U.S. Pushes Companies for More Transparency on Chip Supply Chains

The White House is prodding major auto manufacturers and chip vendors to share information about the global chip shortage in a bid to bring more transparency to a supply chain that has been strained for more than a year.

U.S. Secretary of Commerce Gina Raimondo and National Economic Council head Brian Deese met with major automakers, chip vendors, and other companies last Thursday to discuss the chip shortage and short- and long-term actions available to them to strengthen U.S. supply chains. The White House said the Biden administration called on industry players to take "the lead in resolving the supply chain bottlenecks that are occurring due to the global chip shortage."

The companies included automakers (the U.S. Big Three—GM, Ford, and Stellantis), technology giants (Apple and Microsoft), leading U.S. chip vendors (Intel and Micron); and foundries (TSMC, Samsung, and Globalfoundries).

The meeting followed get-togethers between the White House and industry leaders in April and May.

A severe chip shortage has plagued the electronics industry for more than a year at this point, exacerbated by demand for PCs and other devices that is soaring during the pandemic. The chip-supply constraints have forced cuts to U.S.  auto production. They are also cascading into other sectors, including consumer devices from Sony’s PlayStation 5 to Apple’s iPhones, causing delays in shipping products and hiking costs that could hit consumers.

The Commerce Department said that it is trying to boost transparency within the semiconductor supply chain so that automakers and other buyers can improve their supply chain practices. The agency said it is calling on companies from all parts of the supply chain—chip vendors, buyers, and intermediaries—to share information on their inventory levels, demand, and delivery conditions. It is hoping to identify the worst bottlenecks in the supply chain so that it can address them—and, in the future, anticipate potential issues ahead of time.

The electronics industry depends on a globe-spanning supply chain. As a result, even short delays in one region can hinder production in others, creating inefficiencies that can ripple through supply chains, causing delays in shipping products and raising prices.

Over the last year, industry insiders have warned that the global chip supply chain has become more vulnerable to geopolitical conflicts and natural disasters because suppliers at different points in the supply chain are grouped in certain regions. In addition, a series of chip factory closures—due to a prolonged drought in Taiwan, a major power outage in Texas, a fire at a Renesas Electronics semiconductor fab in Japan—has exacerbated the global chip supply woes.

The global chip shortage has been complicated by new outbreaks of the coronavirus in Southeast Asia, which has become a major center for back-end chip assembly and testing. The flare-up has slowed production at factories in the region.

The Commerce and State Departments are also working to establish an "early alert" system to proactively identify and manage potential disruptions in the supply chain linked to coronavirus outbreaks or other health developments in trading partners.

“The goals of this enhanced effort include early detection of potential disruptions, enhanced engagement with foreign governments and industry, and promotion of transparency across the supply chain, while balancing worker health and safety and the safe reopening of critical industries and the safe reopening of critical industries,” the White House said in a statement last week.

The White House is also hoping to create a “supply chain resiliency program” within the Department of Commerce that will alert it to vulnerabilities in supply chains for chips and other critical goods and take action to close gaps.

The electronics sector has struggled to resolve supply chain bottlenecks in the short term. It takes a long time for fabs to start mass production and add to the industry’s total capacity. The sector is also trying to boost its supply of raw silicon wafers and chemicals used at fabs and substrates used in packaging chips. Delays in assembling and testing final chips are also up, industry insiders warn. Fixing all these problems will have to happen gradually.

TSMC has pledged to spend $100 billion over three years to expand production capacity to alleviate the crisis. Most U.S. chip vendors are completely (or for the most part) fabless, outsourcing production to TSMC or other foundries.

Intel is also building out its foundry services business, and it plans to allocate capacity at its largest production plant in Europe for car chips. In addition, top U.S. contract chip manufacturer Globalfoundries is on pace to more than double its output to the sector in 2021. It is also expanding its footprint by investing $6 billion in fabs in the U.S., Europe, and Southeast Asia. 

Industry executives say constraints will likely continue in the first half of 2022 and then lessen in the second half.

To keep a global shortage from happening in the future, auto manufacturers are adapting their supply chains and overhauling the way they buy chips due to the procurement challenges they have grappled with for months. 

For years, auto manufacturers rarely purchased chips directly—or worked with chip vendors at all. Instead, they sourced electronic control units (ECUs) and other pre-integrated modules from Tier-1 suppliers. But auto giants have started partnering more closely with chip vendors, sharing demand forecasts that vendors can use to plan production needs ahead of time. They are also striking deals directly with foundries to get guaranteed supplies.

Over the long term, car manufacturers want more say over the allocation of capacity for automotive-grade chips.

The White House has been backing big programs to bolster the long-term self-sufficiency of the U.S. chip sector. President Biden signed an executive order early this year to examine weak points in America's supply chains, including semiconductors, and identify potential areas of improvement to prevent any shortages in the future. A report outlining the results was released in June. The White House has also backed more than $50 billion in subsidies for the chip sector.

In June, the Senate passed the U.S. Innovation and Competition Act (USICA) that includes $52 billion to fund the CHIPS for America Act. However, the proposal has not yet been voted on by the House of Representatives. 

Trade groups representing the sector also support the proposed Facilitating American Built Semiconductors (FABS) Act, which would roll out a 25% tax credit for investments in U.S.-based fabs and the gear to go inside them.