The DoC confirmed that there is a significant, persistent mismatch in supply and demand for chips, and survey respondents did not see the problem going away in the next six months. Median demand for the chips highlighted by the buyers who responded to the RFI was as much as 17% higher in 2021 than in 2019, and buyers aren’t seeing commensurate increases in the supply they receive.
The main bottleneck identified is the need for additional manufacturing or fab capacity. In addition, companies identified material and assembly, test, and packaging capacity as bottlenecks.
The RFI received more than 150 responses, including from nearly every major semiconductor producer and from companies in multiple consuming industries.
Other findings include:
The median inventory of semiconductor products highlighted by buyers has fallen from 40 days in 2019 to less than 5 days in 2021 (see Figure 2). These inventories are even smaller in key industries.
The RFI allowed us to pinpoint specific nodes where the supply and demand mismatch is most acute, and we will target our efforts moving forward on collaborating with industry to resolve bottlenecks in these nodes.
The primary bottleneck across the board appears to be wafer production capacity, which requires a longer-term solution.
DoC urged passage of semiconductor legislation pending in Congress — the United States Innovation and Competition Act (USICA) including $52 billion in funding to support domestic chip manufacturing. That legislation remains stalled due to disagreements between the House and the Senate as well as a slowdown in annual appropriations across all agencies.
U.S. industrial and attendant technology policy has a long and tortured existence often rising and falling in a decadal threat cycle: communism in the 50’s/60’s, oil shocks in the 1970’s, and the rise of Japan in the 1980’s. For many years starting in the 1990’s, the term “industrial policy” was considered verboten, off-limits in policy circles especially among free-market Republicans who preferred to let market forces drive technology investments. This led to a whip-saw effect, U.S. technology initiatives would flourish in times of threat, then languish and die as the U.S. defaulted to market forces alone. Unfortunately, while market forces are highly efficient and effective in picking winners and losers, this process has left the U.S. vulnerable, as the market for critical technologies (and their attendant supply chains) globalized.
With these shifts becoming apparent in the past few years, Robert Atkinson of the Information Technology and Innovation Foundation (ITIF) is out today with a new white paper on Strategic Industrial Policy. Because of an increasing reliance on sophisticated globally-sourced dual-use technologies such as semiconductors, Atkinson argues that the United States should adopt what he terms a Strategic-Industrial Policy. In the white paper, Atkinson attempts to refute the standard arguments against industrial policy — picking winners and losers, focus on high profile failures, politicization risks — while arguing that the threat from China to both U.S. economic and national security demands a new approach to U.S. industrial policy.
The White House announced a new initiative on securing the supply chain in several critical infrastructure sectors including Active Pharmaceutical Ingredients (API’s) necessary for medicines to combat the COVID-19 pandemic, rare earth minerals, advanced batteries and, semiconductor chips & advanced packaging.
The executive order will order an immediate 100-day review by federal agencies to assess vulnerabilities in these areas as well as a broader one-year review of supply chain risks across several critical infrastructure sectors including the defense industrial base; the public health and biological preparedness industrial base; the information and communications technology (ICT) industrial base; the energy sector industrial base; the transportation industrial base; and supply chains for agricultural commodities and food production.
A growing problem is a world-wide shortage of key semiconductor chips in several industries including automotive manufacturing. According to areport in the Wall Street Journal, both Ford and General Motors have had to slow or suspend production lines due to chip shortages.