Over the past year, the Biden Administration has worked with the private sector to understand and address the global shortage of semiconductors. These computer chips are essential building blocks for an increasing number of products, from your cell phone and your car to other critical goods such as medical devices.
The semiconductor shortage has been described as due to a “perfect storm” of factors. Prior to 2020, there were already difficulties in obtaining inputs for production, including semiconductor manufacturing equipment used to make older varieties of chips, and components used in electronic assembly such as diodes, capacitors, and substrates. There was also an underlying growth in demand for chips as industries shifted to more semiconductor-intensive products (e.g., electric vehicles, 5G). The pandemic exacerbated these trends by dramatically increasing demand for products that require semiconductors of all types. Simultaneously, supply was disrupted by a series of black swan events such as factory fires, winter storms, energy shortages, and Covid-19-related shutdowns.
The private sector is best positioned to address the near-term challenge posed by the current shortage, via increased production, supply chain management to minimize disruption, and product design to optimize the use of semiconductors. However, given the importance of semiconductors to U.S. economic security, the administration is doing everything in its power to facilitate solutions and overcome the heightened coordination challenges that arise at moments of tail risk.
But the semiconductor supply chain remains fragile. Demand continues to far outstrip supply.
In September, the Department of Commerce launched a Request for Information (or “RFI”) on the semiconductor supply chain that gave new insight into the complex and global semiconductor supply chain. The Department received more than 150 responses, including from nearly every major semiconductor producer and from companies in multiple consuming industries.
Some key findings include:
- Median demand for chips highlighted by buyers was as much as 17% higher in 2021 than 2019, and buyers aren’t seeing commensurate increases in the supply they receive. This is a major supply and demand mismatch.
- The median inventory of semiconductor products highlighted by buyers has fallen from 40 days in 2019 to less than 5 days in 2021. These inventories are even smaller in key industries.
- The RFI allowed us to pinpoint specific nodes where the supply and demand mismatch is most acute, and we will target our efforts moving forward on collaborating with industry to resolve bottlenecks in these nodes.
- The primary bottleneck across the board appears to be wafer production capacity, which requires a longer-term solution.
We’re going to capitalize on this new information to engage industry on node-specific problem-solving in the coming weeks. We will also look into claims about unusually high prices in these nodes.
The RFI results make it clear: America needs to produce more semiconductors. Congress must pass funding for domestic semiconductor production, such as the U.S. Innovation and Competition Act, to solve our supply challenges for the long term.