Navigating the Chip Shortage

While the demand for connected cars, electronics and more, various industries are clamoring for silicon chips. A chip shortage has forced workarounds to keep production moving.

July 19, 2021

4 Min Read
Green microchip set in a blue printed circuit board
microchip integrated on motherboardThinkstock

By Mary Shacklett

If you’re shopping for a new vehicle this year, don’t expect Nissan to have a navigation system in every car or Dodge Ram 1500 pickups to have an “intelligent” rear view mirror that monitors for blind spots.. Chrysler-Dodge, Nissan and other auto manufacturers are scaling back high-end features this year because a chip shortage has forced workarounds to keep production moving.

Why Is There a Chip Shortage?

In some cases, such as the automotive industry, production lines are using older chip technologies. This creates a supply chain problem in which chip manufacturers focus on the production of newer chips like SOCs (system on a chip). In other cases, a confluence of adverse weather conditions, plant fires, COVID-19 plant shutdowns, sanctions on Chinese companies and a boom for chips in the consumer electrics market have created a chip demand that outstrips supply.

Chip Fabrication in a Nutshell

In the U.S,. which purchases 47% of chips worldwide but manufactures only 12%, home-based chip fabrication has become a looming concern—so much so that the Biden administration has proposed $37 billion in funding that would go toward that effort.. That sounds like a lot of money, but fabrication facilities are costly.

Further, these multibillion-dollar “fabs,” or fabrication plants, are multibillion-dollars and can take years to build. Recouping investment from the sales of chips also takes time, since it can take more than three months for an entire chip manufacturing run to complete.

The chip manufacturing process takes silicon wafers  and transforms them into billions of transistors in expensive, dust-free clean rooms that uses multimillion-dollar machines. The Chinese government, offers subsidies to support fab facility builds. EU semiconductor firms have requested the same government help. This will likely also be the case in the U.S., if it wants to assume a larger role in the direct production of its own chip supply.

What Now for Chip Supply and Demand?

Partner on chip fabrication. AMD has partnered with TSMC and NVIDIA has partnered with Samsung. These are semiconductor competitors that have gotten together to share fab foundries—and costs— for chip production. Intel has also spent $20 billion on two new fab plants in Arizona, with the goal of finding partners that can share the capabilities and the costs of its fab foundries. . While in an ideal world, the desire of chip manufacturers might be to have their own dedicated fabrication facility, partnering by sharing fab facilities, even with competitors, is one way to reduce cost and risk of manufacture, keep the chips flowing through the supply chain, and gain revenue.

Invest. It is clear that in the U.S., as elsewhere, there is a need for government investment if we are to regard chips as a mission-critical element of our economy and our military. As previously mentioned, the Biden administration has proposed $37 billion in government subsidies for chip fabrication factories. Intel, TSMC and Samsung also have plans to construct new chip fabrication facilities in the U.S.

Locate rare metals in the U.S. Gold, silver, platinum, copper and aluminum are some metals used in computer chips. Over the past couple of decades, the U.S. has come to rely on China for many of these metals, and also on rare metals that are used in military, aerospace and electric vehicle applications. For the past few years, there has been active exploration in the American West to uncover domestic sources of rare metals. In February, 2021, President Biden signed an executive order to review the supply chain for rare metals, chips and medical devices, all of which are included in the new infrastructure plan.

Accelerate investment in advanced semiconductor R&D. Previously, theS. spent 2% of its GDP on R&D, but today that investment is less than 1%. The current plan is to increase that percentage so the U.S can more effectively compete with other countries. Meanwhile in the U.S. semiconductor industry, producers are seeking ways to focus a great amount of activity on R&D. They are doing this by engaging in more partnerships with suppliers and foundries for manufacturing. This leaves them more time for R&D and new product development.

Resolving the Chip Shortage Will Take Time

In May, 2021, IBM joined Intel and TSMC in forecasting a pessimistic outlook for a quick resolution for the current chip shortage. “We’re going to have to look at reusing, extending the life of certain types of computing technologies, as well as accelerating investment in these [fabricating plants], to be able to as quickly as possible get more capacity online,” said IBM President Jim Whitehurst in an article.

It’s  small wonder that automotive companies are scaling back when it comes to offering high-end technology in their cars, and its likely that other industries will follow.

In the future, however, this could be good news. More chip manufacturing capacity needs be brought online, but it might also need to be updated for the new types of chips that industry and consumers need. Now is the time for us to get our arms around that.

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