Experts: More problems in the chip supply chain are yet to come
Latest update time：2021-11-03 15:19
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Source: The content is compiled by Semiconductor Industry Observer (ID: icbank) from " CNBC ", thank you.
Semiconductor chip shortages are old news, but when Apple, the second-largest public company in U.S. stock market history, says it lost about $6 billion in potential sales due to limited chip supplies — here’s why the U.S. economy needs to rethink how it sources its semiconductor technology to avoid it happening again. This short-term supply chain phenomenon will pass, but tech executives and policy advisers say the future could be one of larger, longer-term supply chain shocks. For decades, these big U.S. companies have benefited from a manufacturing model where “designed in California” and “assembled in Asia” were king, but now they need to shift gears and shore up supplies of critical components.
From the recent situation of $2 trillion Apple to $1 billion lidar supplier Ouster, it seems that industry and government supply chain policies do need to change.
As a manufacturer of products with dozens or hundreds of integrated parts, it needs to manage and ensure access to all of them, said Mark Frichtl, co-founder and CTO of Ouster. “Anyone who makes an electronic device has to do this,” he said, adding that it’s now a global problem that affects all industries, whether it’s phones, cars or lidar sensors.
Results from the just-completed fourth quarter survey of CNBC Technology Executive Council members show that current labor shortages are the top concern across industries (57%), more than twice as much as supply chain issues (26%), but the two are interrelated.
“If a part is truly unavailable, the company needs to find a replacement that might require additional engineering,” Frichtl said. “Any company that makes electronic devices is going to get a little tired from all the extra work they’ve been doing. That’s not something we want to continue.”
The executives interviewed said that the inability to upgrade their own technology is the second biggest consequence of supply chain bottlenecks.
“We need technology that is intuitive and easy to use to attract people to come here,” said Mark Wheeler, director of supply chain solutions at Zebra Technologies. “To compete for them, better tools can help us do that. … New people coming into the business have high expectations,” he said.
The biggest supply chain risks lie ahead
Policy advisers and executives across industries worry that the business sector is unprepared for a long-term supply shock that could be far more severe than the short-term crisis.
Dewardric McNeal, managing director and senior policy analyst at Longview, said the current business issues causing supply chain shortages will end, but "what scares me most is the geopolitics ... the political wrestling between Washington and Beijing is just beginning."
Policy discussions about semiconductor "rebalancing" and "supply chain sovereignty" or "minimum viable manufacturing capacity" have McNeal worried that the industry is unprepared for what's coming. If not handled properly, the resulting situation could lead to companies being forced to buy a certain percentage of domestically produced chips.
In an op-ed in The New York Times on Friday, Missouri Republican Sen. Josh Hawley outlined his proposal for a “Made in America” rethinking of the supply chain.
“Telling me how to allocate is bad for a chip CEO. Telling me where I need to be positioned is bad. So I’m concerned that even if we get past some of the short-term things, we’re going to have a really big accident,” McNeal said. “The man-made stuff, the political stuff, I don’t know if industry is ready to really understand how bad things are going to get between Washington and Beijing.”
The automotive industry is a good example, as chip shortages continue to wreak havoc on automakers. The auto industry is all about efficiency and scale, and in a future where companies must start allocating semiconductor purchases based on government regulations, "you start cutting into those economies of scale," said the former Ford CEO and interim CEO of Hertz. "That's not a good economic choice," he continued.
Fields said many of the economic decisions made by automakers over the past five years about where to source supplies did not take into account recent geopolitical and trade decisions, which could come back to haunt automakers. "I think some manufacturers will be very surprised to see that the economic decisions or rationales that were so compelling at the time are not actually the case. So I think there will be a lot of reflection as to what the best practices are for balancing economics and geopolitics."
Disruptions caused by Covid and trade wars have been costly in recent years, forcing companies to rethink supply chains and accept that the added costs might be worth it if they de-risk their business “from some of the unknowns that could impact you. As has been the case in the past few years, business has been very significant,” Fields said.
Huawei's Long Tail
Matt Murphy, chief executive of Marvell Technology, which designs chips but outsources manufacturing, said the situation should be on everyone’s radar and has been at least since events in 2018 involving the Trump administration and Chinese phone maker Huawei.
Murphy, who during that time served as head of the semiconductor industry trade association, said Huawei was a signal if anyone wanted to know what the United States was prepared to do.
He said politicians are dealing with big issues of importance to the industry. In the case of Huawei, the U.S. government is targeting the company on multiple fronts — from its phones to its ability to source components for corporate equipment. He added that things haven’t changed the way executives expected. He said the Biden administration is “doubling down” on the policies of the previous administration.
“If there’s only one thing that Congress and administration officials can agree on ... it’s China,” Murphy said. “If Huawei is the beginning of the future, that’s an additional risk.”
Chips and economic competitiveness
Frichtl said Ouster buys and sells a lot of materials in China, and worsening U.S.-China trade relations are bad for almost everyone. But for the business community, he said the debate needs to be from the perspective of economic competitiveness rather than confrontation.
“What people want is for U.S. supply to exist, and right now it doesn’t really exist,” Frichtl said. “The investment to build these fabs can be considered in the context of national security, but it’s also purely economic development.”
TSMC, one of the world's largest contract chip manufacturers, is building a factory in Arizona.
The federal government has also been considering investing more than $50 billion to build a domestic chip industry — in the latest version of Biden’s spending plan, there is an advanced manufacturing credit for chip production.
“We need companies like TSMC (Taiwan Semiconductor Manufacturing Company) in Arizona and many more in the United States if we want security to not be disrupted,” Frichtl said.
The way to avoid mandating domestic component sourcing is for government and industry to commit to creating a semiconductor supply that is economically competitive in the U.S. “TSMC is a global company and they want their fab in Arizona to be competitive, so we just need to make sure that the policies we have here encourage an economically competitive supply and not just mandate that you have to buy 25% from U.S. suppliers,” Frichtl said.
Besides the national security risks, he said the geographic concentration of the world’s most advanced fabs in Asia is so great that a single disaster could wipe them out. A year from now, the acute shortages could end, with every part needed to be available, with reasonable lead times and high global half-capacity utilization.
"If there's a flood or an earthquake, we could be back to this problem. ... I think this has demonstrated to the world that semiconductor manufacturing is really important for the operation of the most valuable businesses, like Apple, which has to get semis to make its phones, and if we don't put policies around ensuring daily supply that can absorb minor shocks, we're going to be in this situation again. We have a shortage now, but there may not be new chips, and that would be catastrophic," Frichtl said.
According to Frichtl, automotive got a taste of this after the Fukushima nuclear disaster, which made companies realize the importance of having at least deeper knowledge and visibility into multiple levels of their supply chain.
“The disruptions we’ve seen over the last 18 months and even before that have shaken up the way many companies think about their supply chains,” Wheeler said.
Supply chain models are built to deliver services to the market at optimal cost, and they are built on assumptions about supply availability, transportation availability and costs, many of which have been superseded by market realities. "If the assumptions don't hold, then predictability is important. If you don't know what you have and where it is, you can't plan and re-optimize," Wheeler said.
“The shortages we’re experiencing right now are driving companies to understand what their supply chain policies might look like in a very dynamic environment. From our perspective, it comes down to an emphasis on supply chain visibility, and customers wanting to improve that. Where our stuff is, not only in the enterprise, but at the docks, factories and warehouses,” he said. “Protecting the supply chain is critical now and we will be for some time.”
McNeal said concepts being weighed, including technology sovereignty and nearshoring, outlined in legislation like the $50 billion CHIPS bill, are part of a process for industry and government to understand expectations and level-setting, but he is not convinced everyone is on the same page domestically or globally with allies in Europe and Southeast Asia on rebalancing supply chains. “I’m not quite sure our European and ASEAN friends are really fully on board with this and how to really navigate the geopolitics of supply chains,” he said.
History does include one example of how economic development in a domestic tech manufacturing hub can lead to a larger economy.
“Silicon Valley is what it is because of the silicon fabs in Silicon Valley,” Fricht said.
Original link:
https://www.cnbc.com/2021/10/29/apple-chip-woes-will-end-but-us-china-supply-chain-war-just-starting-.html
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