Why is Semiconductor industry UPS solutions Better?

Introduction

In semiconductor manufacturing, power outages can bring operations to a halt, resulting in significant losses. A leading semiconductor manufacturing company in Singapore faced this very challenge. Their sprawling manufacturing facility, responsible for producing chips for various electronic sectors and devices, was struggling with frequent power outages that disrupted production processes due to their outdated, fixed- capacity UPSs installed in the past. These disruptions had a significant financial impact and threatened the company&#;s reputation.
The impact was felt not only in terms of financial loss but also in terms of societal impact. Electronic devices are an integral part of modern life, and any disruption in their production can affect individuals, businesses, and industries worldwide, ultimately hindering global progress.

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Solution

To mitigate this pressing issue, management at the semiconductor manufacturing company in Singapore took a proactive stance. They initiated a project to replace modular uninterruptible power supply (UPS) systems to provide availability and reliable uninterrupted power to critical systems during power outages. Centiel was selected as the UPS solution provider, and DataSphere was engaged as the channel partner responsible for implementing the solution.
When selecting an uninterruptible power supply (UPS) solution, the Singapore-based semiconductor manufacturer made a strategic decision to work with Centiel, a leading UPS solution provider. Centiel was tasked with the responsibility of supplying and delivering the UPS technology required to address the company&#;s power outage challenges. In addition, DataSphere played a critical role in the successful implementation and integration of the UPS solutions into the manufacturing facility.

The installation team began with comprehensive site surveys to fully understand the power requirements of these critical systems. DataSphere then designed a customized electrical distribution system with Isolation Transformers and integrated it with Centiel UPS systems tailored to provide uninterrupted power during power outages.
The UPS systems implemented at the semiconductor manufacturing company is a modular, scalable, and redundant solution with N+1 redundancy. In this configuration, even if one module fails, the remaining modules seamlessly take over the loads, preventing any interruption. In addition, the UPS system is backed by an advanced monitoring and management system that allows the facility team to monitor its status and performance in real time. This ensures maximum uptime and unmatched reliability.
Currently, the facility has 18 UPS systems ranging from 80 kVA to 300 kVA, with a 30-minute backup time. Some existing voltage-regulated lead-acid batteries have been integrated to reduce costs, while new lithium-ion batteries have also been implemented to provide this critical backup power. In addition, 10 more UPS systems are in the pipeline and are expected to be completed by the end of .

Impact

The installation of the UPS system at the semiconductor manufacturing company in Singapore has provided a number of benefits. It ensures uninterrupted operation of the manufacturing facilities in the event of power outages. This is especially critical for a facility that relies on computer systems and manufacturing equipment, as a power outage could result in data loss or equipment damages, with severe financial consequences.
The UPS system&#;s capabilities extend to powering critical systems that include manufacturing equipment, servers, and data centers. The system&#;s dual-input architecture and isolation transformers provide robust electrical isolation that protects against electrical noise, interference, and power disturbances. This not only improves the quality of the power supply but also enhances the protection of sensitive electronic equipment.
Installing the UPS system in a dedicated room with adequate ventilation, air conditioning, very early smoke detection, and other safety features ensures both equipment and personnel safety.
The impact of the UPS system on the manufacturing process has been transformative. It provides uninterrupted power, reducing downtime and production losses. This not only translates into significant cost savings but also maintains the reliability of the power supply, reducing the risk of equipment damage and data loss.
In addition, the UPS system has had a positive impact on the company&#;s employees, increasing their confidence in the reliability and resilience of their critical systems. This sense of security contributes to a productive and efficient work environment.

Conclusion

Overall, the installations of the UPS systems at the semiconductor manufacturing company in Singapore have been a resounding success. It provides uninterrupted power, enhancing the reliability and safety of the production process. By reducing downtime and production losses, it has generated significant cost savings and enabled the company to operate its manufacturing facility with unwavering confidence, knowing that its critical systems are protected by a reliable and robust UPS system.

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The massive global disruptions caused by the COVID-19 pandemic gave the already rapid adoption of digital technologies an extraordinary boost, as electronic devices proved vital to connecting people and businesses during lockdowns. As demand from both consumer and business customers soared in , shareholders in semiconductor companies saw high double-digit returns, despite supply-chain issues and growing divergence in global trade. The shortages across the value chain that resulted from the surge in demand have been accompanied by growing consolidation as chip makers rushed to gain the benefits of scale.

With accelerated digitization likely to continue in the post-COVID-19 world, semiconductor companies might benefit from developing strategies that address the shifts in the competitive landscape. To understand the value-creation trends in the industry, we analyzed its performance over the past two decades, looking at 11 segments and three key global regions. Our findings suggest that semiconductor players might want to consider focusing on gaining leadership in profitable segments by leveraging M&A and partnerships, building agility, and pursuing new technologies and innovations. Burgeoning investments in self-driving cars, the Internet of Things, and artificial intelligence, along with the coming shift to the 5G connectivity standard, present opportunities for further growth and specialization. Semiconductor players that make wise strategic choices now may gain lasting industry leadership.

Widespread gains: Shifting pools across two decades

Since the start of the new millennium, the semiconductor industry has gone through two distinct phases. In the early s, profit margins were low, and most companies generated returns below the cost of capital. Profitability improved during the past decade, however, spurred by soaring demand for microchips in most industries, the rapid growth of the technology sector, and increased cloud usage, as well as ongoing consolidation in many subsegments.

One consequence is that the semiconductor industry&#;s profit pool (defined by aggregated economic profitability) improved significantly relative to other industries (Exhibit 1). The industry&#;s power curve of economic profit, which covers approximately 2,600 top companies around the world in 24 industries, shows that semiconductors rose from 14th place during the period from to to fourth place from to . Chip makers&#; aggregate annual economic profit, which totaled $3.5 billion for the first period, increased dramatically to $49.3 billion during the second period. Average profitability peaked in and , but pricing pressure in memory chips caused a significant decline in . Late saw a rebound in profitability, however. Interestingly, the semiconductor industry&#;s relative ranking versus other industries is expected to continue improving and reach third place over the long run. (Note: to understand the expected shift in profit pools, we used current market capitalization to calculate market-implied long term economic profit for each industry.)

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The strong are growing stronger

Although the semiconductor industry&#;s economic profit has substantially increased, companies and industry segments vary significantly because value pools have shifted over time, and the strongest players have increased their lead over competitors. The industry power curve has steepened sharply at the top during the past five years: the highest quintile of companies captured a majority of the economic profit from to (Exhibit 2). The gap between the leaders and the laggards is widening as the strongest players take advantage of their scale and diversified customer base to entrench their dominant positions. The difference in average economic profit between the tenth and 90th percentiles&#;approximately 140 percent from to &#;swelled to a staggering 400 percent in the period from to .

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Ebbs and flows in value are also evident in the relative performance of industry categories. For instance, a look at company performance shows that Intel captured almost all the economic profit in the early s. When looking at product categories, analysis shows that five segments generated the most value: memory, microprocessor units (MPU), fabless, capital equipment, and foundry. From to , these five captured more than 60 percent of the industry&#;s $335 billion in cumulative economic profit (Exhibit 3). Memory manufacturers benefitted from a surge in demand for electronic devices and rising prices up to , when oversupply and pricing declines started to depress returns. Fabless was the second-best performer during this period, and Apple is estimated to have earned roughly a quarter of the total economic profit in that category.

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The trends driving these patterns of performance are likely to persist. The industry continues to move toward the fabless production model as companies seek to leverage the benefits of leading-edge technology while sharing the necessary investments. Apple&#;s M1 chip (for notebooks, low-end desktops, the Mac Mini, and tablets) exemplifies this move into in-house chip design, which leverages foundries to manufacture products. Even companies with well-established in-house manufacturing facilities, such as Intel, are considering partial outsourcing to chip foundries to benefit from greater production flexibility and cost reductions.

The distribution of the semiconductor industry&#;s economic profit also varies significantly among regions (Exhibit 4). North America, home to some of the largest fabless players (such as Apple, Nvidia, and Qualcomm), accounted for approximately 60 percent of the global value pool during the &#;19 period. Europe accounted for 4 percent of the industry&#;s total economic profit, which accrued primarily to capital-equipment companies. Asia, still the hub for contract chip manufacturing, accounted for the remaining 36 percent of the value the sector generated.

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What capital markets expect of the industry

Capital markets have rewarded the industry&#;s surging profitability: semiconductor companies delivered an annual average of 25 percent in total returns to shareholders (TRS) from the end of to the end of (Exhibit 5). Last year, shareholders saw even higher returns, averaging 50 percent per annum, as consumers and businesses upped their purchases of digital equipment of all kinds. Investors expect this trend to continue.

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As shareholders look to capitalize on high valuations, scale has become more important, and the industry has consolidated rapidly. Its M&A activity has reached the second-highest pace in history: $118 billion worth of deals in . Our analysis of capital-market sentiment suggests that investors count on continued strong growth in the semiconductor industry. More than half of its current enterprise value is based on earnings-growth expectations, which are also reflected in current valuations: investors expect long-term growth of 7 to 8 percent, assuming the recent margin trajectory.

Preparing for the next phase of growth

To meet investors&#; expectations for continued high growth amid a shifting industry landscape, chip makers can take inspiration from the leading players and the tactics that they followed to create the majority of the industry&#;s economic profit. Securing leadership in profitable segments has been their key success factor. By continued capital investments or R&D, the leading players have developed distinctive offerings that have further extended their leadership position. Notably, recent history shows that companies find it hard to catch up with rivals that lead in well-defined technology areas. Together, these findings suggest that semiconductor companies should explore three avenues when developing strategies to thrive in the postpandemic future.

Rethink collaboration with other players

Partner across the value chain to expand the customer base. Industries increasingly require application-specific solutions, such as those that automakers embed in self-driving vehicles. Many such requirements come from players that previously did not design their own integrated circuits. While semiconductor companies must ensure that their order volumes are sufficient to justify the rising R&D cost of leading-edge custom chip design, efforts to tap into bespoke requirements of customers down the value chain could provide pathways into high-growth industry niches.

Develop a programmatic M&A strategy. Amid ongoing industry consolidation, semiconductor companies might want to consider developing a programmatic M&A strategy&#;a serial approach to smaller acquisitions, along a specific theme&#;that would guide their approach to acquisitions aimed at branching into adjacent areas or adding capabilities essential for future growth. The current scarcity of targets requires potential acquirers to investigate and execute mergers quickly. Chip makers might also want to consider making major deals that could open up important new markets. For instance, in a deal now under review by regulators, graphics-card maker Nvidia has proposed acquiring Arm, an intellectual-property specialist for mobile applications, from SoftBank. If approved, this acquisition would allow Nvidia to gain access to the broader computing market.

Stay agile and responsive to a more volatile world

Acknowledge that supply chains are changing. Semiconductor players can gain an advantage by increasing the resilience of their supply chains as global trade diversifies, particularly for sophisticated technologies. Several large chip manufacturers are already exploring diversifying production so that they can rely on more than one vendor or supplier at a time. These moves are motivated in part by new government subsidies designed to support capabilities for manufacturing advanced chips.

Strengthen pricing and allocation strategies in response to supply shortages. Especially in the automotive and industrial sectors, chip shortages could become the new normal, so semiconductor companies would benefit from thinking carefully about allocating inventory and about fair pricing strategies. These companies can also explore the potential of inviting customers to co-invest in the development of custom chips, which would help buyers to reduce the risk of supply shortages while assuring manufacturers of real demand for new designs. Chip makers could also engage with the broader industry to explore solutions to the continuing shortages.

Drive adoption of new technologies and innovations

Use advanced analytics to reimagine time to yield and yield ramp-ups. Chip makers could partner with equipment manufacturers to apply advanced analytics to speed up the yield learning curve. For example, modeling made possible by advanced combinatorial learning could replace the physical testing of chips and thus reduce both the cost of introducing them and their time to market.

Leverage innovation within and beyond Moore&#;s law. Innovation in line with Moore&#;s law (which predicts the shrinking of chip structures) will certainly continue, but additional advances through system-on-a-chip architectures using &#;chiplets&#; may be possible as well. Manufacturers could also explore innovations beyond Moore, such as compound semiconductors that use silicon carbide and gallium nitride, which could provide performance benefits superior to those of traditional silicon.

Following a period of rapid growth, leaders of semiconductor businesses should prepare for a world where increasingly challenging demand&#;supply matching, geopolitical issues, and a need for specialized products will make novel demands on the industry. To meet shareholders&#; expectations for continuing high returns, semiconductor players could expand their partnerships and look for industry-wide solutions to product shortages and supply-chain challenges.

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