On your mark, get set, chip – Race for semiconductors

Suddenly, everything changed, recalls Johann Bock. “There used to be plenty of chips. Suddenly they were no longer available,” says the managing director of the Austrian Becom Group, looking back over the past few years. The lockdowns in the wake of the corona pandemic revealed weaknesses in production and distribution for the first time, according to Bock, whose company produces electronic parts for industry, including for PALFINGER. “All of a sudden, it was a challenge to get semiconductors. For us, and for our partners and customers. Production was shut down for the first time during the pandemic. And then came 5G as a new technology, along with new products in the automotive industry and new battery technologies, which boosted market demand even further,” says Bock.

Following the rapid economic upswing in 2021, competition on the world market intensified. What started out as good news has become a challenge, says Bock. This is because producers began to look for the most lucrative customers among their customers and let companies like Becom know that delivery times will be extended. “We asked our customers early on to provide us with a preview of their needs. Preferably over a period of at least 15 months, or even better over 24 months. This helps us plan and place our orders well in advance.” A request that some customers were unable to comply with, or only up to a maximum of six months.

Strategic partnerships

During the chip shortage, Becom has been intensifying strategic cooperation with its OEMs. “Together, we have applied more pressure on the producers. By highlighting important applications such as supply systems for power plants and medical technology, so it was more likey that we were able to make a difference in the supply available to us,” says Bock.

At the same time, Becom is working with brokers on the free market (a process that PALFINGER also uses as part of its purchasing strategy) and offering alternative suggestions to customers. “We put a lot of thought into this and, based on our experience, were able to recommend suitable alternative components to get round the shortage without compromising the quality of the product,” says Bock. Sometimes you need to be flexible.

Since then, Johann Bock has seen the situation relax a little. Around the turn of the year 2023/24, the supply situation and the market should have calmed down again. “What we need to learn from this is to think and plan for the long term,” is his first conclusion. It is important to be prepared to handle future bottlenecks better.

Lessons learned from the shortage

Is this a call to stock up on chips, of all things? This idea is not so absurd, says Bock: “Like our customers, we are active in more conservative industry segments. This involves products that have a long lifespan and for this reason alone are not necessarily fixated on the newest and latest generation of semiconductors. In this respect, a certain level of stock would not be a bad idea.” As one strategy among several. But the most important thing is to think about the production sites, says Bock: “We've known since 2020 and 2021 that we have too little production capacity here in Europe. That has to change. And quickly.”

The managing director of the Becom Group is not alone here. In fact, things are starting to change within the European Union. Intel is planning to set up a new semiconductor production plant in Magdeburg, Germany, and Wolfspeed wants to produce silicon carbide chips in Saarland. And the EU is providing 32 billion euros in subsidies to promote this industry.

Investments in the future

That is a lot of money by European standards. Johann Bock, however, is familiar with the sums that are being made available elsewhere: “Let's take America, where 122 billion US dollars is available for this alone, Taiwan — where most chips are already produced in the world today — provides an estimated 102 billion US dollars in funding. Japan at 18 billion, South Korea 13 billion, and China at 3.2 billion cannot compete with that. But we must keep the American sum in mind. The USA has recognized the importance of this technology and is doing everything it can to regain its claim to leadership in production.”

The government in Washington isn't just investing in semiconductor technology. With its Inflation Reduction Act, the Biden administration is launching a 370 billion US dollar funding program, including for climate-friendly technologies. For years, China has consistently invested in future industries that are unthinkable without chips — such as artificial intelligence, robotics and electric mobility. This is what is commonly referred to as industrial policy. A term that, like geopolitics, has been out of fashion in Europe for some time. But now it is back with a vengeance.

Using Europe's strengths

“We need to invest more,” says Bock. “We need to spend more money, we need to use our European strengths to our advantage.” And Europe has many strengths on its side. Bock refers to expertise in mechanical engineering, for example. The world's largest manufacturer of the highest performance production equipment for latest-generation chips is a Dutch company. Then, there is expertise in research and development. “Ground-breaking research on chips is largely carried out at European universities. We must make use of these strengths. Otherwise, we will be faced with the same problem here as with the pharmaceutical industry. We need to convert research into production. And we need to do that much faster. That is where investment is needed.”

The shortage of semiconductors, says Johann Bock, is a wake-up call for Europe as an industrial location. If the wake-up call is taken seriously, then the current chip shortage will have had a positive effect in the long term.