Semiconductor Shortage

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Semiconductor Shortage

by James G. Barr

Docid: 00018037

Publication Date: 2209

Publication Type: TUTORIAL


Semiconductors are those tiny electronic devices that are fundamental to
the operation of modern digital systems in everything from smartphones to
high-tech military aircraft. Today, however, and for the past couple of
years, supply chain problems either instigated or aggravated by the
COVID-19 pandemic have slowed the production and distribution of
semiconductors, disrupting “the entire electronics food
chain.” Solutions involve diversifying the semiconductor manufacturing
industry, presently dominated by Taiwan, and reducing as much as possible
our modern “chip dependence.”

Report Contents:

Executive Summary

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Semiconductors are those tiny electronic devices that are fundamental to
the operation of modern digital systems in everything from smartphones to
high-tech military aircraft.

Faulkner Reports
Advanced Micro Devices
Company Profile Vendor
Intel Company Profile Vendor
Texas Instruments Company
Profile Vendor

More than powering individual devices or systems, semiconductors are
foundational to the development of emerging technologies, including:

  • Artificial intelligence and machine learning
  • Autonomous systems
  • 5G communications
  • Quantum computing

Today, however, and for the past couple of years, supply chain problems –
either instigated or aggravated by the COVID-19 pandemic – have slowed the
production and distribution of semiconductors, disrupting “the entire
electronics food chain.” For context, a complex electronic device or
system like a smartphone, game console, major appliance, or car or other
vehicle can consist of hundreds or thousands of components. But, as
analyst Dean Takahashi reminds us, if a single chip is unavailable, the
assembly, shipment, and sales process can be delayed for weeks, if not

The Semiconductor Market

According to the most recent Gartner forecast, “Global semiconductor
revenue is projected to grow 7.4 percent in 2022, down from 2021 growth of
26.3 percent. This is down from the previous quarter’s forecast of 13.6
percent growth in 2022.” While there is cause for future “supply-side”
optimism – a welcome change for manufacturers, distributors, and
value-added resellers – semiconductor demand is generally diminishing.
“‘Although chip shortages are abating, the global semiconductor market is
entering a period of weakness, which will persist through 2023 when
semiconductor revenue is projected to decline 2.5 percent,’ said Richard
Gordon, Practice VP at Gartner. ‘We are already seeing weakness in
semiconductor end markets, especially those exposed to consumer spending.
Rising inflation, taxes and interest rates, together with higher energy
and fuel costs, are putting pressure on consumer disposable income. This
is affecting spending on electronic products such as PCs and

The Semiconductor Shortage Crisis

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At the core of the semiconductor shortage crisis – at least from a US
perspective – is the loss of American manufacturing capacity. As the US
Department of Commerce observes, semiconductors were invented in America
and the US semiconductor industry has historically dominated many parts of
the international semiconductor supply chain such as R&D, chip design,
and manufacturing. Yet the US position within the semiconductor industry
has been declining. In 1990, the US accounted for around 40 percent of
global semiconductor fabrication capacity. By 2019, that number had
dropped to about 11 percent.3

Figure 1. A Typical Semiconductor or Computer Chip

Figure 1. A Typical Semiconductor or Computer Chip

According to analyst Farah Stockman, “One of the biggest obstacles to
making more chips in the United States is the lack of experienced
workers.” Salaries in the semiconductor manufacturing industry are
generally dwarfed by employee compensation packages available from the
likes of Facebook and Google.

Another reason for the skills gap is that “People in the United States
who already work in the semiconductor industry tend to have experience in
chip design, not manufacturing. For years, many US companies ordered chips
from contract manufacturers overseas … instead of embarking on the
extremely expensive process of producing, testing, and packaging chips

Yet another complication is the fact that “attracting highly skilled
foreigners who can help train an American work force is essential to
success, at least in the short term, according to the Center for Security
and Emerging Technology report, which estimated that ‘at least 3,500
foreign-born workers will be required’ to staff the new American
[fabrication facilities]. Some could come from American universities, it
said, but many would need to be recruited from Taiwan and South Korea.”4

Other factors affecting semiconductor availability are:

Taiwanese Monopoly

About 92 percent of the world’s most advanced semiconductors are
manufactured in Taiwan. The rest are sourced from South Korea. Taiwan has
become a political and military flashpoint, as Chinese leaders, tempted by
Russia’s invasion of Ukraine, have renewed their threats of a Hong
Kong-like takeover of the island democracy – a radical move that could
permanently affect the availability and pricing of semiconductors.5

Russian Invasion

The Siasat Daily reports that “some raw materials exported from Russia
and Ukraine, such as rare gas neon, chemical C4F6, and [the] metals
palladium, nickel, platinum, rhodium, and titanium, are critical for
semiconductor manufacturing.”Russia’s invasion of Ukraine could now – or
in the future – compromise chip supplies, raise chip prices, or otherwise
interfere with global chip production, creating a new wave of
technological and economic uncertainty.6

Low-End Chips

Taiwan Semiconductor Manufacturing Company (TSMC) is the world’s largest
semiconductor foundry (or “fab”). Pure-play fabs, like TSMC, manufacture
integrated circuits on behalf of their clients.

Figure 2. Sample Fab: An Intel Corporation Wafer
Fabrication Facility

Figure 2. Sample Fab: An Intel Corporation Wafer Fabrication Facility

Addressing the nature and dimension of the present semiconductor
shortage, Bloomberg reports that according to TSMC Chief Executive Officer
C. C. Wei, a lack of low-end chips (ranging anywhere from 50 cents to $10)
is slowing down production in key segments of the electronics supply
chain. Acknowledging that the world’s largest contract chipmaker can no
longer meet demands for low-end chips and is building new fabs to increase
production, Wei warns, “The age of an efficient, globalized supply system
has passed,” noting that “Costs are swiftly rising, including inflation.”

The semiconductor shortage is being attributed, among other influences,

  • Automakers adding more features to their cars, increasing silicon use
    by 15 percent per year;
  • Newer model smartphones that now require two to three times the number
    of power management chips than they did five years ago.

Bloomberg concludes, “While demand is generally dwindling, logistics
snarls and chronic component shortages continue to plague [the industry].”7

CHIPS and Science Act

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To help remedy decades of inaction on critical scientific and engineering
issues, help alleviate the semiconductor shortage crisis, and help foster
a more comprehensive and coherent American science and engineering agenda,
the US Congress enacted the “CHIPS and Science Act of 2022” in August
2022. According to The White House, the CHIPS and Science Act (a.k.a.
“CHIPS+”) will:

Bolster US leadership in
The CHIPS and Science Act provides $52.7
billion for American semiconductor research, development, manufacturing,
and workforce development. This includes:

  • $39 billion in manufacturing incentives,
    including $2 billion for the legacy chips used in automobiles and defense
  • $13.2 billion in R&D and workforce
    development; and
  • $500 million to provide for international
    information communications technology security and semiconductor supply
    chain activities.
  • Promote US innovation in wireless
    supply chains.
    The CHIPS and Science Act includes $1.5 billion
    for promoting and deploying wireless technologies that use open and
    interoperable radio access networks. This investment will boost US
    leadership in wireless technologies and their supply chains.

    Advance US global leadership in the
    technologies of the future.
    The CHIPS and Science Act will
    establish a technology, innovation, and partnerships directorate at the
    National Science Foundation (NSF) to focus on fields like semiconductors
    and advanced computing, advanced communications technology, advanced
    energy technologies, quantum information technologies, and biotechnology.

    Catalyze regional economic growth and
    The CHIPS and Science Act authorizes $10 billion
    to invest in regional innovation and technology hubs across the country,
    bringing together state and local governments, institutes of higher
    education, labor unions, businesses, and community-based organizations to
    create regional partnerships to develop technology, innovation, and
    manufacturing sectors.

    Provide STEM opportunities to more of
    America to participate in good-paying skilled jobs.
    The CHIPS
    and Science Act authorizes new and expanded investments in science,
    technology, engineering, and mathematics (STEM) education and training
    from K-12 to community college, undergraduate and graduate education.8

    CHIPS+ Analysis

    In analyzing the CHIPS-related portions of CHIPS+, the team of Alexander
    Kersten, Gregory Arcuri, Gabrielle Athanasia, and Hideki Uno find that
    CHIPS+ “will make a positive impact.”However, they also conclude that the
    CHIPS and Science Act might not propel the US into a global semiconductor
    leadership position. “Other nations are also taking active steps to
    support their domestic semiconductor industries. Indeed, the $52 billion
    envisioned under CHIPS is an amount less than a third of China’s
    semiconductor subsidies. The European Union, South Korea, and Japan are
    also in the process of passing their own chip incentives. Securing the
    future of the US semiconductor industry will require a sustained effort
    with significant long-term investments.”9


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    Semiconductor users can help insulate themselves from present and future
    chip shortages by adopting one or more of the following survival

    As suggested by Royale International Couriers Limited, a major B2B
    services provider, effected businesses can:

    Design for Availability
    “Although not always possible, the removal of non-essential features that
    require the unavailable semiconductor chips can help alleviate the
    pressure. Similarly, a reduction of customization that depends upon a
    surplus of specific elements, as well as a hold on cresting new products
    that rely on semiconductors or other parts in severe shortage.”

    Leverage AI – By
    incorporating artificial intelligence, “the supply chain can be
    streamlined and [made] more efficient,” predicting risks, conserving
    resources, and lowering costs.

    Select the Right Logistics Firm
    – “Partnering with a reliable and well-respected Time Critical logistics
    provider with experience and global reach can make the tough job of
    acquiring necessary parts easier.”10

    More generally, semiconductors users can:

    Extend the lifecycle of chip-bearing
    – For example, elongate the refresh cycle for PCs and
    other chip-reliant IT gear.

    Order chip-bearing equipment early and
    – Anticipate a slowing supply chain and proceed to the
    head of the line.

    Order chip-bearing equipment in bulk
    – Increase your sway with suppliers by placing larger orders.

    Engage multiple suppliers
    In a challenging supply chain environment, supplier diversification
    increases the likelihood of timely fulfillment, at least partially.

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    About the Author

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    James G. Barr is a leading business continuity analyst
    and business writer with more than 40 years’ IT experience. A member of
    “Who’s Who in Finance and Industry,” Mr. Barr has designed, developed, and
    deployed business continuity plans for a number of Fortune 500 firms. He
    is the author of several books, including How to Succeed in Business
    BY Really Trying
    , a member of Faulkner’s Advisory Panel, and a
    senior editor for Faulkner’s Security Management Practices.
    Mr. Barr can be reached via e-mail at

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