US President Joe Biden’s administration has concluded that the global chip shortage will last at least until the second half of this year. This will create an unfavorable environment for a number of US companies, including auto and consumer electronics makers.
A US Department of Commerce report, based on information from more than 150 companies in the semiconductor supply chain, shows that “There is a significant and persistent mismatch between supply and demand for chips“. The companies named in the document do not expect the problem to go away in the next six months. Some of them have reduced their semiconductor inventories from enough for 40 days of operation to just five days. US Commerce Secretary Gina Raimondo said the number was the best example of how fragile the chip supply chain is.
The report highlights the Biden administration’s limited ability to contain the crisis, which has led to delays in finished product shipments and massive layoffs in the auto industry. The chip shortage has been a key driver of rising inflation, which is worrying the White House and could result in Congress falling under Republican control after the midterm elections in November this year (Biden is a Democrat).
Most semiconductor industry opinion leaders are warning that chip shortages won’t ease until the second half of this year. Some products are expected to be delayed until 2023 due to parts shortages. The increased demand for semiconductors is expected to continue into 2025.
According to the report, the Commerce Department is investigating possible price gouging for some types of semiconductors that were “unusually high” during the supply crunch. However, the report does not specify what types of chips and which manufacturers are involved. Last year, the Biden administration required companies involved in the semiconductor supply chain to provide the government with chip supply and demand information to pinpoint bottlenecks in the industry. Some companies have not yet provided details of the transactions.
The Department of Commerce report shows that average demand for chips in 2021 increased 17% compared to 2019, without a corresponding increase in supply. It also highlights that some companies in key US industries have less than five days of semiconductor inventories. Any disruption at overseas chipmakers, such as the coronavirus outbreak or natural disasters, could lead to production shutdowns and layoffs in the US. The US Department of Commerce report acknowledges that the government is nearly powerless to address bottlenecks in the chip supply chain.
The report highlights the need to develop semiconductor manufacturing in the US. Congress is already considering a bill that would propose $52 billion in funding for the US semiconductor industry, most of which would reward chipmakers for building factories in the US. However, new plants will not be operational for several years, so building these plants will not be an immediate solution to the semiconductor shortage.
Last week, Intel announced it would build a $100 billion chip manufacturing center in Ohio that is expected to be the world’s largest semiconductor fab. The first two factories are scheduled to go into operation there by 2025. Samsung and TSMC also plan to expand their investments in the US, but their manufacturing facilities will not open in North America this year either.