A big little problem: How to solve the semiconductor shortage

Demand for microchips was soaring even before COVID-19 disrupted supply chains and altered consumer interests

By | 5 minute read | March 9, 2021

silicon wafere manufacturing line

A batch of silicon wafers in production.

What do new PlayStations and pick-up trucks have in common? They’re getting increasingly harder to buy. The reason: there aren’t enough semiconductors to go around.

A global shortage of these tiny, essential microelectronics that make so many things smart and connected—cars, homes, devices, cities—has come just as demand for these new necessities seems insatiable. Global semiconductor industry sales were $40 billion for January, an increase of 13.2% year over year, according to the Semiconductor Industry Association.

Industry experts and policymakers are now hunting for new ways to avoid debilitating bottlenecks in the future supply chain of microprocessors.

“Manufacturing of microelectronics in the US has reached a historic low, and this is a big problem for us,” Terry Halvorsen, IBM’s general manager for client and solutions development in the Federal and Public market. “You never want to be in a spot where another nation can control a valuable resource that your nation depends on. You only have to think back to the oil crisis of the 1970s to see how quickly the world can be turned on its head. But that’s what we’re facing in the microelectronics industry.”

One of the many consequences of the COVID-19 pandemic has been spiking sales for consumer-electronic products just as there was a slowdown in chip production, particularly in Asia, where much of the industry has shifted in recent years. Many American companies now rely on the outsourcing of these crucial components to partners across the Pacific, instead of building the parts themselves.

These microelectronics are at the core of the world’s most sophisticated electronics systems. Without them, the world of innovation they enable is impossible. That symbiotic dependence is causing great concern.

“The American people should never face shortages in the goods and services they rely on,” US President Joseph Biden said last week, as he signed an executive order to do something about it. “We shouldn’t have to rely on a foreign country to protect and provide for our people. We need to sharpen America’s competitive edge by investing here at home.”

Installing microchips into computers

Microchips are becoming essential components in many products.

To that end, the Biden administration’s order creates a government-wide 100-day supply chain review focused on semiconductor manufacturing and advanced packaging, critical minerals, medical supplies, and high-capacity batteries.

Bringing home the silicon

In anticipation of the government’s recent action, the Semiconductor Industry Association—which includes AMD, IBM, Intel, Nvidia and Qualcomm—offered policy suggestions in a letter to the president. The group urged the administration to include “substantial funding for incentives for semiconductor manufacturing, in the form of grants and /or tax credits, and for basic and applied semiconductor research.”

Some studies project that by 2030 Asia will control more than 80% of the global semiconductor manufacturing supply. This worries US government officials because advanced computer chips not only drive economic and scientific advancement but military capabilities.

In October, the Department of Defense awarded more than $197 million to strengthen the American microelectronics industrial base and help it create state-of-the-art facilities to design and build at scale. Through the RAMP (Rapid Assured Microelectronics Prototypes) Advanced Commercial Capabilities Project, the Defense Department hopes to create a reliable and resilient domestic source of chips for its artificial intelligence, 5G communications, quantum computing and autonomous vehicle needs.

semiconductor wafer manufacturing

Most semiconductors are made in only a handful of Asian countries, heightening global competition.

Meanwhile, Asian manufacturers are responding by looking for opportunities in the United States. Samsung Electronics recently revealed plans to build a cutting-edge semiconductor facility in the US. The $17-billion projected, dubbed Project Silicon Silver, would also create about 1,800 jobs over the first 10 years, according to an economic impact study filed in Texas.

A delicate balance

Changes in semiconductor policy, however, must be entered into gingerly. The half-trillion-dollar semiconductor supply chain is one of the world’s most complex. The production of a single chip often requires more than 1,000 steps and passing through international borders 70 or more times before reaching an end customer. Policies that affect even a single firm or process can have massive global ripple effects.

Today, the US still dominates microprocessor research and development but it lacks firms in certain key subsectors, especially photolithography tools (the most expensive and complex form of semiconductor manufacturing equipment) and the most advanced chip factories (especially foundries, which manufacture chips for third parties). Taiwan is dominant in the most advanced manufacturing while South Korea also produces significant amounts of materials and some manufacturing equipment.

China is progressing in both semiconductor design and manufacturing, with the help of state support. In addition to investing heavily in manufacturing and production capabilities, America must accelerate investment in advanced semiconductor R&D to drive the next generation of innovation and sustain US leadership in this critical technology.

truck factory

Products ranging from vehicles to appliances of all sizes have been impacted by the microchip shortage.

Rethinking supply chains

Semiconductors are the backbone of the digital economy with most electronic devices often using many chips—not just the central processor, but less expensive ones for controlling the display, managing power or operating a 5G modem, for example.

Semiconductors enable “smarter and safer transportation, greater broadband access, cleaner energy, and a more efficient energy grid, while also providing high-paying jobs for Americans and strengthening our advanced manufacturing base,” the Semiconductor Industry Association noted in its letter to President Biden.

While chip shortages are likely to remain in the coming months, plans for supply resiliency must be crafted, from research and development through to manufacturing. IBM has helped strengthen the US microelectronics supply chain for years, and the current challenges are no exception. IBM has recently begun laying the foundation of an ecosystem to help secure and advance the US microelectronics supply chain while also leading the charge on domestic next-generation AI chips and systems innovation that will help address future needs.

“Ultimately, securing the microelectronics supply chain of the US and our allies is a challenge we all need to face now,” Halvorsen noted. “It’s the only way we can ensure sustainable long-term capability in this critically important area.”