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CHIPS Act should simplify semiconductor supply chains

The CHIPS Act is a good first step in reviving U.S. semiconductor production, but experts caution that benefits won't be realized soon, due to issues like complex supply chains.

The CHIPS and Science Act will boost semiconductor manufacturing in the U.S., leading to greater economic development and a more secure supply chain.

But the promised benefits of the CHIPS Act will take some time to be realized, according to industry experts.

The CHIPS Act, which was signed into law Aug. 9 by President Joe Biden, provides $52 billion in economic incentives for domestic semiconductor manufacturing and funds chip research and development.

The influx of investment dollars is a welcome development for the U.S.-based semiconductor industry, which has seen much of its production outsourced in the last few decades, said Zachary Collier, assistant professor of management at Radford University and president of Collier Research Systems.

Zach Collier, assistant professor of management, Radford UniversityZach Collier

Many large semiconductor companies are planning now to move forward with building plants across the U.S., including Intel in Ohio, GlobalFoundries in New York and Samsung in Texas, Collier said. However, while the economic benefits could be substantial, the timeline for when these benefits may be realized is not clear.

"These trends can take decades to materialize, which is not to say that we won't have benefits sooner, but we outsourced things for many years and now we're looking to bring them back," he said. "It's going to take some time to build the facilities and bring them online, but in the long term it's going to help the U.S. keep from having a continuously diminishing market share."

Domestic production improves security

Security is one of the most important aspects of bringing semiconductor chip manufacturing back to the U.S., according to Collier, citing reports of security vulnerabilities of the components used in 5G networks.

"This is one example of why we want to be able to manufacture things domestically," he said. "We need to have a better idea of who's handling the components along the supply chain lifecycle and be able to track and trace those things to control it better and to not have adversarial countries manufacturing our components."

Simon Ellis, practice director at IDCSimon Ellis

National interest should be important factors in how companies source products and secure supply chains, and manufacturing semiconductor chips counts decidedly as a national interest, said Simon Ellis, IDC vice president and head of the U.S. Manufacturing Insights and Global Supply Chain Strategies practices." The world has lived just fine with most semiconductors coming from Asia for many years," Ellis said. "But now that we've got some sociopolitical issues, that makes a compelling argument that the U.S. could be held hostage by foreign interests because we don't have a robust supply of semiconductor chips."

The first step in a long journey

But while the CHIPS Act is good legislation and a good first step in reviving a moribund semiconductor manufacturing industry in the U.S., it will take a long time to bring the U.S. capacity up enough to make a real difference, according to Robert Handfield, professor of supply chain management at North Carolina State University.

Robert Handfield, professor of supply chain management, North Carolina State UniversityRobert Handfield

Even when the Intel fabrication facility is up and running in Columbus, Ohio, Handfield estimates that it will produce just 4% of the total demand for chips in the U.S.

Not only that, he said, but semiconductor supply chains are also very complex. For example, Taiwan Semiconductor Manufacturing Co., which produces about 50% of the world's semiconductors, has more than 2,500 tier one suppliers and 10,000 tier two suppliers in its supply chain.

"You don't just snap your fingers, throw some money at it and build a semiconductor industry here in the U.S.," Handfield said. "It's going to take a long time before we're really serious about that. Capital investment also takes a long time and doesn't happen overnight."

You don't just snap your fingers, throw some money at it and build a semiconductor industry here in the U.S. It's going to take a long time before we're really serious about that.
Robert HandfieldProfessor of supply chain management, North Carolina State University

Getting the semiconductor fabrication facilities up and running is only one part of the problem, however. The industry is part of a complex global supply chain that includes raw materials and components from adversarial and vulnerable regions, Handfield said.

For example, neon gas, which is instrumental in semiconductor production, is largely sourced from Ukraine. Rare earth minerals and metals largely come from China and Russia.

Ellis agreed that the complexity of the global supply chain must be considered in rebuilding the semiconductor industry in the U.S. Those brand-new chip fabrication facilities may not be able to run at all if they cannot get raw materials and components from overseas sources.

"There are tendrils intertwining through the supply chain that will never be completely unraveled," he said. "So the U.S. has to figure out how to start not being so completely reliant on parts of the world that are increasingly unstable."

Taking the entire supply chain into account

The signing of the CHIPS Act is nothing but good news for the entirety of semiconductor manufacturing in the U.S., said Rosemary Coates, executive director of The Reshoring Institute, a nonprofit based in Redwood City, Calif., that consults with manufacturers on bringing operations back to the U.S.

Rosemary Coates, executive director of The Reshoring InstituteRosemary Coates

While much of the attention is focused on the large fabrication plants like the Ohio Intel facility, the industry encompasses many other companies, Coates said.

"There are lots of little semiconductor companies that just do the design of the chips -- for example, some of these companies might just design chips for automotive or medical devices," she said. "It isn't just a gargantuan billion-dollar thing to build a new fabrication plant in Ohio; it appears that the CHIPS Act is going to help the little guys, too."

This is the kind of manufacturing that makes sense to bring back to the U.S., Coates said.

"We don't want the 20-cent-an-hour T-shirt production back in the U.S.; we want to bring back the more sophisticated manufacturing that uses robots and machinery," she said. "There are fewer jobs but higher production and better-paying jobs."

Closing the skills gap

However, semiconductor manufacturing is far more complex than making T-shirts, and the U.S. currently doesn't have the skilled people to run the facilities, Coates said.

"Skills are a big problem, as a lot was lost when things shifted offshore to China or other places over the last 25 years," she said. "We're struggling to get mold makers and machine operators, so we have to rebuild a lot of those skills."

It remains to be seen how and where the investments from the CHIPS Act will go, Collier said, but the totality of the supply chain must be involved, not just the manufacturing side.

"This is the part of the supply chain that everyone's been talking about, but once you have a chip sitting on a wafer, you still have to package it, test it and assemble it onto a board," he said. "We still have to increase our domestic capacities in those supply chain areas as well, so it's not just the manufacturing itself; it's the whole end-to-end lifecycle."

Rebuilding the semiconductor industry in the U.S. won't be quick or easy, but the CHIPS Act is an important first step, according to Coates.

"It's just an excellent start, with enough funding to really boost the industry overall," she said. "And It will trickle down through all parts of the industry, not just the big fabrication plants."

Jim O'Donnell is a TechTarget senior news writer who covers ERP and other enterprise applications for TechTarget Editorial.

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