Conflict Minerals and the Semiconductor Supply Chain
By Ron Jones, N-Able Group International
Sustainability and Corporate Social Responsibility (CSR) are garnering lots of ink these days in trade publications and myriad other communication channels. Many of us who have spent years (or decades) in semiconductors want our industry to take a leadership role in CSR that is equivalent to our leadership position in technology.
SEMI is making a major commitment to these topics via the SEMI Sustainable Manufacturing Forum at SEMICON West 2014. There are 20 hours of content spread over Monday through Thursday that will explore various facets of this topic with a specific focus on semiconductors and related industries. I will present on Conflict Minerals Compliance during Session 3 on Monday.
Public companies made their first annual Conflict Minerals filing with the SEC at the end of May. Virtually all public companies in the semiconductor space that are involved in manufacturing, directly or indirectly, were required to file with the SEC. This included fabless and IDM semiconductor companies, foundries and OSATs. Semiconductor manufacturing adds gold, tin, tantalum and/or tungsten during fab and assembly processing. The finished ICs therefore contain those conflict minerals and must be reported to the SEC. Most companies could not adequately determine mineral sources and filed as conflict undeterminable, either explicitly or implicitly.
Companies typically spent the preponderance of their allocated conflict mineral resources on sorting out the SEC filing and a lesser amount on actually figuring out how to become conflict free. SEC filing status will not be a major driver, in my opinion, for companies to become compliant. As with most things, financial pressure speaks loudest. Large, socially responsible companies are inserting terms in their purchase agreements requiring product they receive be conflict free. This requirement cascades down the supply chain to semiconductor companies, foundries and OSAT’s and direct material suppliers. Companies will escalate the importance of shipping conflict free product when customers stop purchasing non-compliant product. It becomes a clearly quantifiable metric . . . lost revenue.
Now that the first SEC deadline has passed, the major distraction of filing will give way to companies focusing on how to become conflict free or at least make more of their products conflict mineral compliant.
The nature of the semiconductor supply chain offers the opportunity for a major portion of our industry to become conflict free over a period of one to two years if we work smarter, collaborate and cooperate. The approach involves ensuring that our direct materials vendors for gold, tin, tantalum, and tungsten become conflict free as quickly as possible. Even though we are a relatively large industry, we have a relatively small number of vendors supplying most of the conflict minerals.
The primary communication tool for conflict mineral compliance has been the EICC-GeSI template, now known as the Conflict Minerals Reporting Template (CMRT). Smelters provide templates to materials vendors, material vendors supply templates to manufacturers, and so on up the supply chain . . . all the way to a company like Boeing for a 767. A major weakness is that all details except the smelter ID get lost as the information is passed up. This means that there is no inherent infrastructure to allow a company at the top to drill down through the various levels. A higher level company must query their tier 1 suppliers, who in turn query their suppliers and so on down through many levels. We in the semiconductor industry have blindly followed this same methodology . . . a fabless company requests info from their foundries and OSATs, those companies request info from the direct materials suppliers and so on.
Because of the very shallow nature of our supply chain (only a couple of levels away from smelters) and the limited number of direct materials suppliers used across our entire industry, there is an alternate approach that can bring compliance much more quickly. We must focus on getting our direct material suppliers conflict free as quickly as possible. If we put in only compliant materials at fab and assembly, then we build a conflict free IC and are home free. Our situation is much less complex than that for companies with many tiers in their supply chain.
Semiconductors make up roughly 25 percent of the worldwide electronics market. If we can become conflict free in the not too distant future, it will leverage compliance across the worldwide electronics industry.
All this can be done while continuing to purchase conflict minerals from the DRC and adjacent countries. The goal is not to avoid sourcing from the covered countries, but rather to source from non-Conflict-Affected or High Risk sources within the region, thus continuing to support the local economy.
SEMI members in the materials sector can play a tremendous part in this industry-wide compliance effort. I hope you have the opportunity to attend the SEMI Sustainable Manufacturing Forum at SEMICON West 2014. I will present at Session 3 “Sustainable Materials Procurement.” This session focuses on compliance with regulatory and market-based pressures to procure socially-responsible and environmental sustainable materials for high-tech manufacturing, including conflict minerals from war-torn areas of the Democratic Republic of Congo. Speakers: Intel, World Gold Council, N-Able Group, and IPC.
June 30, 2014