Sunday November 27, 2022

Here’s how bad the chip shortage is, according to the White House

Today, the White House is saying out loud what you’ve likely already heard: the chip shortage won’t end anytime soon. “We aren’t even close to being out of the woods,” said US Commerce Secretary Gina Raimondo in a briefing with reporters today, according to Bloomberg, The Washington Post, and others.

Her comments come alongside a new Department of Commerce report that cites chipmakers who “did not see the problem going away in six months,” which also isn’t exactly news: chipmakers like Nvidia and AMD have repeatedly suggested the shortage wouldn’t ease until the second half of 2022, while Intel has said it might not end until 2023.

But the report, based on 150 responses from “nearly every major semiconductor producer and from companies in multiple consuming industries,” does dive a little deeper into where the issues lie:

The Department of Commerce says it’s clearly demand, not just supply constraints, that are bogging things down, with 17 percent higher demand for chips in 2021 vs. 2019.
Now, the industry has just five days’ worth of inventory on shelves, down from 40 days’ worth in 2019. “This means a disruption overseas, which might shut down a semiconductor plant for 2-3 weeks, has the potential to disable a manufacturing facility and furlough workers in the United States if that facility only has 3-5 days of inventory,” the report argues.
A few types of chips are seeing the biggest impact: “legacy logic chips (used in medical devices, automobiles, and other products), analog chips (used in power management, image sensors, radio frequency, and other applications), and optoelectronics chips (used in sensors and switches).”
Those impacted chips aren’t necessarily on the most advanced semiconductor nodes, like the brand-name Intel, AMD, Nvidia, Qualcomm, Samsung and Apple processors you might think of that use 5, 7 and 10nm. The report suggests chips that are far less dense, from 40nm all the way up to 800nm, are the ones seeing “significant semiconductor supply and demand mismatches.”
“The primary bottleneck across the board appears to be wafer production capacity, which requires a longer-term solution.”
“[F]rom Q2 of 2020 through 2021, semiconductor fabs operated at over 90% utilization, which is incredibly high for a production process that requires regular maintenance and very high amounts of energy.”

What’s the Biden administration going to do about it? Well, the White House is using the report to argue that Congress urgently needs to pass the CHIPS Act — itself part of the US Innovation and Competition Act (USICA) — which frees up to $52 billion for domestic semiconductor manufacturing. It’s been stalled in the House of Representatives for many months after passing the Senate with strong bipartisan support.

“The semiconductor supply chain remains fragile, and it is essential that Congress pass chips funding as soon as possible,” reads a statement from Raimondo, under a press release with the heading “Commerce Semiconductor Data Confirms Urgent Need for Congress to Pass U.S. Innovation and Competition Act.”

While I’m certainly not going to argue that the US shouldn’t fund domestic semiconductor manufacturing — there are many good reasons we might want to do just that — I will say it’s been weird to see the Biden administration suggest that that $52 billion is a ticket to ending the chip shortage, lowering car prices, and combatting inflation.

As we discussed last week when Intel announced it would spend $20 billion on two new fabs in Ohio, Raimondo and others appear to be trying to conflate these ideas to kick Congress into gear — but Intel doesn’t historically make chips for cars, and today’s chip shortage will likely be over long before any of those fabs can start producing chips.

Raimondo did mention one other intriguing place that the White House might be able to help, though, writing that the Department of Commerce is investigating claims that brokers are charging unusually high prices for chips. It’s not clear whether they’re referring to traditional scalpers or middlemen between chipmaking companies and customers.

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