SINGAPORE — German chip giant Infineon Technologies is urging automakers to rethink their “just-in-time” supply chain strategy and instead start building up stockpiles of semiconductors as the global shortage of the key components drags on.
The company, a leading provider of auto-related chips, predicts the chip crunch could last through the end of next year, Helmut Gassel, Chief Marketing Officer and a member of the Management Board of Infineon, told Nikkei Asia.
Infineon is struggling with “very low inventory levels of products across multiple industries,” Gassel said, with the shortage “most visible” in the automotive sector.
The company supplies a broad range of sectors, including consumer electronics, industrial machines and new applications such as the Internet of Things and smart cities.
Gassel was in Singapore on Wednesday for a technology conference held by the company, where it announced a partnership with Singapore’s CapitaLand Investment and South Korea’s Hyundai Motor Group to support startups in Asia.
“Just-in-time” supply chain management — in which parts are delivered just as they are needed for assembly — has been the norm in the auto industry for decades, as it helps minimize inventory and increase efficiency.
The global chip shortage that emerged last year, however, has thrown a wrench in supply chains across a number of industries, leading some to argue for a new strategy.
Gassel said the shortages are “most pronounced” in logic chips manufactured using generations-old technologies, specifically those in the 20-nanometer to 100-nm range. Such chips are embedded in microcontrollers widely used in vehicles, and Infineon predominantly outsources their manufacturing to foundries in Asia, including Taiwan Semiconductor Manufacturing Co., the executive said.
Gassel stressed that his company is working “as much as we can with our manufacturing partners in order to secure as much capacity [as possible].” Despite this, Infineon anticipates the chip shortage in the auto sector lasting into 2022. “The chances are that it will be for the entire year of 2022,” he said.
Infineon is an industry leader in power semiconductors and sensors, which the company manufactures in-house. The demands for both products are increasing rapidly, particularly in the auto industry and, more specifically, for electric vehicles and hybrid vehicles. They are also used in advanced driver-assistance systems and autonomous driving technologies. The company recently opened a semiconductor factory in Villach, Austria, to ramp up output of power semiconductors. It also announced it will invest around 2.4 billion euros ($2.8 billion) in fiscal 2022, up 50% from the previous year, boosting production capacity to match much-needed supply in the industry.
However, the executive warned that the semiconductor industry is “very capital intensive, [which means] nonutilized equipment would be very costly.” This, he said, means it is very difficult for the industry to maintain enough excess capacity to prepare for unexpected events such as a sudden spike in demand or a major production halt, both of which are happening simultaneously during the COVID-19 pandemic.
The new manufacturing site in Villach “was announced in 2018 and completed in 2021, and that was very fast,” Gassel said. “You cannot do that overnight, and you cannot simply increase the capacity, and you cannot have the underutilized capacity. So the only chance you have to match demand and supply is with some level of inventory and forecasting.”
Gassel added that “inventory levels have been particularly low in the automotive industry, [since] they tended to be lean.” But this, he said, needs to change. With semiconductors being such a long lead time item, and it taking a long time to build additional capacity, “it makes sense to have a reasonable amount of inventory [in the auto supply chain] in order to buffer additional demand.”
Failure to act, Gassel warned, could worsen the situation in the near future. “When you go to electromobility, you’re doubling the value of the semiconductors that go into a vehicle. And when we then go to autonomous vehicles, you almost do that again,” he said.
“[The] share of the semiconductor values in the vehicle is substantially rising … which, of course, makes the management and the balance between these two industries, the car industry and the semiconductor industry, more relevant than in the past,” Gassel said.