This is a Vulnerability. It is Also a World-Class Opportunity
A Chip! A Chip! My Kingdom for a Chip!
All due apologies to William Shakespeare and King Richard III for the borrowed line above. It seems to fit exactly how a lot of people feel about this global shortage of computer chips we have all been hearing about over the last few months.
The shortage truly is global, in both geographical terms and in terms of what systems are affected. People are waiting for months to get a new car because automakers cannot get the chips needed. Each modern car has dozens, if not hundreds, of these little miracles. One spin from this is that the price of used cars has soared, in some cases surpassing the price of new cars (if they were available).
Same thing for all sorts of appliances, large and small. Heck, even my new iPhone came about 2-3 weeks later than I might have expected because of this. Much of the delay and disruption we see is connected with lots of supply chain and transportation issues, but the chip shortage is the main issue throughout the economy.
A Major Vulnerability
I readily admit that I have been fixated for years on our nation’s vulnerability in access to certain key elements, such as rare earth minerals, and dependence on imports of key elements of our economy. Microchips are on my list, and these days, pretty much near the top of that list.
In normal times (whatever that is), those who sell us chips have as much at stake in those sales as do we, and so we all get along. But it is not hard to imagine a sudden and dramatic change. What if China decided in a period of high tension with the US to stop delivering chips of any kind to the US, maybe even to all the Western powers. Not an unimaginable scenario, the results of which would be catastrophic.
Looking at China again (see a pattern here?), what if next year they decided to invade Taiwan? Once again, absolutely not a far-fetched scenario. Under the best of conditions, production, and delivery of chips from Taiwan would grind to a halt. Taiwan is our largest single chip source.
The effects on everything from industry to commerce to defense would be huge. That impact alone could encourage some in the Chinese hierarchy to pull that trigger. I could go on forever about how severe the risk is in defense right now, but you would not sleep well for days if I told you all that. Just know we need to get right on this front. Steps are under way to do so.
A Singular Opportunity
This comparatively minor disruption now with us and the possibility of major disruptions are a wakeup call. Fortunately, both the US Government (and some state governments) and industry have heeded the warning. Some promising changes are on the horizon. Change will not come over night, but it is coming.
A major chip research and manufacturing capability has not been built in the US for a very long time. That is likely to change, and soon. Intel, the leading US chip producer is now in 3rd place globally but is eager to get back into the lead. Intel has started work on two new facilities in Arizona, to the tune of a $23 billion investment in one year alone. Overall, these are part of a $200 billion investment.
Another firm, TSMC is committing $100 billion over 3 years to expand domestic capacity (even though they are not a US company), including a new plant in Arizona and a joint venture with Japan. Samsung is investing $145 billion through this decade, including a new $17 billion plant in Texas (it will be interesting to see how many people express interests in such jobs, but not if it means living in the Texas of today).
Several other, smaller but capable firms are expanding capabilities in New York, and in Germany and Singapore. Seems people see real opportunities within the industry. Governments have become sensitive to their vulnerabilities and are kicking in large orders for chips from new facilities, along with investments and tax breaks. Over the last few years, investments in chip making tools and capacity were led by other countries; the US has been in fourth place for some time. But now our surge is on, growing 67% just in the most recent quarter.
A Better Future
All this matches up beautifully with the Biden administrations Made in America and its US Innovation and Competition efforts. They plan to invest in the chip industry – and to place large, sustained orders – to build capacity and assure supply chain consistency. That is a win for all of us.
The electronics industry will always be international in nature. For the US to have a completely stand-alone semiconductor capability would take years and many billions of dollars. But developing a robust enough capability to meet our most important needs and reclaiming the R&D lead – that we can do. Let’s hope we do.
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