Innovative business models emerge, but so does possibility of consolidation.
A surge in demand for chips is impacting the IC packaging supply chain, causing shortages of select manufacturing capacity, various package types, key components, and equipment.
Spot shortages in packaging surfaced in late 2020 and have since spread to other sectors. There are now a variety of choke points in the supply chain. Wirebond and flip-chip capacity will remain tight throughout 2021, along with a number of different package types. In addition, critical components used in IC packages, namely leadframes and substrates, are in short supply. Recent fires at a packaging substrate factory in Taiwan has made the problems worse. On top of that, wirebonders and other equipment are seeing extended delivery lead times.
Generally, the dynamics in packaging reflect the overall demand picture in the semiconductor business. Starting in mid-2020, the server and notebook markets gained steam, creating huge demand for different chips and packages for those markets. In addition, a sudden rebound in the automotive sector has turned the market upside down, causing widespread shortages for chips and foundry capacity.
Shortages in the semiconductor and packaging markets aren’t new and occur during demand-driven cycles in the IC industry. What’s different is the industry is finally beginning to recognize the importance of packaging. But the fragility in some parts of the packaging supply chain, particularly substrates, has caught many off-guard.
Supply chain constraints already are causing some shipment delays, but it’s unclear if the problems will persist. Needless to say, there is a pressing need to shore up the packaging supply chain. For one thing, packaging is playing a bigger role across the entire industry. OEMs want smaller and faster chips, which require new and better IC packages with good electrical performance.
At the same time, advanced packaging is becoming a more viable option to develop new system-level chip designs. The power and performance benefits of chip scaling are diminishing at each new node, and the cost per transistor has been on the rise since the introduction of finFETs. So while scaling remains an option for new designs, the industry is searching for alternatives, and putting multiple heterogeneous chips in an advanced package is one solution.
“People have realized the importance of packaging,” said Jan Vardaman, president of TechSearch International. “It’s elevated to the discussions at the corporate levels at companies and semiconductor companies. But we are at a juncture in our industry where we simply can’t meet the demand without our supply chain being in a good position.”
To help the industry gain some insights in the market, Semiconductor Engineering has taken a look at the current dynamics in packaging as well as the supply chain, including capacity, packages, and components.
Chip/packaging boom
It’s been a roller coaster ride in the semiconductor industry. In early 2020, the business looked bright, but the IC market dropped amid the Covid-19 pandemic outbreak.
Throughout 2020 different countries implemented a number of measures to mitigate the outbreak, such as stay-at-home orders and business closures. Economic turmoil and job losses soon followed.
But by mid-2020, the IC market bounced back, as the stay-at-home economy drove demand for computers, tablets, and TVs. In 2020, the IC industry ended on a high note, as chip sales grew 8% over 2019, according to VLSI Research.
That momentum has carried over into the first part of 2021. In total, the semiconductor market is projected to grow by 11% in 2021, according to VLSI Research.
“We’re seeing huge demand, due to IoT, edge devices, and smart devices enabled by 5G,” said Tien Wu, chief operating officer at ASE, in a recent conference call. “With high-performance computing, the cloud, e-commerce, as well as 5G low latency and high data rates, we’re seeing more applications for smart devices, electrical vehicles, and all of the IoT applications.”
Last year, the automotive market was sluggish. Recently, automotive companies have seen renewed demand, but they now face a wave of chip shortages. In some cases, carmakers have been forced to temporarily shutter select plants.
IC vendors with fabs, as well as foundries, are unable to meet demand in the automotive and other markets. “For most of calendar 2020, fabs were running at very high utilization rates — both 200mm and 300mm fabs — across just about all technologies,” said Walter Ng, vice president of business development at UMC. “The automotive segment is by no means being singled out in any way, as all segments and applications seem to be running with tight supply. Many automotive factories did have plant shutdowns during the second half of last year due to COVID. We observed many automotive semiconductor suppliers either reduced or stopped ordering during these periods. If you consider this, coupled with the auto industry’s lean inventory practices, these may be contributing factors to the auto specific shortages we are seeing today.”
There were some warning signs. “We saw automotive semiconductor suppliers’ demands begin to fluctuate around early Q2 ’20. It wasn’t until around early Q4’20 that we saw the auto semiconductor supplier demand begin to return to more typical demand levels,” Ng said. “As a general trend, we see a good amount of growth in automotive electronics, which covers the gamut of process technologies from 0.35 micron discrete MOSFET devices to 28nm/22nm ADAS products and everything in between, such as body and chassis control, infotainment and WiFi. We expect the semiconductor content for automotive to continue growing for the foreseeable future.”
All of these markets have fueled the demand for packaging capacity and packaging types. One way to quantify capacity is by looking at factory utilization rates.
ASE, the world’s largest OSAT, saw its overall factory utilization rates increase from 75% to 80% in the first quarter of 2020, to about 85% in the second quarter of last year. By the third and fourth quarters, ASE’s packaging utilization rates were well over 80%.
In the first part of 2021, overall demand for packaging capacity remains strong with tight supply seen in some segments. “We are seeing capacity tight pretty much across the board,” said Prasad Dhond, vice president of wirebond BGA products at Amkor. “Most end-markets, except automotive, remained strong throughout 2020. In 2021, we are continuing to see strength in those markets, and automotive has recovered, as well. So the auto rebound is certainly adding to the capacity constraints.”
Others, including on-shore packaging vendors, also are seeing increased demand. “Stateside packaging capacity seems to be holding steady,” said Rosie Medina, vice president of sales and marketing at Quik-Pak. “Everyone is doing what they can to manage the increased demand.”
Wirebond, leadframe shortages
A multitude of different IC package types exist in the market, each targeted for a different application.
One way to segment the packaging market is by interconnect type, which includes wirebond, flip-chip, wafer-level packaging (WLP), and through-silicon vias (TSVs). Interconnects are used to connect one die to another in packages. TSVs have the highest I/O counts, followed by WLP, flip-chip, and wirebond.
Some 75% to 80% of today’s packages are based on wire bonding, according to TechSearch. Developed back in the 1950s, a wire bonder stitches one chip to another chip or substrate using tiny wires. Wire bonding mainly has been used for low-cost legacy packages, midrange packages, and memory die stacking.
Demand for wirebond capacity was sluggish in the first half of 2020, but it spiked in the third quarter of 2020, causing wirebond capacity to tighten. At the time, ASE said that wirebond capacity would remain tight at least until the second half of 2021.
Other trends also emerged in the wirebond market. “The number of stacked dies that we’re doing is more than before,” ASE’s Wu said in a conference call in the third quarter of 2020. “So in this particular cycle, it’s not just the volume. It’s also the number of dies, the number of wires, as well as the complexity.”
So far in 2021, wirebond capacity is constrained due to a boom in automotive and other markets. It’s also becoming more difficult to procure enough wirebonders to meet demand.
“Capacity remains tight,” ASE’s Wu said in a recent conference call. “Last time, I made a comment that the wirebond shortage will be at least to Q2 of this year. Right now, we’re slightly adjusting our view. We believe the wirebond shortage will be throughout the whole year of 2021.”
In early 2020, it was relatively easy to procure wirebonders. As demand picked up in late 2020, wirebonder tool lead times extended to six to eight months. “Right now, the machine delivery lead times is more like six to nine months,” Wu said.
Wirebonders are used to make several package types, such as quad-flat no-leads (QFN), quad flat-pack (QFP), and many others.
QFN and QFP belong in the leadframe group of package types. A leadframe, a critical component for these packages, is basically a metal frame. In the production process, a die is attached to the frame. Leads are connected to the die using thin wires.
Fig. 1: QFN package. Source: Wikipedia
Fig. 2: QFN side view. Source: Wikipedia
“Typically, QFNs are wirebonded, although you can also design them for flip chip,” Quik-Pak’s Medina said. “While flip chip QFNs can come in smaller sizes/footprints than wirebonded QFNs, they are a bit more expensive to build because the die needs to be bumped. Many customers will choose QFNs for their small size and their cost-effectiveness. Traditional overmolded QFN formats are an economical option for many applications. Custom sizes can also be considered economical when a standard JEDEC size isn’t applicable, such as our Open-molded Plastic Packages (OmPPs). These come in a variety of JEDEC formats and custom configurations.”
Leadframe packages are used for chips in analog, RF, and other markets. “We see stronger-than-ever demand for QFN packages,” Medina said. “They are used in many end markets, such as medical, commercial, and mil/aero. Handhelds, wearables, and boards with many components are prime applications.”
During the boom cycles, though, the challenge is to obtain an adequate supply of leadframes from third-party suppliers. The leadframe business is a low-margin segment that has undergone a wave of consolidation. Some suppliers have exited the business.
Today, demand is robust for QFN packages, which creates the need for more leadframes. While some packaging houses are able to secure enough leadframes, others see a shortfall.
“Leadframe supply is tight,” Amkor’s Dhond said. “Supplier capacity is not able to keep up with demand. Precious metal price increases are also impacting leadframe prices.”
Advanced packaging, substrate woes
Demand is also robust for many advanced package types, especially flip-chip ball grid array (BGA) and flip-chip chip-scale packages (CSPs). The volumes are also increasing for 2.5D/3D, fan-out, and system-in-package (SiP).
Flip-chip is a process used to develop BGAs and other packages. In the flip-chip process, copper bumps or pillars are formed on top of a chip. The device is flipped and mounted on a separate die or board. The bumps land on copper pads, forming electrical connections.
Fig. 3: Side-view a flip-chip mounting. Source: Wikipedia
Driven by automotive, computing, notebooks, and other products, the flip-chip BGA packaging market is expected to grow from $10 billion in 2020 to $12 billion by 2025, according to Yole Développement.
“Overall capacity for flip-chip products will continue to run at high utilization in 2021, with equipment lead times pushing out to greater than 2X what we typically experience,” said Roger St. Amand, senior vice president at Amkor. “Based on available forecasts, we expect this trend to continue through 2021, and into 2022, driven by higher demand in the communications, computing, and automotive market segments. In general, we are seeing this trend across all flip-chip package technologies.”
Meanwhile, fan-out and fan-in packages are based on a technology called WLP. In one example of fan-out, a memory die is stacked on a logic chip in a package. Fan-in, sometimes called CSPs, are used for power management ICs and RF chips. In total, the WLP market is projected to grow from $3.3 billion in 2019 to $5.5 billion by 2025, according to Yole.
2.5D/3D packages are used in high-end servers and other products. In 2.5D, dies are stacked or placed side-by-side on top of an interposer, which incorporates TSVs.
Meanwhile, a SiP is a custom package, which consists of a functional electronic subsystem. “We’re seeing a wide variety of new SiP projects that covers optical, audio, and silicon photonics, as well as a lot of smartphone edge devices,” ASE’s Wu said.
Many of these advanced package types use a laminate substrate, which are in short supply. Other packages don’t require a substrate. This depends on the application.
A substrate serves as the base in a package, and it connects the chip to the board in a system. A substrate consists of multiple layers, each of which incorporates metal traces and vias. These routing layers provide the electrical connections from the chip to the board.
Laminate substrates are either double-sided or multi-layer products. Some packages have two double-sided layers, while the more complex products have 18 to 20 layers. Laminate substrates are based on various material sets, such as Ajinomoto (ABF) build-up materials and BT-resin.
Generally, in the supply chain, packaging houses buy substrates from various third-party suppliers, such as Ibiden, Kinsus, Shinko, Unimicron, and others.
Problems began to surface last year when demand surged for laminate substrates, causing tight supply for these products. The issues escalated late last year, when a fire broke out at a manufacturing plant owned by Taiwan’s Unimicron. Unimicron transferred the production to other facilities, but some customers were still unable to obtain enough substrates to meet demand.
Another fire broke out in the same Unimicron plant in recent weeks, when workers were cleaning the factory. At the time, though, the plant was not in production.
Ongoing demand, coupled with various snags in the supply chain, are making the substrate situation much worse in 2021. In some cases, prices for substrates are increasing with extended lead times.
“Similar to what we are experiencing for equipment, we are seeing considerable increases in flip-chip substrate lead times,” Amkor’s St. Amand said. “In some cases, substrate lead times are increasing to greater than 4X what is typically seen in the industry. This trend is being driven mainly by the sustained higher demand for large body and high-layer count singulated ABF substrates for the computing sector. Additionally, we are seeing a strong recovery of the automotive industry, which in some cases is competing directly with the aforementioned demand for higher end computing substrates. We are also seeing increased demand for strip-based PPG substrates used for smaller-body products in the communications, consumer, and automotive segments.”
Meanwhile, the industry is working on solutions to solve the problem, but these approaches may fall short. “I would argue that the business model for IC package substrates is basically broken,” TechSearch’s Vardaman said. “We need to have some kind of new approach to these business relationships to guarantee supply. We have beat these poor substrate suppliers practically to death on pricing. They have not been able to maintain their margins. It is not a healthy situation.”
There is no quick fix here. Substrate suppliers could simply raise their product prices to boost their margins, but this doesn’t solve the capacity problems.
Another possible solution is for substrate vendors to build more manufacturing capacity to meet demand. But a large-scale advanced substrate production line costs about $300 million.
“The level of investment needed is not something these substrate companies are comfortable making if they don’t think the capacity will be utilized within two or three years,” Vardaman said. “They need to get a return on their investment, and it’s going to be very difficult to do if they think there’s going to be a decrease in demand. And what happens when they invest in too much capacity, then prices fall? They can’t make their return and their margins suffer. So it’s a really tough situation. I would say that we’re in a really bad situation in our industry because of this.”
A less expensive option is to simply boost the yields on an existing substrate line, enabling more usable products. But vendors would need to invest more in new and expensive metrology equipment.
Packaging houses also are looking at different solutions. The most obvious one is to procure substrates from different vendors. But it takes 25 weeks or $250,000 to qualify a new substrate vendor, according to Vardaman.
Alternatively, packaging houses can develop and sell more substrate-less IC packages. But many systems require packages with substrates, which in some cases are more robust and reliable.
The situation isn’t hopeless. Packaging houses need to work more closely with their suppliers. “We are working with our customers to get longer term forecasts to order materials,” Amkor’s Dhond said. “We are qualifying second sources to assure supply where appropriate.”
This creates some new opportunities, as well. Quik-Pak last year unveiled a substrate design, fabrication, and assembly service. With this service, the company supports various package substrates types. “We are definitely seeing increased demand for our substrate development services, through which we create turnkey solutions for substrate-based assemblies to accommodate our customers’ packaging requirements,” Quik-Pak’s Medina said. “Our ability to pool customer requests together and leverage price and lead time to select the right fab partners is crucial to keeping the supply of substrates within reasonable delivery schedules. Stateside vendors can shorten the lead time by more than 50%.”
Conclusion
Clearly, demand for packaging has skyrocketed, but the industry must strengthen the supply chain. Otherwise, packaging vendors will face more delays, if not lost opportunities.
The downside is that all of this will take more investment, and consolidation of the vendor base in certain segments might be necessary to reach a certain scale. But it also opens the door to new and more innovative approaches, which will be essential to make this work.
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