Thousands of new cars are piling up at manufacturers’ lots, the price of electric toothbrushes has surged, coffee machines have disappeared from store shelves and Apple has drastically cut its iPhone production.
The global computer chip shortage is showing no signs of abating heading into 2022, and the Biden administration’s proposed solution remains years away.
President Biden and his Cabinet have urged Congress to pass legislation that would invest $52 billion in boosting U.S. semiconductor chip production.
Officials have argued domestic chip production is critical to avoid future supply interruptions that have depleted consumer product inventory.
The bill, known as the CHIPS for America Act, passed the Senate in July with bipartisan support but has stalled in the House.
At a speech last month in Detroit, Commerce Secretary Gina Raimondo implored Congress to pass the bill so the U.S can “immediately” begin ramping up chip production.
But even if Congress acts urgently and ramps up domestic production, it won’t be a quick-fix, analysts say. By the time the U.S. can get up to speed manufacturing semiconductor chips, the crisis will have long passed.
“The chip shortage is going to get resolved in the second half of 2022. It takes three years for a new chip [factory] to come to production,” said Gaurav Gupta, vice president of semiconductors and electronics for Gartner, a technology research and consulting company.
Mr. Gupta said that even if the U.S. significantly boosts production, it won’t be able to completely remove itself from the global supply chain. That’s because all of the testing and packaging is done in Southeast Asia, where costs are much lower.
It costs 30% more to make a chip in the U.S. than in Asia, according to a 2020 report by the Semiconductor Industry Association (SIA). That could add between $10 billion and $40 billion to production expenses, the report concluded.
“You’ll still send the chips back to Southeast Asia unless you are bringing the complete ecosystem here and you won’t because it’s impractical to do that,” Mr. Gupta said.
It is not clear if the federal dollars under the CHIPS Act will be enough to prop up domestic production. The U.S. share of the global semiconductor manufacturing market has dropped from 37% in 1990 to 12% in 2020, according to the SIA. Europe’s share dropped from 44% to 9% in the same time frame, while Asia now represents 75% of the world’s semiconductor manufacturing capacity.
“There’s no special sauce down there except money,” said Paul Gratz, who teaches computer engineering at Texas A&M University.
In China, where it costs nearly 50% less to produce a semiconductor than it does in the U.S., the government is spending $150 billion on increasing its chip production. That’s nearly triple the investment under the CHIPS Act.
Some fear that the U.S. bid to spur more domestic manufacturing will lead to a glut of chips flooding the market. That would result in falling prices and negative or zero revenue growth.
The revenue of the top 10 semiconductor firms, including Intel and Samsung, declined by 12% in 2019 because of oversupply, according to Gartner’s research.
The potential for overcapacity is on the horizon as auto and smartphone makers slashed inventory amid sluggish sales.
“You have to solve this problem in a systematic manner,” Mr. Gupta said. “You don’t have to go with political sentiment.”
On Thursday, U.S.-based Intel Corp. announced it will spend $7.1 billion to build a massive packaging and testing facility in Malaysia, bucking the administration’s call for more domestic manufacturing.
The $7.1 billion is part of Intel’s overall $30 billion investment in Malaysia, which will include a sprawling complex that will build chips for industries ranging from cars to computers.
Mr. Gratz said the U.S. needs to stop its reliance on Asian countries for semiconductor chips.
South Korea and Taiwan are the world’s two chipmaking powerhouses, combining for roughly 43% of the global market, according to the SIA. However, both nations have global threats looming that could lead to instability. South Korea has repeated conflict with North Korea, while fears persist of a full Chinese invasion of Taiwan.
“In the long term, [the CHIPS Act] is probably beneficial for us because two countries that have the lion’s shares of the market are Taiwan and South Korea,” Mr. Gratz said. “By investing domestically, it is going to give us more of a cushion if there is a geopolitical shakeup.”
Instead of ramping up domestic production, Mr. Gratz said, companies should be investing in new technologies to use alternate chips.
That strategy would pay off for the auto industry, which has been devastated by the chip shortage.
Automaker Tesla has survived the chip nightmare by developing its own semiconductors and changing its software to use fewer chips.
While the chip shortage is expected to cost the global automotive industry $210 billion in revenue this year, Tesla has weathered the storm with a string of profitable quarters and a growing business.
“What Tesla did was very impressive,” Mr. Gratz said. “They were very flexible with respect to retooling and spent a lot more on software so they can use different processors into their cars.”
Tesla’s technology investment enabled it to grow production while other automakers were forced to halt or even shut down production because of the chip shortage.
Toyota cut production targets in the U.S. and overseas by 15% last month, while Ford announced this summer that it has 70,000 partially built cars awaiting semiconductor chips. Ford did not respond to repeated requests for comments to learn how many, if any, of the cars have been completed.
Other manufacturers are looking into technological investments. General Motors said it will work with chip manufacturers to develop devices that combine several functions previously controlled by chips.
Still, other automakers like Ford are seeking partnerships with semiconductor companies to give them more control over both the supply and design of the chips.