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Thousands of new cars are piling up in manufacturers’ lots, the prices of electric toothbrushes have risen, coffee makers have disappeared from store shelves, and Apple has drastically reduced iPhone production.
The global computer chip shortage shows no signs of waning towards 2022, and the Biden administration’s proposed solution is years away.
President Biden and his Cabinet urged Congress to pass legislation that would invest $52 billion in boosting US semiconductor chip production.
Authorities argued that local chip manufacturing is critical to avoid future supply disruptions that deplete consumer product inventory.
The bill, known as CHIPS for America Act, passed the Senate in July with bipartisan support, but stalled in the House.
Speaking in Detroit last month, Secretary of Commerce Gina Raimondo asked Congress to pass the bill so the United States could start increasing chip production “immediately”.
But analysts say that even if Congress acts urgently and accelerates domestic production, it won’t be a quick fix. By the time the US can accelerate the production of semiconductor chips, the crisis will be long past.
“The chip shortage will be resolved in the second half of 2022. It takes three years for a new chip [factory] Gaurav Gupta, vice president of semiconductors and electronics at Gartner, a technology research and consulting firm, said.
Mr. Gupta said that even if the US increased production significantly, it would not be able to completely remove itself from the global supply chain. This is because all testing and packaging is done in Southeast Asia, where costs are much lower.
According to the Semiconductor Industry Association’s (SIA) 2020 report, making a chip in the US is 30% more expensive than in Asia. The report concluded that this could add between $10 billion and $40 billion to manufacturing expenses.
“Unless you bring the entire ecosystem here, you’re going to send chips back to Southeast Asia and you won’t because it’s impractical to do so,” said Mr. Gupta.
It is unclear whether the federal dollar under the CHIPS Act will be enough to support domestic production. According to the SIA, the US share of the global semiconductor manufacturing market has dropped from 37% in 1990 to 12% in 2020. Europe’s share fell from 44% to 9% in the same time frame, while Asia currently represents 75% of the world’s semiconductor manufacturing capacity.
“There’s no special sauce out there except money,” said Paul Gratz, a computer engineering lecturer at Texas A&M University.
In China, where producing a semiconductor costs almost 50% less than in the United States, the government is spending $150 billion to increase chip production. This is almost three times the investment under the CHIPS Act.
Some fear that the US proposal to encourage more domestic production will lead to a flood of chips on the market. This results in falling prices and negative or zero revenue growth.
According to Gartner’s research, the revenue of the top 10 semiconductor companies, including Intel and Samsung, fell 12% in 2019 due to oversupply.
The potential for overcapacity is on the horizon as auto and smartphone manufacturers cut stocks amid sluggish sales.
“You need to solve this problem in a systematic way,” Mr. Gupta said. “You don’t have to go with political feelings.”
On Thursday, US-based Intel Corp. It announced it would spend $7.1 billion to build a massive packaging and testing facility in Malaysia, opposing the administration’s calls for more domestic production.
The $7.1 billion is part of Intel’s total investment of $30 billion in Malaysia and will include an expanding complex that will manufacture chips for industries ranging from automobiles to computers.
Mr. Gratz said the US should stop its dependence on Asian countries for semiconductor chips.
According to SIA, South Korea and Taiwan are the world’s two chip-making powerhouses, uniting roughly 43% of the global market. However, both countries have global threats that could lead to instability. As South Korea reiterates conflict with North Korea, fears remain that China will fully invade Taiwan.
“In the long run, [the CHIPS Act] “It’s probably beneficial for us because the two countries that have the lion’s share of the market are Taiwan and South Korea,” he said. “Investing domestically will give us more cushioning if there is a geopolitical jolt.”
Mr. Gratz said instead of increasing domestic production, companies should invest in new technologies to use alternative chips.
This strategy will pay off for the auto industry, which is devastated by chip shortages.
Automaker Tesla escaped the chip nightmare by developing its own semiconductors and changing its software to use fewer chips.
With the chip shortage expected to cost the global auto industry $210 billion in revenue this year, Tesla weathered the storm with a series of profitable quarters and a growing business.
“What Tesla did was very impressive,” said Mr. Gratz. “They were very flexible with tool switching and spent a lot more money on software to be able to use different processors in their cars.”
Tesla’s technology investment enabled it to increase production, while other automakers had to halt or even shut down production due to chip shortages.
Toyota cut production targets in the US and overseas by 15% last month, while Ford announced this summer it has 70,000 partially built cars waiting for semiconductor chips. Ford did not respond to repeated requests for comment to find out how many, if any, of the cars were completed.
Other manufacturers are looking at technological investments. General Motors said it will work with chip manufacturers to develop devices that combine various functions previously controlled by the chips.
Still, other automakers like Ford are seeking partnerships with semiconductor companies to give them more control over both the supply and design of chips.
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