunged to 12% today from 37% in 1990, “mostly because other countries’ governments have invested ambitiously in chip manufacturing incentives and the U.S. government has not,” according to the Semiconductor Industry Association (SIA), a trade association and lobbying group in Washington, D.C. While the United States most critically lags behind at the bleeding edge, global leaders also see 200mm-foundry capacity outside China falling short. “China will lead the world in 200mm capacity with 21% share in 2022,” according to SIA, “followed by Japan with 16% and Taiwan and Europe/Mideast at 15% each.” The United States did not make the list.

The chip deficit is forcing countries to shorten and domesticate chip supply chains.

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President Joe Biden in May reiterated the urgency the administration feels for increasing U.S. semiconductor production. Biden said passage of the Bipartisan Innovation Act would “help bring down prices, bring home jobs, and power America’s manufacturing comeback.” The legislation includes $52 billion in government subsidies to accelerate domestic chip manufacturing. Another bill, the Facilitating American-Built Semiconductors Act, would create a semiconductor investment tax credit. 

From the  European Chips Act to China’s  Made in China 2025 initiative, countries around the world are investing billions of dollars into domesticating chip production.

While investing in domestic manufacturing is a good thing, silicon nationalism has also nurtured a protectionist posture–one in which several countries are determined to strengthen domestic supply chains and hoard chips for sectors spanning defense, telecommunications and health care.

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If mercantilism supplants global cooperation in the semiconductor industry, links within the worldwide chip supply chain could begin to shatter. A semiconductor product in the current ecosystem may cross international borders more than 70 times on its way to the consumer. The ability of some countries to obtain the chips that power everyday activities for billions of people could be hampered—as would the access to the secondary equipment market. 

The secondary market for semiconductor manufacturing equipment is a crucial solution to chip shortages. It is innately global due to the specialization countries have developed to focus on different sections of the semiconductor supply chain. A country’s ability to sell an idle tool to a manufacturer elsewhere is invaluable.

Steven Zhou is the co-founder and CEO of Moov Technologies.

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