How a National Effort Could Help End the Chip Shortage

Computer chip shortages mean that everything from gaming consoles to cars is in short supply. Some experts believe that a bigger national investment in chip manufacturing could solve the problem. 

A bill known as the CHIPS for America Act was introduced last year to provide incentives to enable research in the semiconductor industry and secure supply chains. In February, President Biden signed an executive order that involves assessing potential risks in the semiconductor supply chains. But some observers say that more needs to be done. 

"There's nothing the US government can do over the next six months to a year to really alleviate this," Mike Juran, CEO of Altia, an automotive user interface design company, said in a video interview. "Cranking up these factories is pretty complex. We need a long-term strategy." 

Pandemic Boosts Demand for Electronics

COVID-19 caused a chain reaction when specific market sectors, such as automotive, forecasted a drop in demand for their products, Syed Alam, the semiconductor global lead of consulting firm Accenture, said in an email interview.  

"The manufacturers reduced their demand for chips accordingly, and their freed-up capacity was quickly claimed by other markets that anticipated spikes in demand, such as PCs and consumer electronics," he added. 

The chip shortage can be felt wherever people are buying devices. Jet City Device Repair, which repairs over 20,000 devices each year, sees more customers asking for everything from tablets to smartphones. 

"Demand for some LCDs, laptop and iPad in particular, have soared over the past year as schools and businesses all over the world have gone fully virtual," Matt McCormick, the company’s CEO, said in an email interview.

"For example, about 25 million of America's 50 million students were part of a 1-to-1 device program pre-pandemic. Today that number sits close to 100%."

The US Falls Behind in Chip Making

The US is playing catch up to some Asian countries in the chip manufacturing business. A single semiconductor fabrication plant costs $10-$20 billion to build, noted Nir Kshetri, a professor at the University of North Carolina-Greensboro,  in an email interview. 

"Some form of public support is critical to develop this industry," he added.

"One important lesson from economies such as Taiwan and South Korea that have been successful in semiconductor manufacturing is that government support played a key role in the growth of this industry. Over the past two decades, Chinese chip manufacturers received government subsidies of $50 billion."

Intel and other companies have announced plans to build new semiconductor foundries in the US or expand their existing facilities, James Prior, the head of global communications at semiconductor company SiFive, said in an email interview. 

"This is being done at the urging of the US government, as well as by large customers who rely on semiconductors to power their products," he added.

"SiFive works with large foundries to offer IP and services that enable faster time to market for new designs, optimized for new workloads. Foundry construction is expensive and time-consuming and will take several years to complete and begin production." 

Juran said he supports efforts to inject tens of billions of dollars to jumpstart the industry in the US. 

"There are a whole lot of factories scattered around the country that we can restart or build," he added. "Colorado Springs has an Intel factory that was built that actually never came online. It will be expensive, but the return on investment is high."

Having chip manufacturers in the US also could help with logistical challenges. Bringing the manufacturing closer to the target markets could help shorten supply lines and lead times, Prior said. 

"Many bottlenecks or delays that were created by slower processing of shipments (fewer boats, premium pricing for air freight space, reduced capacity for customs clearance, fewer big rigs on the road to move goods) can be mitigated," he added.