COVID-19 has resulted in wild gyrations in supply and demand. One industry that is being seriously impacted is semiconductors. Facing a supply shock caused by escalated purchases of high-tech goods (and consumers anxious to spend their stimulus checks), manufacturers are suddenly confronting a shortage of microprocessors.
Automakers have been hit particularly hard by the global chip shortage. In fact, the Alliance for Automotive Innovation (AAI) recently told IndustryWeek that the shortfall in semiconductor availability could stall U.S. vehicle production by as many as 1.27 million vehicles in 2021.
“The chip shortage has forced a number of automakers to halt production and cancel shifts in the United States, with serious consequences for their workers and the communities in which they operate,” said AAI CEO John Bozzella.
Production of semiconductors was reduced when plants closed as the virus spread across the globe. And the ramping up of these factories takes weeks, reports the Semiconductor Industry Association (SIA). Making a semiconductor is one of the most complex manufacturing processes. Lead times of up to 26 weeks are the norm in the industry to produce a finished chip. However, most industry analysts believe the current short-term supply shortage will ease in the coming months as supply adjusts to meet demand.
Automakers have been hit particularly hard by the global chip shortage.
Furthermore, most microprocessors must be imported. A study released last September by SIA and Boston Consulting Group entitled Government Incentives and U.S. Competitiveness in Semiconductor Manufacturing found that the share of global chip manufacturing done in the U.S. declined from 37 percent in 1990 to 12 percent in 2020. The reason, they say, is competing governments offer the industry large incentives; the U.S. does not.
“Seventy-five percent of the world’s chip manufacturing is now concentrated in East Asia,” SIA says. “China is projected to have the world’s largest share of chip production by 2030 due to an estimated $100 billion in Chinese government subsidies.”
And, depending on the type, a new fab plant in the U.S. costs approximately 30 percent more to build and operate over 10 years than one in Taiwan, South Korea, or Singapore, and 37–50 percent more than one in China, the study states. As much as 40–70 percent of that cost differential is directly attributed to government incentives.
Lead times of up to 26 weeks are the norm in the industry to produce a finished chip.
Terry Halvorsen, IBM’s general manage for client and solutions development in the federal and public market, recently commented in a blog, “You never want to be in a spot where another nation can control a valuable resource that your nation depends on.”
The SIA/Boston Consulting Group report adds, however, that robust federal incentives for domestic semiconductor manufacturing could “reverse this trajectory of declining chip production in the U.S. and create as many as 19 major semiconductor manufacturing facilities.”
Intel is working to ramp up production. In March, Intel announced expansion plans starting with two new factories in Chandler, Arizona: “This buildout represents an investment of approximately $20 billion, which is expected to create over 3,000 permanent high-tech, high-wage jobs; over 3,000 construction jobs; and approximately 15,000 local long-term jobs… To make our new expansion in Arizona possible, we are excited to be partnering with the state of Arizona and the Biden Administration on incentives that spur this type of domestic investment, ” said Intel CEO Pat Gelsinger.
A core priority with SIA and industry leaders is to push for federal manufacturing grants and tax relief totaling $20–50 billion.
As industry leaders have noted, remedying the crisis cannot be fixed by a simple “flip of a switch…Semiconductors are incredibly complex to produce,” writes Falan Yinug, director of Industry Statistics and Economic Policy, in a SIA blog. “Making a chip is one of the most, if not the most, capital- and R&D-intensive manufacturing process on earth.”
Consequently, a core priority with SIA and industry leaders is to push for federal manufacturing grants and tax relief totaling $20–50 billion. This, they say, would “re-position the U.S. from an unattractive investment destination to the most attractive (excluding China) and create as many as 19 fabs in the U.S. over the next 10 years, a 27 percent increase over the current number of U.S. commercial fabs (70).”