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August 1, 2022 - Robert Quinn

OEM Manufacturing delays & supply chain issues.

Blog # 008
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OEMs, also known as original equipment manufacturers of semiconductor equipment around the globe are having some of the most profitable years recorded in history. But with this growth, they are also experiencing severe growing pains and supply chain issues causing delays for almost all new equipment currently on order. If an OEM is not able to order a specific component like a harness plug or a robot blade, they cannot simply grab the next off-the-shelf component to fill that shortage due to the strict qualifying process that is needed to become a certified partner and or vendor supplier to the OEM. In the past, it could have taken years for a company to become a certified vendor to some of the top OEMs. Today, that process is getting cut shorter, but still, so many OEMs are experiencing challenging supply chain problems and forcing them to ship equipment short some specific parts due to long lead times. According to the Wall Street Journal, two of the biggest OEMs, Applied Materials (AMAT) and Lam Research (LRCX) both saw missed or deferred revenue due to supply chain issues last quarter.

One solution that many OEMs are implementing is to bring home domestically a lot of the component manufacturing. By reducing the long international shipping times and having more of the components made in the US, they can greatly reduce long supply chain lead times. According to Oscar Draguicevich at Fathom Digital Manufacturing Corp (NYSC: FATH), a company that locally manufactures parts for semiconductor OEMs, Fathom has seen a great influx of orders from domestic OEM manufacturing companies, for all types of parts. Companies like Fathom who can mass-produce these parts domestically are happy to grow with the new demand. However, as Draguicevich pointed out, with this demand for parts delaying production, domestic part manufacturing needs to be even more of a focus in the future and sustainable business relationships must be forged.

Today, tools from all of the top 5 OEMs of semiconductor equipment are on backorder. With component delays, OEMs cannot manufacture and test equipment fast enough to meet demand. However, with the passing of the CHIPS Act of 2022 by the Senate this week, and likely passing in the House within the week, new incentives exist to ramp up domestic manufacturing of chips, equipment, and parts. Hopefully, some of the incentives – whether through grants or the 25% tax credit outlined in the CHIPS Act – will trickle down to local parts manufacturers like Fathom to fill the seemingly but critical supply chain gaps hampering OEMs today.

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    OEM Manufacturing delays & supply chain issues.

    OEMs, also known as original equipment manufacturers of semiconductor equipment around the globe are having some of the most profitable years recorded in history. But with this growth, they are also experiencing severe growing pains and supply chain issues causing delays for almost all new equipment currently on order. If an OEM is not able to order a specific component like a harness plug or a robot blade, they cannot simply grab the next off-the-shelf component to fill that shortage due to the strict qualifying process that is needed to become a certified partner and or vendor supplier to the OEM. In the past, it could have taken years for a company to become a certified vendor to some of the top OEMs. Today, that process is getting cut shorter, but still, so many OEMs are experiencing challenging supply chain problems and forcing them to ship equipment short some specific parts due to long lead times. According to the Wall Street Journal, two of the biggest OEMs, Applied Materials (AMAT) and Lam Research (LRCX) both saw missed or deferred revenue due to supply chain issues last quarter.

    One solution that many OEMs are implementing is to bring home domestically a lot of the component manufacturing. By reducing the long international shipping times and having more of the components made in the US, they can greatly reduce long supply chain lead times. According to Oscar Draguicevich at Fathom Digital Manufacturing Corp (NYSC: FATH), a company that locally manufactures parts for semiconductor OEMs, Fathom has seen a great influx of orders from domestic OEM manufacturing companies, for all types of parts. Companies like Fathom who can mass-produce these parts domestically are happy to grow with the new demand. However, as Draguicevich pointed out, with this demand for parts delaying production, domestic part manufacturing needs to be even more of a focus in the future and sustainable business relationships must be forged.

    Today, tools from all of the top 5 OEMs of semiconductor equipment are on backorder. With component delays, OEMs cannot manufacture and test equipment fast enough to meet demand. However, with the passing of the CHIPS Act of 2022 by the Senate this week, and likely passing in the House within the week, new incentives exist to ramp up domestic manufacturing of chips, equipment, and parts. Hopefully, some of the incentives – whether through grants or the 25% tax credit outlined in the CHIPS Act – will trickle down to local parts manufacturers like Fathom to fill the seemingly but critical supply chain gaps hampering OEMs today.

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    Why does it take so long to make more chips?

    According to US Secretary of State, Gina Raimondo, chip shortages are likely to last through 2023. Intel’s CEO Pat Gelsinger, went as far as to predict shortages will last through 2024 in April. As many in the industry know, building new fabs to ramp up production is not a quick task – it can take 3-5 years to build a new fab. Expanding capacity of existing fabs is also not a “quick fix.” To truly understand why ramping up chip production is a problem without an immediate solution, it’s helpful to understand on the day-to-day level what is involved in installing new equipment in a fabrication center – from build to running full production.

    The process of ordering semiconductor equipment to run full production at the customer fab can be a long, timely process. Besides the chips themselves, semiconductor manufacturing machines can be some of the most difficult equipment that we manufacture on a large-scale production manufacturing line. To take the equipment from a custom configuration order to running full production in a fab can take years based on the type of equipment you are ordering.

    There are two methods of manufacturing and testing equipment. One is Integrated Final Test (IFT) and the other is the Module Final Test(MFT). IFT is when all of the different modules like chambers and mainframes are manufactured,integrated, and tested as a whole unit completely from back to front just like it would be set up in the fab. IFT is a more efficient way to test the unit but many fabs for the sake of time and money are going to modular final test (MFT). MFT is where individual units like the chambers, the factory interface, and the mainframe are built and tested separately, then a more detailed IFT test is run in the customer fab after all the parts are integrated. This method is cost-efficient for OEMs, especially when OEMs have separate modules made in different parts of the world.

    After a tool is shipped to its customer, the tool is unpacked, inspected, wiped down, and brought into the fab, and, depending on the type of tool, this could mean just rolling it in and plugging it into the wall outlet or carefully floating in the tool to the specific location on a specially designed hovercraft that prevents any bumps or shocks to the fragile internal equipment. After setting the tool or separate modules on a template with all the floor cutouts and sometimes shock absorption platforms, the process of integrating all the chambers, factory interface, mainframes, cables, gas lines, and sub-fab support equipment to the tool begins. Depending on the tool type and the type of install speed the customer ordered and paid for, the installation process of the tool can take days up to many months to complete the full integration of a tool. But once the tool is finally integrated and fully connected to all the facilities it is now ready for power-up and test. Many people would assume this means flipping on a switch and turning on the machine, but this is far from what really has to be done. Some of the first testing includes running virus checks, connecting the tool to the fab mainframe / AMHS, and making sure it is talking to all the other systems. Other important systems checks include running leak rates, training robots, verifying configurations, and other facilities connected to the tool. Other testing includes the operations checking of all the different components and support equipment, running particle count wafers to be sure there are no internal particle issues, uploading recipes, and running dummy wafers to be sure all the robot handoffs are correct. After days or months of testing and bringing the tool online, the next stage of running the full process on test wafers begins.

    What is a full process test? This depends on the tool and the process. Some of the equipment used in semiconductor manufacturing uses extreme temperatures as hot as the surface of the sun and pressures that can pump down to a vacuum of 1x10-9 Torr, relatively close to the vacuum of deep space that is 1x10-6 to <3x10-17 Torr.The final stage of bringing a tool online to running full production includes the final tuning, testing recipes, and verifying this tool can run full production for every wafer identically every time it runs the process.

    As we can see, the process of ordering a tool, to running full production is complex. With equipment shortages and delays leading to lead times of up to 18 months from OEMs before a tool even arrives at the fabrication center, it is easy to see how the process of expanding capacity could take not months, but years.

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    200mm and Below, Semiconductor Equipment & Parts

    With the rise of the power semiconductor industry and the current shortage of automotive chips, the 200mm market has secured a foothold that is ALMOST guaranteed here to stay. But, If you had asked the average person in the industry 23 years ago what they thought of the 200mm equipment they would have told you that the 200mm market had peaked and the migration of 300mm was here to take its place, as the phasing out of 200mm equipment began. Some fabs had upgraded all their facilities and tools to only run 300mm and all the new fabs being built were set up to run 300mm equipment. Some OEMs had shut down 200mm manufacturing lines as they ramped up the 300mm manufacturing lines and they slowly phased out supporting the supply of parts on some of the older 200mm and below equipment.

    We were on track to keep up with Moore's law and the increased chip demand only meant that we would continue migrating toward using 300mm equipment until about 2015 when we started to see a rebirth of the 200mm equipment demand.

    Today, the number of 200mm fabs has not only increased from 65 fabs in 1995 to 216 in 2022 according to SEMI but also the demand for chips using the 6µm to the 110nm nodes using older Legacy technology is keeping the average 200mm fab running at 100% capacity. Today we have far exceeded the 200mm peak of the 90s in demand, but the only difference is that a lot of the 200mm equipment being sold is used due to the fact that many OEMs quit producing and supporting them.

    A critical part of keeping any fab running is to be sure to verify that you have critical replacement parts and backup equipment to keep the manufacturing lines running when there are breakdowns, also known as equipment downs. Today, some of that equipment and those replacement parts are becoming more and more difficult to find depending on the equipment you are running. And, when you are running at 100% capacity, that makes it even more critical that your backup supply is readily available when that time comes. Today a common practice of some fabs is to purchase used equipment so that they can use it for spare parts. Other fabs search for spare parts on general-purpose marketplaces like eBay when OEMs no longer support the sale of replacement parts.

    With the advent and realization that the 200mm market is here to stay, and grow, many OEMs and fabs are carefully evaluating how this industry will move forward as they realize that the current methods are not sustainable to support the future growth of the 200mm market. Some rumors have surfaced that many OEMs may look at the possibility of bringing back some select 200mm equipment manufacturing lines and supporting spares for that equipment. Other options are to modify the 300mm equipment to run 200mm wafers or to refurbish older equipment.

    According to Carter Hall, one long-time industry expert who specializes in the 200mm and below parts industry, the parts problem could be partly resolved through 3D printing technology.

    Regardless of what the resolution is, we must come together to confront and resolve the upcoming challenges so o that we can continue providing semiconductor chips to the world.

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    Is it a Global Chip Shortage or a Global Capital Equipment Shortage?

    Unfortunately building a semiconductor manufacturing facility is not as easy as flipping a switch. despite the $52 billion investment the CHIPS Act would provide in aid to the semiconductor industry, it still does not completely solve the source of our problems.

    We could definitely solve many of these chip shortages a lot faster if we could get this Chips Act passed & confront the true shortage of capital equipment that is manufactured by original equipment manufacturers (OEMs).

    Today OEMs are experiencing some of the worst extended lead times on parts and some of the worst supply chain issues they have ever had to deal with as they attempt to produce the highest amount of orders they have ever seen. With all the compounding problems, OEMs are also experiencing supply chain lags, staffing issues, geopolitical tensions, and COVID shutdowns around the world. Today, most OEMs struggle to produce and fill the current backlogs of equipment orders for their customers like Intel, Samsung, & TSMC.

    Although it does not seem likely they will immediately solve many of these issues at hand, it may take some out-of-box thinking and time to solve many of these bigger problems. Companies like Moov Technologies and GTI are attempting to solve some of these issues by refurbishing older equipment and reselling idle or unused equipment to companies that are either using older technology or just can not wait for the extended lead times we are seeing for purchasing equipment today.

    To deal with chip shortages, we have to confront the problem at the source. Capital Equipment spending is expected to reach $98 billion in 2022. As it turns from a chip shortage to a manufacturing equipment shortage OEMs and Fabs will have to work together and in conjunction with government funding to proactively plan and deal with this global surge of capital equipment spending. As OEMs benchmark proactive companies like Intel who are investing in things like education as they train the future workforce to run the fabs of tomorrow, OEMs too will need to invest and act in a proactive method to better handle the problems at hand.