Chips: The Smallest Things that Make A Big Difference

 August 9th, 2022 |   By Area51 Electronics |   0 Comments
3d illustration of computer chips over black background with USA flag and binary code inside

Chips. They’re in your coffee maker, smartphone, thermostat, ring camera, smoke detector, and more. If it has an electric pulse, it has a chip. The amount of chips inside each device varies, but the fact of the matter remains the same. The world runs on chips. The shortage has only amplified its importance. It’s also drawn attention to a very big issue.

America doesn’t make chips like they used to.

The truth is this. U.S. semiconductor production is down. In the 1990’s U.S. semiconductor manufacturing was at almost 40%. Today that number has dropped significantly. U.S. semiconductor manufacturing is only a small 12%. The answer to the why is simple. Governments from around the world have offered “substantial subsidies” to attract semiconductor manufacturing facilities putting the U.S. at a competitive disadvantage.

The U.S. Secretary of Commerce, Gina Raimondo, raised the alarm industry leaders had been saying for years. She made this statement. “We have a crisis … Not that long ago, America led the world in making leading-edge semiconductor chips. Today we produce 0% of those chips in America – 0%! The Department of Defense has been warning us for years that this is a national security risk.”

That’s right. This isn’t just a matter of being a leader in the global industry. It’s a matter of national security.

What Does the CHIPS Act Do?

What is the CHIPS Act? In full, it is the Creating Helpful Incentives to Produce Semiconductors for America Act or CHIPS for America Act. In simple terms, as written by Congress, “this bill establishes investments and incentives to support U.S. semiconductor manufacturing, research and development, and supply chain security.”

Plenty can be said of the “why” behind the bill’s creation. George Calhoun, a contributor at Forbes with 25 years of experience in the tech industry, wrote a 4 part series addressing the semiconductor industry issue.

The history of semiconductor manufacturing within the U.S. can be summarized in one, definite point. “The leadership of the United States in semiconductor technology and innovation is critical to the economic growth and national security of the United States,” said Calhoun.

The CHIPS Act will be one of the “largest experiments in explicit government intervention in the private sector.” As part of the United States Innovation and Competition Act (USICA), $52 billion of the entire $250 billion will be allocated toward the CHIPS Act. While the price tag may seem expensive, leading global competitor China has spent upwards of $180 billion since 2015 in support of the industry.

Mark Warner, a Democratic Senator and co-sponsor of the CHIPS Act, said in published reports, “By 2025, China aims to achieve 70% self-sufficiency in high-tech industries. By 2049, a dominant position in the global market. The U.S. needs to have the same goals of self-sufficiency. The COVID-19 pandemic exposed the fragility of a supply chain reliant on foreign manufacturers.”

Every Industry Loses with Decreased Semiconductor Production

Industry headlines haven’t varied much this year. The shortage continues and is expected to stretch on into 2022 with forecasts now projecting trouble even into Q2 of 2023. As George Calhoun puts it “haven’t you heard? Businesses are hurting.”

Every sector from automotive, healthcare, technology, defense, and more is losing money.

Apple reported a loss of up to $6 billion over Q3. Stock delays of the iPhone 13 Pro Max with continued manufacturing disruptions will most likely lead to a greater loss in revenue during Q4. Worldwide, the automotive industry has been making headlines for production stalls due to chip and labor shortages. It’s been reported that the global automotive market will lose $210 billion by the end of 2021. That’s double the initial projection in May of $110 billion.

Consumers aren’t left unscathed either. The shortage has led to price increases across all sectors of business. Arista and Juniper, two network vendors, have quoted price hikes up to 200% for hard-to-find materials. “Pricing actions have been taken to protect our gross margin,” Juniper CFO Ken Miller told investors. That’s without taking national security into the equation.

Loss of Semiconductor Manufacturing Could Pose a Risk to National Security

The Semiconductor Industry Association (SIA) has been keeping excellent tabs on the development of the CHIPS Act and other important legislative bills. Among their articles are a number of letters, 59 in total so far, written by industry CEOs and experts to Congressional leaders. This includes a group of former and active national security experts.

They explained that dependency on foreign nations, especially China, is a “concerning vulnerability to key supply chains.” It puts the U.S. economy at risk in the future where a more technologically integrated world awaits. Chips, as we know, are in everything. By allowing semiconductor progress domestically to slow, the U.S. now relies on shaky access to foreign manufacturers.

The pandemic has proven throughout 2021 how much U.S. manufacturers rely on a steady supply of chips. The U.S. currently only has two plants left that are on an even playing field with the global competition; Texas Instruments and Intel.

The solution is that semiconductor research and manufacturing must be prioritized. Multiple industries depend on it for recovery.

Passage of CHIPS is Critical to Economic Recovery

Funding the CHIPS Act is a necessary step in economic recovery and strengthening critical industries. The automotive and tech industry losing revenue is more than just consumers not getting the latest phone or car model. These stalled production lines and troublesome profit margins result in a lack of job creation. The fifth-largest export in the U.S. is semiconductors; however, while other governments are putting incentives in place to attract competition, the U.S. has not.

The results of a failing domestic semiconductor manufacturing line may lead to greater losses as the world catches up with the rising demand. Passing the CHIPS Act, as stated by SIA, “enables U.S. companies to maintain their technological edge in semiconductor materials, process technology, architectures, designs, and applications.”

The chip industry is constantly innovating and advancing. Imagine how far behind the U.S. will be if these measures are not taken and done soon.

Electronics Distribution Would Improve Across the Board

Area51 Electronics is committed to improving and maintaining client relationships. The pandemic has been tough for manufacturers, but our team of professionals has worked tirelessly to provide clients with sought-after components. Area51 Electronics serves a number of industries, including defense/aerospace, medical, and automotive to name a few, providing supply chain solutions for complex problems.

While the pandemic has certainly had an impact on everyone, Area51 Electronics’ role as an independent and authorized distributor gives us the edge we need to navigate through it. However, the passing of the CHIPS Act would greatly improve our ability to meet our clients’ needs faster. The decreased lead times and federal incentives would give electronic component distributors, Area51 Electronics among them, accelerated time to market.

That’s why the CHIPS Act is so important. It would significantly affect the entire supply chain. Everyone would benefit, from semiconductor manufacturers to average consumers looking for that smart espresso machine. The CHIPS Act is crucial for building back better.

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