Do Startups Have a Place in the Semiconductor Supply Chain? – EE Times Europe
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EE Times Europe
Early investors must understand that deep tech means patient money, with longer times to return.
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Startups are often viewed as engines of economic growth and job creation. However, in the semiconductor world, where new fabs cost tens of billions of dollars and a massive global footprint is required to participate in the supply chain, do startups really have a place?
When most people think of startups, semiconductors aren’t usually the first thing that comes to mind. In a CB Insights classification of 1,206 startup unicorns that were separated into 15 groups, the few semiconductor unicorns that were included ended up classified under Hardware. They weren’t even given their own category.
In fact, a quick perusal of the investment portfolios of Silicon Valley venture capital firms shows that the current investment landscape is populated with generative AI, health tech, e-commerce, fintech and software. If there is no home for startups in the birthplace of semiconductors, does this mean that semiconductors today meet the definition of a mature, commodity product, where incremental innovation provides no marginal benefit or cost advantage? Is participating in the supply chain too expensive, or have venture capitalists simply decided that other sectors provide a quicker path to commercialization and returns within their investment horizon?
It should be obvious that semiconductors are still benefiting from innovation. Each new generation of microprocessor has improved on its predecessor, delivering more computing power over the same basic piece of silicon real estate. Like compound interest, the ability to shrink transistors using innovations in lithography provides a growing return on investment. This is illustrated by the fact that the number of transistors on a microchip has in fact doubled approximately every two years since 1965, when the prediction was first made by Intel co-founder Gordon Moore.
Still, the innovations that drive transistor scaling are the domain of major industry players who can justify the massive R&D investments needed to develop the next process step. For example, Dutch company ASML, which specializes in the production of advanced lithography systems, invested a total of €3.1 billion in R&D in 2020. That figure represented approximately 14% of the company’s net sales for the year—clearly not an appropriate place for startups to play.
I believe this perception is what keeps investors cautious when they hear “semiconductor” (or even “hardware” or “deep tech”) in a startup pitch. Nevertheless, there are several subdomains in the semiconductor industry where startups can still thrive, play a pivotal role and provide outsized returns.
Generative AI. The bar is lowest for this one, as investors are already predisposed to appreciate the category. In the semiconductor space, AI tools have the potential to design more efficient chips as well as chips that are purpose-built for specific functions. AI can also assist in placing and routing transistors and interconnects to optimize for size, cost and power. Finally, AI tools have a role to play in fault prediction, isolation and diagnosis, which should improve yields and lower costs.
Test and measurement. New categories of semiconductors will increasingly combine devices and components in ways that have never been tried before. An IoT device may have analog sensors, digital processors, RF transmitters, thin-film batteries and a mix of passives. Optical interconnects are being incorporated into new products, along with components based on new materials like silicon carbide or gallium arsenide. To reach commercial scale, new methods of collecting and analyzing test and yield data will need to be developed.
New materials and processes. Some of the materials and processes used in semiconductor manufacturing have remained relatively unchanged for more than 50 years. But today’s increasingly complex chip designs—which may incorporate 3D stacking of thinned semiconductors, components that are vanishingly small, heterogeneous integration, chiplets and fragile materials like SiC—create difficulties in material handling, packaging and assembly. Combined with rising demand for manufacturing precision and cleanliness, these complexities bring opportunities for innovative materials and processes to disrupt manufacturing.
Sustainability. The semiconductor industry uses many chemicals and materials that are hazardous to the environment and generate tons of non-recyclable waste annually. The industry is also a major consumer of electricity, accounting for an estimated 1% to 2% of global electricity consumption. Innovations that replace existing solvents, acids and non-recyclable by-products of the manufacturing process with more environmentally friendly equivalents will be in demand by the industry, particularly given society’s growing sensitivity around sustainability and environmental, social and governance initiatives. New factory growth will create opportunities for startups to innovate ways to reduce the energy used directly in the manufacturing of semiconductor chips, as well as the energy used in the production of the equipment and materials used in the manufacturing process.
For startups ready to innovate and participate in this exciting growth market, raising funds will continue to be difficult. Early investors must understand that deep tech means patient money, with longer times to return.
If you’re a startup in this space, you will need to attract the interest of major industry players, as there is only a limited number of buyers. Take confidence in the fact that any traction in the supply chain is a sign that you have something of value. Furthermore, once your innovation is vetted and supported by the industry leaders, the barriers to entry for competitors become significant. Your valuation will reflect that, and raising money will be easier. Until that point, consider government programs and grants and take advantage of incentives like R&D tax credits.
The Covid pandemic put a spotlight on the importance of semiconductors in everything from mobile phones to microwaves. For the first time since the birth of the industry, a global supply chain was disrupted. For lack of the requisite chips, many consumer products, including automobiles, could not be produced at volumes sufficient to meet demand. While the reasons this happened are varied and complex, there are gaps, breaks and opportunities in the supply chain. Startups, therefore, do have a role to play in the next generation of semiconductor innovation.
Read also:
Tracking 2022’s US$38B in Semiconductor Investments for Startups
Despite the challenging and volatile environment, it was still possible for semiconductor startups to secure large deals in 2022.
Wayne Rickard is CEO of Terecircuits.
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