Everything you need to know about the global chip shortage

Manufacturing Basics

Willy Shih, a Harvard Business School professor, provides insights into the intricate world of chip manufacturing. He explains that chips are made of silicon and contain transistors, which are essential for processing binary code. The manufacturing process involves multiple steps, including lithography and etching, to build layers of transistors on silicon wafers.

You need to execute each step with very high yield because if you had 99% yield for the first step and 99% for the second step, you and I would think, wow, that's pretty good, right? But if you take 99% yield through 700 steps, by the time you're done, you'll get nothing at the end.

--- Willy Shih

This complex process requires precision to ensure high yield and efficiency, as even a minor error can result in significant losses 1 2.

   

Fab Construction

Building semiconductor fabs is a costly and time-consuming endeavor, especially in regions like the US compared to Asia. Willy Shih highlights that constructing a fab can take years and billions of dollars, with Asia often completing projects faster due to fewer regulatory hurdles. The advanced tools used in these fabs, such as lithography machines, are incredibly expensive and complex.

In Asia, the mentality is like every day, every hour, this thing isn't running. Cost me tens of thousands, hundreds of thousands, sometimes millions of dollars.

--- Willy Shih

This urgency contrasts with the slower pace in the West, where regulatory processes and cultural differences impact construction timelines 3 4.

   

Design & Assembly

The design and assembly of chips involve a complex supply chain and meticulous planning. Willy Shih explains that engineers use computer software to design chips, often incorporating pre-designed IP blocks to ensure functionality. Once designed, chips are manufactured on silicon wafers and then sent to assembly and test factories in Asia.

It's a long, sequential process that crosses many national borders, and that gives you lots of opportunity for things to go wrong when you have something like Covid come in.

--- Willy Shih

These factories test, package, and assemble the chips into final products, highlighting the global nature of the semiconductor supply chain 5 6.