New vulnerabilities have emerged in the global semiconductor supply chain that must be addressed by government actions, including funding incentives to boost domestic chip production and research.
The Semiconductor Industry Association (SIA), in partnership with the Boston Consulting Group (BCG), has released a study analyzing the benefits and vulnerabilities of the global semiconductor supply chain and recommending government actions to ensure its long-term strength and resilience. The report, titled “Strengthening the Global Semiconductor Supply Chain in an Uncertain Era,” finds that while the current global semiconductor supply chain structure based on geographic specialization has enabled tremendous innovation, productivity, and cost savings over the past 30 years, new supply chain vulnerabilities have emerged that must be addressed by government actions, including funding incentives to boost domestic chip production and research.
“Semiconductors have enabled the greatest period of technological advancement in human history, and they will be absolutely essential to the innovations that will power America’s economy, national security, and critical infrastructure for years to come,” said Bob Bruggeworth, President, CEO, and Director of Qorvo and SIA Board Chair. “U.S. government investments in domestic semiconductor manufacturing and research will help address vulnerabilities in the supply chain and ensure more of the essential chips our country needs are produced domestically.”
Key report findings:
The highly specialized global semiconductor supply chain has supported the industry’s continuous technology innovation, benefitted consumers, and delivered enormous value. A hypothetical alternative with fully self-sufficient local supply chains in each region would require at least $1 trillion in incremental upfront investment and result in a 35% to 65% overall increase in semiconductor prices, ultimately resulting in higher costs of electronic devices for consumers.
Geographic specialization has created vulnerabilities in the global semiconductor supply chain. There are more than 50 points across the value chain where one region holds more than 65% of the global market share. These are potential single points of failure that could be disrupted by natural disasters, infrastructure shutdowns, or international conflicts, and may cause severe interruptions in the supply of essential chips. About 75% of global semiconductor manufacturing capacity, for example, is concentrated in China and East Asia, a region significantly exposed to high seismic activity and geopolitical tensions. In addition, 100% of the world’s most advanced (below 10 nanometers) semiconductor manufacturing capacity is currently located in Taiwan (92%) and South Korea (8%). These advanced chips are essential to America’s economy, national security, and critical infrastructure. An extreme hypothetical scenario of complete disruption of Taiwanese foundries for one year could cause the global electronics supply chain to come to a halt, creating significant global economic disruptions. If such hypothetical complete disruption were to be become permanent, it could take a minimum of three years and a $350 billion investment to build enough capacity in the rest of the world to replace the Taiwanese foundries.
Government action is needed to address vulnerabilities in the global semiconductor supply chain and ensure its long-term strength and resilience. To reduce the risk of major global supply disruptions, the U.S. government should enact market-driven incentive programs to achieve a more diversified geographic footprint. These incentives should aim to expand semiconductor manufacturing capacity in the U.S. and broaden the supply of some critical materials. For example, the additional capacity from such incentives would enable the U.S. to meet domestic demand for advanced logic chips used in defense, aerospace, and critical infrastructure.
The report also calls for the following government actions to promote long-term supply chain resilience:
“The global semiconductor shortage is a stark reminder of the risks of supply chain disruptions and the need for the U.S. government to take swift action to invest in domestic chip manufacturing and research,” said John Neuffer, SIA president and CEO. “We look forward to working with leaders in Congress and the administration to promote U.S. semiconductor production and innovation so America stays on top in this foundational technology.”