The US Only Holds 12% of Global Chip Manufacturing – ThomasNet News

by admin on August 24, 2021

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Female chip manufacturer assembling motherboard

Taiwan is home to most of the world’s semiconductor companies, with one company in particular, Taiwan Semiconductor Manufacturing Co. (TSMC), making half the world’s chips and 92% of the world’s most sophisticated microchips.

While the U.S. leads the world in chip design and hosts several chip makers including Intel, Nvidia, and Qualcomm, it only holds roughly 12% of global chip manufacturing.

The world’s dependence on TSMC and ever-rising demand for microchips is causing significant bottlenecks with chip manufacturing delays stretching well into 2022. There is also a geopolitical risk of future shortages given Taiwan’s position as a potential flashpoint between the U.S. and China.

The Pentagon is increasingly uncomfortable with overseas-made microchips being used in American military and intelligence equipment from trucks to satellites and even missiles.

Who Is Impacted by Chip Shortages?

U.S. automakers have been hit the hardest by the microchip shortage, with plants idling and “tens of thousands” of workers laid off in consequence. Ford, for example, predicted the chip shortage would lead to second-quarter vehicle production being slashed by half.

But microchips are everywhere: in our cell phones, refrigerators, gaming consoles, and are an essential part of many manufacturing processes. Goldman Sachs revealed that the microchip shortage is impacting 169 industries ranging from air conditioning to breweries.

Goldman Sachs also warned that the chip shortage will hit the U.S. economy by as much as 1% in 2021; a dire result in a recovering economy after the ravages of COVID-19. Ultimately, the shortage will also mean higher prices for end-consumers.

What Is Being Done?

In the short term, the U.S. Department of Commerce has pressed TSMC to prioritize the needs of U.S. automakers to ease chip shortages amid factory shutdowns and layoffs. TSMC’s response acknowledged the “shared concern of the worldwide automotive industry”, and that Taiwan had been approached at the government level with similar requests from several countries.

In the longer term, there are growing calls for urgent re-shoring of chip manufacturing and other critical supply chains out of Taiwan.

President Biden is backing a $50 billion investment to support U.S. chip making and research. However, this amount may not make much of a dent in an extremely capital-intensive industry. The Wall Street Journal revealed that “a single semiconductor factory can cost as much as $20 billion”, while manufacturing tools for advanced chip-making can cost upwards of $100 million each.

Factories and equipment aside, the U.S. will need to invest in the skills required to reshore chip-making. SCMP’s Neil Newman summed it up with the phrase: “invest in software firms, and teach your kids python.”

Can The U.S. Ever Catch Up?

Some experts warn that the U.S. may never catch up to Taiwan in chip manufacturing capability.Defense technology expert Bryan Clark told Rollcall.com that “there’s just no way you’re going to win” in a race with TSMC.

Similarly, the Wall Street Journal noted that “once a semiconductor producer falls behind, it’s hard to catch up … companies can spend billions of dollars and years trying, only to see the technological horizon recede further.”

Research firm IC Insights believes “governments would need to spend at least $30 billion per year for a minimum of five years to have any reasonable chance of success.” Clark recommends the U.S. should instead focus on its strength — chip design — and breaking ahead in next-generation production methods.

The semiconductor shortage should be understood in the context of the U.S. Critical Supply Chain Review which identifies dangerous vulnerabilities in supply chains including semiconductors, rare-earth minerals such as lithium and graphite necessary for making large capacity batteries, and pharmaceutical ingredients.

Image Credit: Gorodenkoff / Shutterstock.com

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