Chipmakers and Chip Purchasers Tell Commerce Department More US Production Needed, but Imports Vital

A wide range of companies and trade groups told the Commerce Department that the semiconductor supply is vulnerable because of over-concentration in Taiwan, China and Japan in particular, and because packaging and testing is becoming more concentrated in China. Comments in docket BIS-2021-0011 closed April 5, but some comments were not published until April 6. The comments were sought to flesh out policy to follow an executive order on the semiconductor shortage (see 2103110048).

The U.S. Chamber of Commerce said in its submission that even as new fabrication, or manufacturing, plants are planned in the U.S., those will only produce wafers, “despite shortages of substrate, packaging, and testing -- and a majority of these supply bases are located outside of the country.”

Printed circuit boards, or PCBs, which are used in electronics but are different from wafers, “also have geo diversification challenges. Currently, 80% of the worldwide capacity of PCBs resides in China,” the Chamber said.

TTM Technologies, which said it's the largest American producer of PCBs, said there's little demand for U.S. PCBs with cheaper foreign PCBs available, so it would like grants for the PCB industry to be included, along with grants for new chip fabs. “TTM encourages the Department to investigate foreign dumping and anti-competitive actions, but does not believe that these investigations will move quickly enough or provide enough incentive to spur significant domestic investment,” the company said.

Intel, the only U.S.-headquartered semiconductor company manufacturing advanced microprocessors domestically, said, “many U.S. companies have abandoned or outsourced to Asia the more capital intensive semiconductor operations because they face a 25% to 40% cost disadvantage compared to their heavily subsidized competitors located in Asia.” Intel sources from 100 countries and 16,000 suppliers, the comment says, and sees vulnerabilities in the concentration of wafer suppliers in Japan and Taiwan. There are no wafer suppliers in the U.S., and a Taiwanese company is buying the last European silicon manufacturer, Intel said.

A number of trade groups cited a statistic that said making a computer chip can require “more than 1,000 steps passing through international borders 70 or more times before reaching an end customer.”

The Information Technology Industry Council said U.S. firms need to import from across the globe to lower costs, mitigate supply chain risks and access customer bases and talent abroad. “Companies often spend months if not years negotiating contracts with suppliers, planning manufacturing processes in line with rigorous quality controls, packaging and testing product security and efficiency, and providing customized services to clients around the world. The U.S. should work with partners and allies such as the EU, Japan, South Korea, Taiwan, and others in the Asia Pacific and Latin America to minimize damaging interruptions and ensure stability of the global semiconductor supply chain,” the group wrote.

The trade group also said that U.S.-China trade tensions have caused sourcing to spread to other Asian countries, but also said the U.S. should move toward rescinding Section 301 tariffs, as domestic chip manufacturing uses components that face those tariffs. “We encourage the U.S. to establish benchmarks for the phased rollback of tariffs imposed under Section 301, prioritizing removal of all tariffs on semiconductor components, which disincentivize the creation of a sustained American manufacturing base.”

Qualcomm, a major U.S. semiconductor designer that relies on contractors to manufacture its chips in Asia, approves of the plans to put government money into more domestic manufacturing, but said it's essential that those subsidies not be limited to leading-edge fabrication. Mature chip designs, which are relied on in the automotive and home appliance industries, have faced critical shortages this year, to the point that numerous auto manufacturing lines have reduced production. Part of that was due to fabs shifting from the chips used in cars and heavy trucks to consumer electronics earlier in 2020, because those firms believed auto sales would decline in the near term. Retooling a chip plant takes months, and demand for consumer electronics is still spiking, even as appliance demand is also spiking and demand for cars has stayed steady.

“Manufacturing mature node semiconductors may provide less profitability for fabs but are still essential to the market,” Qualcomm said. It noted that standing up new fabs will take at least three years.

“Our allies -- including members of the European Union, India, and others -- are considering investments of billions of dollars in their domestic semiconductor supply chains. A coordinated strategy with other countries is needed to balance global market dynamics, national security needs, and supply priorities, to ensure both immediate and long-term solutions to supply constraints,” Qualcomm wrote. “Without this coordination, we run the risk of a global shortage in mature nodes, like the one we are currently experiencing.”

Qualcomm said the U.S. should work with Canada, Brazil and Australia to source raw materials used in chipmaking, so that the world is not solely dependent on China for silicon processing or for rare earth minerals.

Several chip-consuming trade groups asked that the government dedicate part of the funding for automotive grade chips: the Motor and Equipment Manufacturers Association, for one, and the American Automotive Policy Council, which said that at least 25% of federal funding must go to facilities that commit to selling 25% of their capacity to automotive grade wafers or chips. The AAPC said that between 1,000 and 1,400 semiconductor chips are used in an average car.

MEMA noted that one Japanese company makes a third of automotive microcontrollers, and it had a fire in March, and that the winter weather-related collapse of the Texas electrical grid affected two fabs. Those failures, “and, the broader woes of West Coast port slowdowns and the recent Suez Canal blockage ... all show a need for more U.S./North American and decentralized supply chain including those for chip production.”

Trade groups offered different solutions for the current crisis. The National Association of Manufacturers said businesses and suppliers should plan together, but the Truck and Engine Manufacturers Association suggested unspecified government intervention to prioritize its chips.

“Medium- and heavy-duty truck manufacturers and their suppliers are experiencing severe shortages of automotive grade semiconductors that are used in engines, transmissions, active safety 2 systems, emissions control devices, and other critical electronic components. The current semiconductor supply constraints are causing manufacturers to adjust and even suspend truck production. At a time when trucking companies are requesting many new highly-reliable trucks to enable them to meet freight shipping demands without delay, truck manufacturers are unable to produce enough trucks to meet that demand,” they wrote

The Association of Home Appliance Manufacturers, perhaps anticipating such a request, said, “It is critical that Commerce take appropriate steps to ensure that, during this shortage, the allocation of semiconductors is fair across industry sectors and not focused on any one sector over another.” The AHAM said purchases of home appliances are up 26% from this period last year, and manufacturers are facing shortages of chips.