Understanding the Role of Semiconductor Contract Manufacturers in Value Creation
Semiconductors are becoming integral to products and technologies, enabling the modern digital economy. From smartphones to electric vehicles to cloud computing infrastructure, chip innovation powers progress across every industry.
Revenue is expected to show an annual growth rate (CAGR 2024-2027) of 6.30%, resulting in a market volume of US$736.40 billion by 2027.
Semiconductor contract manufacturing is a vital segment of the supply chain that has catalysed this rapid pace of innovation. Semiconductor Contract Manufacturers (SCMs) are independent, specialised companies that design, manufacture, test, and deliver semiconductor chips based on custom specifications for other firms.
Here’s an in-depth overview of semiconductor contract manufacturers, their multifaceted capabilities, and how they drive exponential value creation for the semiconductor industry. Let us explore how SCMs achieve this feat by accelerating product development lifecycles, enabling access to advanced manufacturing at scale, ensuring flexibility in production, and adhering to uncompromising quality standards.
Semiconductor Contract Manufacturers: An Overview
Semiconductor contract manufacturing refers to comprehensive outsourced manufacturing services offered by dedicated providers to fabless semiconductor firms, integrated device manufacturers (IDMs) and other chip companies.
Leveraging their manufacturing infrastructure, deep technical talent, extensive supply chain networks and laser focus on quality – SCMs design, produce and deliver specialised semiconductor products tailored to customer requirements.
Unlike pure-play semiconductor foundries that only manufacture chips designed by their customers, SCMs provide an expansive range of services spanning from early chip design, prototyping, volume manufacturing, and final testing to delivery.
This enables semiconductor companies to concentrate innovation efforts on their core product roadmaps while significantly accelerating time-to-market.
According to Fortune Business Insights, the semiconductor contract manufacturing market is projected to grow from $573.44 billion in 2022 to over $1380.79 billion by 2029.
Key Functions of Semiconductor Contract Manufacturers
SCMs create value by integrating a diverse range of design, manufacturing and supply chain capabilities:
1. Design and Development Capabilities
Many leading SCMs offer comprehensive chip design services, including concept design, verification, prototyping, software integration, and validation during the early stages of product development. Their expertise in architecture definition, logic and circuit design, layout, simulation and modelling accelerates the chip design process by 8-12 months.
2. Manufacturing Processes and Technologies
SCM manufacturing capabilities encompass state-of-the-art facilities with automated wafer fabrication lines, packaging, and test processes tailored to produce chips from analogue to advanced sub-10nm digital designs.
Annual capital investments ensure they stay at the leading edge of semiconductor manufacturing technologies to address evolving customer requirements.
3. Quality Control and Testing Procedures
To guarantee only the highest quality chips are shipped to customers, SCMs employ rigorous quality control checks during the design, wafer fabrication, assembly, and final testing stages. Comprehensive monitoring, control and traceability mechanisms at every step also ensure stringent quality levels are sustained across their global manufacturing networks.
4. Supply Chain Management and Logistics
Efficient worldwide supply chain capabilities give SCMs access to raw materials, equipment, speciality chemicals, substrates and other inputs required for smooth semiconductor operations. Robust logistics networks comprising cargo flights, shipping, and local transport provide flexibility in delivering products to customer locations globally just in time.
Value Creation in Semiconductor Contract Manufacturing
Leveraging their specialised design, manufacturing, and supply chain capabilities – SCMs deliver exponential value to the semiconductor ecosystem in multiple ways:
1. Cost Efficiency and Economies of Scale
The capital investments required to set up advanced semiconductor fabrication facilities can be prohibitive for most fabless startups and smaller players. Outsourcing production to SCMs provides immediate access to cutting-edge foundry capacity at a fraction of the cost.
SCM investments in manufacturing infrastructure are amortised over billions of chips they produce annually for hundreds of customers. Their scale translates into enormous cost efficiencies.
2. Accelerating Time-to-Market
By leveraging SCM engineering resources and production expertise, semiconductor companies can accelerate new product introduction timelines by 12-18 months. A quick ramp-up of designs, rapid prototyping, and streamlined testing enables faster time-to-volume.
3. Access to Specialised Expertise
Leading SCMs actively pioneer innovations in wafer size, lithography techniques, 3D packaging, materials science and other facets of semiconductor manufacturing. Partnering with SCMs gives fabless firms and IDMs instant access to these advances without any CAPEX investments.
Such collaborations have catalysed several technology breakthroughs, like the recent rise of advanced chaplet designs.
4. Flexibility and Scalability
Setting up and scaling internal production capacity is extremely time-consuming, with substantial capacity planning risks. SCMs address fluctuating market demands through their flexible, modular global manufacturing networks spanning multiple locations.
This empowers semiconductor companies to scale production up smoothly or down to align supply with changes in end-market demand.
Some Challenges in Semiconductor Contract Manufacturing
While SCMs positively impact value creation, some risks and challenges remain in outsourced semiconductor manufacturing:
1. Safeguarding Intellectual Property
Protecting customer IP and design data is an inherent concern in outsourced semiconductor manufacturing. SCMs implement comprehensive data security practices spanning data encryption, secure networks, and stringent access controls to safeguard IP. Strong contractual protections around confidentiality and IP ownership also minimise risks.
2. Supply Chain Disruptions
Recent years have witnessed increased volatility in the global semiconductor supply chain – from materials shortages to geopolitical issues and weather events. SCMs aim to maximise production resilience through supply chain transparency, dynamic capacity balancing between facilities, and strategic partnerships with substrates/chemicals providers.
3. Quality Assurance
A persistent challenge is guaranteeing reliable product quality across multi-node manufacturing networks spread worldwide. SCMs mitigate this through extensive monitoring mechanisms, customised control systems at each fab, and end-to-end traceability to deliver only the highest quality semiconductors to customers.
4. Regulatory Compliance
Evolving regulations around emissions, chemicals, hazardous materials handling, trade, and data privacy pose complex compliance challenges. To adhere to mandated industry standards, SCMs continually assess regulatory shifts across jurisdictions and modify their EHS policies, security controls, legal contracts, etc.
Choose the Right Partner for Flexible, Customised Manufacturing
Semiconductor Contract Manufacturers create exponential value through the entire semiconductor value chain by enabling rapid innovation, pioneering leading-edge manufacturing, ensuring stringent quality standards, and driving cost efficiencies through extraordinary economies of scale.
As the demand for advanced chip technologies transforming every industry grows, SCMs will only increase in importance. As an advanced Indian ODM, Oakter stands ready as your trusted SCM partner to manufacture the breakthrough technologies of both today and tomorrow.
Contact us to learn more about how we can accelerate your value creation.