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EPISODE #01 | June 22, 2021

Zuken says: “The Chip Shortage is going to be with us for a while.”

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[Full Transcript Available Below]
[00:00:00] Nikola: It's not a reduction in the market and requirements of electronic products. It's more a shift.

[00:00:06] Eric: That voice is Nikola Kontic. Today, he talks with us about the global chip shortage, the disruptions of the past year, where the trouble lies and how to avoid it.

[00:00:16] Nikola: The products that are required have just changed.

[00:00:19] Eric: Nik has spent decades in the electronics industry, dealing with disruptions to the supply chain and formulating strategies to successfully navigate shocks to it.

[00:00:29] Tariffs, embargoes, natural disasters, and a pandemic of wreaked havoc on a supply chain that serves an ever-growing demand for electronics. The chip shortage is going to be with us for a while, whether you're planning a trip to the grocery store or to Mars, you need microchips to help get you there. Welcome to the Intelligent Engine.

[00:00:50] The podcast that lives in the heart of the electronics industry brought to you by SiliconExpert, SiliconExpert is all about data-driven decisions, with a human driven experience. They mitigate risk and manage compliance from design through systems. The knowledge, experience and thought leadership of the team, partners and those they interact with every day expose unique aspects of the electronics industry and the product life cycles that live within it.

[00:01:15] These are the stories that fuel the Intelligent Engine.

[00:01:23] Today's spotlight falls on Zuken, a Japanese multinational corporation specializing in software and consulting services for end to end electrical and electronic engineering. Zuken software is primarily used for designing printed circuit boards, multi chip modules, and for the engineering of electro technical wiring, wiring harnesses, pneumatics, and hydraulics applicator.

[00:01:48] The company's key markets include digital home electrical appliances, mobile communications, devices, transportation equipment, automobiles, special vehicles, railroads, industrial equipment, such as medical equipment and devices and construction machinery. Joining us is Nikola Kontic, a solution architect working with PCB design tool suites.

[00:02:12] He works closely with customers to understand their requirements and challenges, helping them maximize the potential of the products to meet their own productivity and efficiency goals. Nik, thanks for being here today.

[00:02:24] Nikola: Thank you. It's my pleasure.

[00:02:26] Eric: So you have been with Zuken for quite a long time.

[00:02:29] Nikola: Yes I have. Over 30 years, I'm afraid.

[00:02:33] Eric: Wow. How did you first land there and was that in the UK already?

[00:02:37] Nikola: Yes, so I started over 30 years ago with a company called Racal Redac and we provided electronic design automation software. And that was acquired by Zuken in 94. And I've just continued with the company ever since in various roles.

[00:02:53] Eric: And did you start in more of an engineering role? Yeah,

[00:02:57] Nikola: so my background is an electronic engineer. I have a degree in electronics and I stayed within that area. So understanding about electromagnetics, uh, circuit design simulation, and so forth.

[00:03:09] Eric: Citing a McKinsey report. Matrix group says demand for semiconductors is predicted to increase in 2021 with automotive electronics on track for year on year growth of 28 to 36%.

[00:03:23] And the semiconductor industry set to increase overall by 11% by 2027. The report goes on. If COVID-19 has shown us anything it's that supply chains are surprisingly volatile. The longer a chain is the more susceptible it is to disruptions. So electronics manufacturers should start finding suppliers closer to home.

[00:03:45] This will minimize the risk of expensive delays in production and reduce lead times.

[00:03:50] Nikola: So a lot of the customers,  that we've seen, or that we have contact with on a regular basis have certainly encountered this shortage. The automotive sector has been hit, you know, as they had issues with the pandemic. And then we see the ramping up for these industries as the automotive sector, for example, starts trying to rebuild the production levels and stock.

[00:04:17] Eric: Yeah. And the automotive industry is I think the most public example of this that most people see in, you know, the normal consumer media. Have you noticed differences between automotive suppliers or automotive manufacturers say in Germany versus Japan versus in the U.S., in terms of how hard they're hit by this.

[00:04:42] Nikola: I think they're all hit  in a very similar way by the shortages. They all use very similar components. I mean, when we look at it, the majority of the semiconductors of manufacturers are in Asia, Taiwan, et cetera. So we've all faced the challenge of transportation or getting the products manufactured by those facilities because they've either been hit by flooding by fire, or, as in Texas, for example, with the adverse weather, you had.

[00:05:19] You know, things had to be cut back on that. So that general shortage is felt by everybody. I've certainly seen that in Europe. They're trying to not be as reliant on Asia as the manufacturing center or semiconductors. In Germany, we have a lot of automotive companies. In UK, we have a lot of the motor racing companies.

[00:05:45] So all of that together encourages the manufacturers to set up a facility, a manufacturing facility in Europe, which is what we're encouraging to do. And I did pick up a few weeks ago that the U S president has also given incentives to try and get TSMC into facilities to build a manufacturing facility in Texas, I think it is.

[00:06:11] Eric: Industry moved to adjust in time model. And now we see the limitations of this. This has in recent weeks, resulted in a considered move from being dependent on Asia as the major chip manufacturers and suppliers to talk of the EU, setting up semiconductor manufacturing facilities there. And we're of course seeing the same here in the states.

[00:06:33] TSMC has committed to build a $12 billion manufacturing plant in Arizona with the U S government providing some helpful subsidies.

[00:06:41] Nikola: So we're all trying to address that shortage and that just in time manufacturer, which we started well, when I was leaving university, that was all great, but this pandemic and then the weather, everything compounded showed the weaknesses of the just in time.

[00:06:58] I'm not saying it's not good. It's just Lee now seem to be addressing it by having plans for local manufacturing of semiconductors in each of the geographic area.

[00:07:09] Eric: When we think of large scale manufacturing, there's a logical reason for big assembly lines to be in Asia, in places where the labor is so much less expensive than it would be in Europe or the us.

[00:07:27] But, you know, when we talk about chip manufacturing, the human component of that seems like such a small piece of the puzzle just because of the automated nature of the manufacturing itself. It's sort of shocking that all of that has been so concentrated with just a few companies in Asia.

[00:07:46] Nikola: There's basically about four or five large semiconductor manufacturers in Asia.

[00:07:51] And that's where the majority of the semiconductors that the world consumes are manufactured. So we're very reliant on Asia. We have some smaller ones in Europe, as well as you have in America, but it is predominantly, I would say in the region of 80% is in Asia.

[00:08:11] Eric: Does the supply of raw materials factor into why we're so dependent on Asia or has it just been sort of that's the way it's always been.

[00:08:21] Nikola: You may have touched on a good point of the role materials have impacted the costs of these particular semiconductors. So there is a factor of materials.

[00:08:32] Eric: When we talk about raw materials, we're of course talking about more than just Silicon, but here's a fun fact about that element for all of the billions of microchips in the world, only around 30,000, tons of Silicon is mined each year. That's less than the amount of construction sand produced each hour in the U S alone. So Silicon isn't the bottleneck, but with the other raw materials needed for today's chips, we're talking about a $55 billion industry with Asia playing several key roles.

[00:09:07] Nikola: Well, we've seen a lot of our customers have supply shortages of components, semiconductors, but in relation to what they have been building, or, you know, if we talk about aerospace, of course people are flying a little less now. So, not so many of these carriers have been purchasing new aircraft, but at the same time, it's not a reduction in the market and then the requirements of electronic products it's more a shift.

[00:09:42] Eric: With the race on to learn more about Mars and to get more insights and more launches into space, we need more satellites. The defense market has also seen a significant rebound.

[00:09:53] Nikola: Now the products that are required, have just changed. PCBs are still in the same volume, still interested and still being designed in the same levels with growth again, but just the products that are being done are just lightly for different times.

[00:10:11] Eric: I also think about a shift of internal combustion engine vehicles to electric vehicles, two things I want to ask you about there, now. Number one, presumably electric vehicles are requiring even more in the way of chips, PCBs, and electronic components, but also, I wonder if you know, a company like Tesla has a supply line philosophy that might be closer to, you know, an apple or a Dell than it would be to a General Motors or a Volkswagen.

[00:10:46] Nikola: Certainly the infrastructure you need around you,is different for as we move to more electrification of vehicles, you know we know Tesla is building battery facilities around the globe to fulfill the manufacturing facilities for automotive, for electric vehicles in each of those territories. And therefore the components. I mean, when we get into a car,electric car, the infotainment system, and the whole presentation to you is quite, quite different, but just think about it, all the sensors in the car, communicating then when we're driving at nighttime, all the electronics to do with short and long, and medium wave radars. Yeah. So LIDAR, you know, making our driving much more safe.

[00:11:35] Eric: What does, what does a project look like for you personally, when you're going in and working with a partner,

[00:11:42] Nikola: A lot of these projects that I've worked on when you've gone to the customers, it's a case of,  first sitting down understanding the company's backgrounds, their mission, their value, and then the challenges they face. In terms of those projects, we want to fully understand that partner. And it's a partner to Zuken. You know, that, yes, they are customers, but we're working with them so we can both succeed. So it's understanding their manufacturing facility, how they go and do the manufacturing, be them they're building the printed circuit boards, or they're outsourcing that.

[00:12:25] From from Zuken's perspective, we need to know all those little bits of what they are doing, where their boundaries are, if they outsource the manufacturing to another company where that company is and what is the quality of that manufacturing and what are the challenges they face. So it's, it's first understanding the customer, understanding the boundaries of what they're doing.

[00:12:51] And then understanding the problem and then addressing the problem. So a lot of the cases. I've been involved in, um, over the last 10 years, there's been a lot of electromagnetic challenges. People needing to consider about signal integrity, needing about power distribution on their printed circuit boards.

[00:13:13] And what is the impact of it all? So a lot of design intent, a lot of design knowledge goes in. We look at a printed circuit board and it functions, but there's an awful lot that you need to take into account when you're designing those. And that is an art as a skill that is gradually because of, you know, this is another interesting topic is the, the PCB engineers. They are craftsmen, they are artists in their own, right. When they're rooting a PCB. And these are people who are now getting to the age like myself, you know, coming up to 10 years off retirement and so forth. Where we're going to be starting to lose some of this knowledge and experience. And so it's down for Zuken and other companies to try to build that AI into our tools so that when these people move on and they retire, you know, the software will design those products with that AI, that, that engineer, that layout that artist, as I said, utilizes.

[00:14:27] There are projects that I'm working on at the moment. And they are research projects based in the UK. We're evolving for the electrification of vehicles. And in terms of what we're talking about here is the parts are changing and how those are designed and manufactured. For example, you know, a small die with its wire bonds going out to a package. We're seeing the next level of technology change that so that the wire bonds, for example, in electrification of a vehicle, a wire bond wouldn't be good enough we need to use a much larger amount of metal material to consume the amount of current. So we see a lot of projects evolving in that as we change our tact on vehicles. And the other area is automotive. Again, if we think about it, you're driving along the road, the road is bumpy, vibrations and so forth.

[00:15:26] We've had this challenge all along in, in various things, you know, as a rocket takes off into space, you know, there's so much vibration. We're seeing a lot of requirements for thermal analysis. We're seeing a lot of requirements for embedding your dyes into the board, because if there's a lot of vibration, you want more reliability.

[00:15:46] So you want to embed it in a board with lots of epoxy resins around it. So it's protected and secondly, we've hit a security set of issues. Everybody's concerned about security devices. So we have to design the electronics that are in a more protected for security. And we have a new one on the go at the moment, what to do with medical devices that are going to be very, very small.

[00:16:13] Eric: Thank you Nik, for a great discussion on the chip shortage.

[00:16:17] Nikola: Cheers, thank you very much.

[00:16:19] Eric: I also want to thank our audience for too tuning into this episode of the Intelligent Engine on the global chip shortage. Be sure to tune in for new episodes that will delve into more of the electronics industry.

[00:16:31] In upcoming episodes, we'll explore advancements to indoor positioning. The advent of Bluetooth 5.1. Wifi six, obsolescence mitigation, and the intricate financial nuances of finding the best possible pricing for your opponents. This episode of the intelligent engine is sponsored by Zuken and Zuken Innovation World.

[00:16:51] Be sure to share our podcast with your colleagues and friends, and you can also sign up to be on our email list to receive updates and the opportunity to provide your input on future topics we should cover go to SiliconExpert.com/podcast to sign up.

[00:17:07] Until next time, keep the data flowing.

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June 22, 2021
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Zuken says: “The Chip Shortage is going to be with us for a while.”

Tariffs, embargoes, natural disasters and a pandemic has wreaked havoc on a supply chain that serves an ever-growing demand for electronics. Whether you’re planning a trip to the grocery store or to Mars, you’ll need microchips to help you get there. Nikola Kontic has spent decades in the electronics industry dealing with disruptions to the supply chain and formulating strategies to successfully navigate shocks. Today, he talks with us about the disruptions of the past year: where the trouble lies and how to avoid it.