How DC/DC Converter Customers Are Suffering From Worldwide Semiconductor Shortage

The semiconductor industry relies on complex global supply chains involving multiple stages, including the production of raw materials, fabrication of chips, assembly, and testing. Disruptions at any stage of the supply chain, such as natural disasters, trade tensions, or logistical challenges can disrupt the flow of components and impact production capacity.

Over the last couple of years, the woes of the semiconductor industry have become front-page news around the world. There have been disruptions before, primarily driven by supply-demand mismatches. However, the COVID-19 pandemic played a significant role in precipitating the current crisis.

Disrupted supply chains

The pandemic disrupted supply chains globally due to lockdowns, travel restrictions, and border closures. This led to delays in the transportation of raw materials, components, and finished products. Semiconductor manufacturers faced challenges in receiving necessary inputs and delivering products, affecting production and distribution.

Semiconductor plant shutdowns

In response to the pandemic, many semiconductor manufacturing facilities had to temporarily suspend operations to comply with health and safety guidelines or due to reduced demand. These shutdowns disrupted the supply of semiconductors and created a gap in production capacity.

In addition to these immediate effects, several related factors contributed to lengthening the semiconductor shortage by disrupting the normally finely tuned balance between supply and demand.

• Unforeseen automotive demand: The automotive industry experienced a sudden decline in demand at the beginning of the pandemic, leading automakers to reduce their semiconductor orders. Faced with the prospect of their fabs running at reduced production, semiconductor fabs reallocated capacity to the next customers in line. When consumer demand for vehicles rebounded faster than expected, automakers had no semiconductors in the pipeline, leading to production delays and reduced output. Remember all those pictures of almost completed vehicles just waiting for that one critical electronic module?
• Increased demand for electronics: As people around the world were forced to work, study, and entertain themselves from home during lockdowns and restrictions, there was a surge in demand for electronic devices such as laptops, tablets, gaming consoles, and home appliances. This sudden increase in demand placed additional strain on semiconductor manufacturers.
• The shift in consumer behavior: The pandemic caused a shift in consumer behavior, with increased reliance on e-commerce, online streaming, and digital services. This led to a higher demand for data centers, cloud computing infrastructure, and networking equipment, which in turn increased the need for semiconductors.

While the shortages are evident at several stages of the DC/DC converter supply chain, RECOM’s longstanding arrangements with suppliers have ensured adequate stock for all products.

Although leading-edge devices using sub-10nm nodes manufactured on 300mm wafers tend to grab most of the attention, these aren’t suitable for power applications. DC/DC converter and other power semiconductors tend to use more mature nodes ranging from 350nm to 90nm manufactured in older fabs that use 200mm wafers.

For several years, worldwide 200mm fab capacity has been tight. Manufacturers are building new 200mm fabs and migrating older processes from 200mm to 300mm production, but adding new capacity is a lengthy process. One major manufacturer estimates that building a new fab takes about three years, 6,000 construction workers, and US$10 billion. It’s possible to add production capacity to an existing fab, of course, but that requires a vast array of additional equipment such as probing machines, polish and edge grinders, and photolithography equipment. However, manufacturers of such equipment are already running flat out in many cases.

The expectation is that shortages will continue across several device types. Two devices that are critical to DC/DC converter production, power MOSFETs and power management ICs (PMICs), have been among the mature-node devices facing severe supply constraints over the past couple of years.

Even before manufacturers of passive components such as resistors and capacitors were sending employees home due to the pandemic, long-term trends showed a significant rise in demand for their products. Multilayer chip capacitors (MLCCs) are a good example. Automobiles are adding capacitors at a prodigious rate, driven by the switch to electric vehicles (EVs) and the rise in sophisticated functions such as advanced driver assistance systems (ADAS). A standard combustion engine vehicle uses between 2,000 and 3,000 capacitors. Consumer demand and government mandates drive the market share of EVs with advanced features, creating an overwhelming growth in content—as many as 22,000 MLCCs are required in a single EV with ADAS features.

Automobiles aren’t even the largest market for MLCCs. That honor belongs to smartphones. Around 1.5 billion smartphones are produced each year, with flagship models containing up to 1000 capacitors each. DC/DC converter users are feeling the pinch as capacitor manufacturers divert production from larger-value capacitors needed for power applications to meet the burgeoning demand for the much smaller value components required by smartphones.

Manufacturers of the key raw materials used in semiconductor manufacturing were affected by factory closures and disruptions just like everyone else. As a result, the prices of raw materials—acutely sensitive to the balance between supply and demand—have shown a steady increase over the last few years. Copper prices have risen about 80% since the beginning of 2019 and resin prices are up by 18%. And at one point in 2022, Ukraine's two leading suppliers of semiconductor-grade neon gas responsible for about half the world's supply, halted their operations as Russia increased strikes on the country, threatening to raise prices and aggravate existing shortages.

There has even been a shortage of cardboard boxes for shipping. As the pandemic hit and online shopping skyrocketed, retailers like Amazon began stockpiling cardboard to meet demand, leaving many smaller suppliers empty-handed. In early 2021, the price of cardboard reached a record high, according to the Producer Price Index and the US Bureau of Labor Statistics.

At least, this shortage might be ending. The US box shipments fell by 8.4% in the fourth quarter of 2022 according to an industry trade group, perhaps signifying a switch from over-demand to over-supply.

Amid all this doom and gloom, you’re probably wondering how this will affect your supply of DC/DC converters and what RECOM is doing to ensure continued supply and keep your production lines running.

As we’ll find out in Part 2, RECOM has been keeping a close eye on market dynamics as they affect the product lines and have put procedures in place to minimize the effect on customers. Find out more in our next blog.