A report by the US Division of Commerce warns the worldwide chip scarcity isn’t going away anytime quickly, so the US must ramp up its home manufacturing.
In response to international microchip provide chain points which have impacted numerous sectors over the previous few years, the US Division of Commerce launched a ‘Request for Info’ in September. This was primarily a strategy of chatting with round 150 corporations, together with ‘practically each main semiconductor producer and from firms in a number of consuming industries’ and making some conclusions.
It described the causes of the availability chain squeeze as a ‘excellent storm’ which began earlier than 2020 when there have been already difficulties in acquiring semiconductor manufacturing gear used to make older sorts of chips and elements in digital meeting reminiscent of diodes, capacitors, and substrates.
Demand elevated as varied industries began requiring increasingly more chips for the newest merchandise or gear – reminiscent of cutting-edge electrical autos and 5G masts. Then got here the pandemic which each led to an extra enhance in demand, and in addition disruption attributable to manufacturing unit shutdowns and the final provide chain chaos that affected every thing. The report additionally famous the impression of a sequence of ‘black swan’ occasions reminiscent of manufacturing unit fires, winter storms, and vitality shortages.
It’s a protracted report, however the prime line information is that demand for chips was 17% increased in 2021 than in 2019, and that there has not been a commensurate rise in provide. It recognized the primary bottleneck throughout the board as wafer manufacturing capability.
Since there are lots of forms of semiconductor, the report highlighted specific shortages in merchandise that help medical gadgets, the broadband sector, and cars. Specifically, microcontrollers which are primarily manufactured from legacy logic chips, analogue chips and optoelectronics chips.
When it comes to options, the report mentioned: “The non-public sector is greatest positioned to deal with the near-term problem posed by the present scarcity, through elevated manufacturing, provide chain administration to attenuate disruption, and product design to optimize the usage of semiconductors. Nevertheless, given the significance of semiconductors to U.S. financial safety, the Biden Administration is doing every thing in its energy to facilitate options and overcome the heightened coordination challenges that come up at moments of tail threat.”
Whereas it does go on later within the report back to acknowledge the place US chip manufacturing capacity has landed some wins – reminiscent of the brand new Intel semiconductor facility in Ohio – it doesn’t count on that to make an impression till in direction of the tip of this yr as manufacturing begins to return on-line, and claims that on prime of this extra must be achieved.
“The RFI confirmed that there’s a important, persistent mismatch in provide and demand for chips, and respondents didn’t see the issue going away within the subsequent six months…” the report continued. “The RFI outcomes make it clear: America wants to provide extra semiconductors. Congress should move funding for home semiconductor manufacturing, such because the U.S. Innovation and Competitors Act, to unravel our provide challenges for the long run.”
It’s concluding paragraph mentioned: “We are going to proceed to advocate for the President’s proposed $52 billion to boost home semiconductor manufacturing included within the U.S. Innovation and Competitors Act. This semiconductor scarcity is the results of a major mismatch in provide and demand, additional exacerbated by the pandemic. The primary difficulty recognized within the RFI is inadequate fab capability, and that’s what the President’s proposal is designed to speed up.”
All the explanations for ramping up chip manufacturing within the US (and within the West extra usually) listed within the report make excellent sense in as far as constructing in additional redundancy to worldwide provide chains in an period the place increasingly more issues being constructed want the chips.
However then there are the geopolitical causes not talked about on this report. Whereas Samsung in South Korea has pores and skin within the recreation, a lot of the leading edge 5nm chips are produced by TSMC out of Taiwan. These signify probably the most superior chips, primarily utilized in cell computing.
China has been rising its sabre rattling over Taiwan. A doomsday state of affairs is a Chinese language annexation of Taiwan which, with out going into the broader catastrophic army fallout that might precipitate, would put the majority of the world’s leading edge chip manufacturing into China’s direct management. And should you assume tensions between the US and China are operating excessive now, think about what may occur to international commerce after such an motion.
So it is smart for the US authorities to attempt to encourage extra home chip making capacity, since whole sectors would at this level grind to halt with out a provide. It’s by this lens that TSMC’s new fab in Arizona (attributable to begin 5nm operations in 2024) and Intel’s new manufacturing amenities could be seen, and we’d count on to see continued consideration given to the complete semiconductor ecosystem by the US authorities for the foreseeable future.