As the semiconductor sector gains increasing national security implications worldwide, the US defense industry has in particular woken up to the crucial role of semiconductor supply resilience, as recent global chip shortages impeded leading US defense contractors like Lockheed Martin and Raytheon to boost arms production in support of Ukraine.
Worse, according to a recent report by EETimes, there have been rising concerns that the US defense industry may have difficulty responding to a military contingency involving Taiwan for as many as 10 years, as a result of the lack of investment in domestic chip production capacity, in addition to competition for foundry capacity from civilian/commercial sectors.
Various efforts have been undertaken by the US government to address the issue. For example, the US$278 billion CHIPS Act passed in 2022 includes US$2 billion designated for the CHIPS for America Defense Fund, managed by the US Department of Defense. Part of the fund precisely seeks to address the lack of domestic chip manufacturing facilities for US industry and academia researchers that prevent them from exploring and prototyping technological innovations.
SkyWater key to reshoring chip manufacturing for defense industry
The eventual reshoring of semiconductor manufacturing capability, however, is at the top of the US agenda, and such efforts are embodied by none other than getting leading-edge foundry TSMC to set up production sites in the US. Equally important to the endeavor is the 'Trusted Foundry Program', designated to guarantee governmental access to secure and reliable foundry capacity, managed by the US Department of Defense.
SkyWater Technology is one of them: the only majority US investor-owned foundry is designated as a "DMEA-accredited Category 1A Trusted Foundry." The pure-play foundry was created in 2017 as private equity investor Oxbow Industries acquired Cypress Semiconductor's 200mm fab in Minnesota. "The Trusted Foundry Program has been an essential element of SkyWater breaking into the defense market," Dr. Brad Ferguson, SkyWater's Chief Government Affairs Officer, told DIGITIMES Asia.
Currently, SkyWater operates two 200mm fabs respectively in Minnesota and Florida, focusing on mature process technologies from 90nm to 130nm. "The defense industry has many different technology needs, from state-of-the-art to legacy technology required to support long-lived defense platforms," said Dr. Ferguson. "We are one of the many foundries supporting the defense industry and we have found a traction in differentiated technology support using these and other technology nodes." According to Dr. Ferguson, SkyWater will extend its reach into smaller node sizes in its Indiana fab, announced in July 2022 as a public-private partnership to pursue CHIPS funding. At the same time, the company still anticipates long-lived demand for its mature technology offerings.
"People will pay a premium for supply chain certainty"
Reshoring chip manufacturing is no easy undertaking, of course. TSMC founder Morris Chang oft cited high costs and talent shortage as the main challenges to move advanced chip fabrication in the US. SkyWater, as a linchpin in US efforts to reshore chip manufacturing, however, sees it in a different light. "In the 1990s, when the fabless foundry model emerged, a gap was created in the U.S. as talent and manufacturing capabilities migrated overseas to countries, like Taiwan that were committed to a national strategy of building a comprehensive capability, which they did very well," said Thomas Sonderman, SkyWater President and CEO, "in my view, the United States can also achieve this outcome."
The SkyWater President is optimistic that the US, as the country that gave birth to the microprocessor, the transistor and "essentially the entire semiconductor industry", is able to reclaim manufacturing leadership by having a national strategy that will come out of the CHIPS and Science Act. "We have the capability to create a workforce that can enable a world-class semiconductor ecosystem that allows talent to thrive in this sector," said Sonderman. The challenge now, however, is to "get people excited about manufacturing again."
"This can be done by investing in creating good jobs around those who pursue this as a career", as the SkyWater President puts it, "the emphasis on workforce development is a key component of the CHIPS Act." Regarding the critical role of supply chain, Sonderman observes that "people will pay a premium for supply chain certainty that they wouldn't have paid before the pandemic." In addition, IP protection has become more important than low cost for many applications, noted the SkyWater leader.
Increasing difficulty to balance high-cost design customization with commercial options
As China pursues a strategy of "civil-military fusion" to strengthen its defense industry and armed forces, the Western defense industry in general had been shrinking since the end of the Cold War - until the recent shift in the global security landscape.
Once again, the US defense sector is emphasizing the synergy between the defense and commercial sector, especially leveraging the innovation capability inherent in the Silicon Valley and the affordability and quick production cycles offered by commercial off-the-shelf (COTS) options. However, as chip industry moves toward smaller process nodes, the affordability of adopting state-of-the-art processes can be a potential challenge for the defense sector's small-volume and niche nature.
According to Dr. Ferguson, the defense industry has been a longstanding proponent of leveraging COTS as a way to drive performance at an affordable price, but any customer reaching into state-of-the-art nodes for ASIC designs faces a significant affordability challenge, and defense applications are no exception. "The performance advantage of an ASIC has to justify the increased cost of design customization compared to COTS, and this equation becomes increasingly difficult to balance at state-of-the-art nodes", noted Dr. Ferguson.
Foundries of legacy nodes will soon decide if they shall pursue heterogeneous integration
Consequently, SkyWater sees increasing traction from customers wanting to break that equation with process customization by accessing differentiated, leap-ahead technologies, and More-than-Moore innovation like heterogeneous integration has therefore become a main focus of SkyWater Technology.
"Heterogeneous integration packaging approaches have benefits for both commercial and defense sector applications," Alan Huffman, SkyWater's Senior Director of Heterogeneous Integration Business Unit, told DIGITIMES Asia. In the defense sector, benefits of improved size, weight, power and cost (SWAP-C) offered by chiplet-based microsystems can support advanced Tx/Rx modules, edge computing, and other security requirements, according to Huffman.
The senior director indicated that the past decade has seen most of the major foundry companies embrace and internalize advanced packaging and heterogeneous integration technologies to provide turnkey system design and fabrication services, and as heterogeneous integration technologies continue to be adopted for new applications, foundries working in legacy nodes will need to make key decisions. If they are going to follow a similar path of introducing some level of heterogeneous integration capabilities, they will need to create strategic relationships to access such capabilities or just leave it to their customers to manage.
Ultimately, as pointed out by Huffman, "SkyWater's goal regarding advanced packaging technologies is to make them available for customers who are unable to access the capabilities of large foundry companies, either due to volume or security issues, and provide proven technology solutions to our customers."
Indeed, as Dr. Ferguson told DIGITIMES Asia, SkyWater's willingness to engage in More-than-Moore innovation directly with customers, especially inside SkyWater's production environment - a model dubbed by SkyWater as "Technology as a Service" - is what sets SkyWater apart from conventional and specialty foundries. "The efficiency of this model enables cost-effective innovation to occur right alongside production, and our intimate partnership with our customers has created a flywheel effect that will be difficult for others to replicate," said the SkyWater Chief Government Affairs Officer.
Unique opportunity to invest during the downturn
As the global semiconductor industry is mired in macroeconomic headwinds and weakening consumer demands, SkyWater is, surprisingly, more or less immune to the consumer cycle. "The consumer sector is less than 10% of our revenue," remarked Sonderman, "so we don't feel the impact of those headwinds to the extent the rest of the industry does."
The SkyWater President noted that while the previous pandemic-induced uncertainty knocked the supply chain out of balance, " the industry now enters a significant market correction on a macroeconomic level, and there is a unique opportunity to invest during the downturn." By doing so, according to Sonderman, it will allow nimble new innovations that can be accelerated with CHIPS funding. "Products can be brought to market in an accelerated fashion, which creates an opportunity for SkyWater to lead the next wave of computing," said Sonderman.
When it comes to the aerospace and defense market especially, the SkyWater president notes many investment opportunities in innovative technologies not tied to advanced nodes. "The advanced nodes get a lot of attention, but there is great opportunity for novel applications in the mature technology nodes," Sonderman told DIGITIMES Asia.
Thomas Sonderman, SkyWater President & CEO. Credit: SkyWater