Commerce Department investigation finds ‘alarming’ chip shortages

WASHINGTON — The United States faces an “alarming” shortage of semiconductors, a government survey of more than 150 companies that make and buy chips found; the situation threatens U.S. factory output and is helping fuel inflation, Commerce Secretary Gina M. Raimondo said Monday.

She said the findings showed a critical need to support domestic manufacturing and called on Congress to pass legislation to strengthen US competitiveness with China by allowing more US production.

“It is truly alarming the situation we find ourselves in as a country and the urgency with which we must act to increase our national capacity,” said Ms. Raimondo.

The results show that demand for chips that power cars, electronics, medical devices and other products far exceeds supply, even as global chipmakers approach maximum production capacity.

While demand for semiconductors increased by 17% from 2019 to 2021, there was no commensurate increase in supply. A large majority of semiconductor fabs are using about 90% of their capacity making chips, meaning they have little immediate ability to ramp up production, according to data compiled by the Commerce Department.

The need for chips is expected to increase as technologies that use large amounts of semiconductors, such as 5G and electric vehicles, become more widespread.

The combination of growing demand for consumer products containing chips and pandemic-related production disruptions has led to shortages and soaring prices for semiconductors over the past two years.

Chip shortages have forced some factories that depend on the components to make their products, such as those of U.S. automakers, to slow down or suspend production. This hurt US economic growth and drove up car prices, a major factor in soaring US inflation. The price of a used car rose 37% last year, which helped push inflation to its highest level in 40 years in December.

The Commerce Department sent an information request in September to chipmakers and global consumers to gather information on inventory, production capacity and backlogs in an effort to understand where bottlenecks exist in the industry. industry and how to mitigate them.

The results of that survey, which the Commerce Department released Tuesday morning, reveal just how scarce the global chip supply has become.

Median inventory among buyers had fallen to less than five days from 40 days before the pandemic, which means any hitch in chip production – due to a winter storm, for example, or another epidemic of coronavirus – could cause shortages that would shut down American factories. and destabilize supply chains again, Ms. Raimondo said.

“We have no room for error,” she added.

To help fix the problem, Biden administration officials banded together behind a bill the Senate passed in June in response to some of the country’s supply chain issues.

The bill, known in the Senate as the U.S. Innovation and Competition Act, would inject nearly a quarter of a trillion dollars into scientific research and development to boost competitiveness against China and support semiconductor makers by providing $52 billion in emergency subsidies.

The legislation’s momentum stalled amid ideological disputes between the House and Senate over how to direct funding. In June, House lawmakers passed a narrower bill, eschewing the Senate’s focus on technology development in favor of funding basic research.

But administration officials, led by Ms. Raimondo, have begun pushing lawmakers behind the scenes in a bid to help bridge their differences to quickly pass the bill, underscoring the urgency of signing solutions quickly in the law.

“There’s no getting around it. There is no other solution,” Ms. Raimondo said. “We need more facilities.”

On Tuesday night, House Democrats unveiled a sweeping 2,900-page bill that lawmakers said they hope will be a starting point for negotiations with the Senate, with the goal of eventually passing a bill on manufacturing and supply chain. In a statement minutes after the text of the bill was released, President Biden welcomed both proposals and urged “quick action to get this to my office as soon as possible.”

The Commerce Department survey found that it sometimes takes companies twice as long to source some in-demand chips, sometimes up to a year. Survey respondents also said they don’t see the mismatch between supply and demand in the industry dissipating over the next six months.

The shortages have affected larger legacy chips, which are needed for car production, as well as the more advanced chips needed to power technologies such as artificial intelligence.

Ms Raimondo said she had spent a “tremendous amount of time” talking about the shortage to business leaders, some of whom had personally set out to hunt around the world for a small number of crucial chips for their blockchains. supply.

She added that the investigation also revealed how dependent the United States was on Taiwan for the most advanced chips. Taiwan Semiconductor Manufacturing Company has become the supplier of choice for many companies, which may design their chips in the United States but look to Asia to manufacture them.

China considers its claim to Taiwan non-negotiable, and it has taken an increasingly aggressive military posture toward the island, potentially endangering US supplies of advanced chips.

In a briefing with reporters on Tuesday, Raimondo said the investigation also found unusually high prices for semiconductors sold through brokers, and that the Commerce Department would investigate those practices.

The Biden administration has implemented an early warning system to notify government and industry of impending chip shortages and summoned business leaders to try to address the issue, among other actions. He also praised industry investment while acknowledging that any new construction of chip manufacturing facilities in the United States will take several years and not immediately address shortages.

On Friday, Intel said it would invest $20 billion in a facility in Ohio, which would contain two chip factories and directly employ 3,000 people. Construction of the first two factories is expected to begin this year, but production won’t begin until 2025, Intel said.

Comments are closed.