Global chip supply chain can’t take a punch, industry admits 

The world’s semiconductor supply chain has become increasingly concentrated leaving it open to massive disruption from world events – natural and political – a study has found 

by Sean OMeara
Global chip supply chain can’t take a punch, industry admits 
If Taiwan were unable to make chips for a year, it would cost the global electronics industry half a trillion dollars.

The global semiconductor supply chain is far from robust, a new study has revealed, and is especially vulnerable to natural disasters and escalating trade disputes.

The paper from the US industry group says the vital sector is susceptible because suppliers have become concentrated in distinct regions, leaving not just the tech industry open to major disruption but the global economy too. 

The report comes amid a global chip shortage that started with overbooked factories in Taiwan late last year, but has since been exacerbated by a fire at a plant in Japan, a big freeze that knocked out electricity in the US state of Texas and a worsening drought in Taiwan this year. 

Read more: Boeing urges US to separate China business and human rights

The shortage has idled some production lines at automobile factories in the United States, Europe and Asia. 

Modern chipmaking involves more than a thousand steps and requires complex intellectual property, tools and chemicals from around the world. But the Semiconductor Industry Association, representing most US chipmakers, said on Thursday that it had found more than 50 places in the supply chain where a single region has more than 65% market share.

Intellectual property and software to design cutting-edge chips, for example, is dominated by the United States, while special gases key to fabricating chips come from Europe. And the manufacturing of the most advanced chips is completely located in Asia – 92% of it in Taiwan. 

If Taiwan were unable to make chips for a year, it would cost the global electronics industry almost half a trillion dollars in revenue, the report found: "The global electronics supply chain would come to a halt."

And that concentration on the island is set to continue with Taiwan Semiconductor Manufacturing Co this week revealing plans to spend $100 billion over the next three years expanding capacity.

'GO-IT-ALONE'

Still, the study warned, a go-it-alone approach in which governments try to replicate the supply chain domestically is unfeasible because it would cost $1.2 trillion globally – with up to $450 billion of that cost in United States alone – causing the price of chips to skyrocket. 

In some cases, though, it called for incentives to create "minimum viable capacity" in regions that lack any part of the supply chain.

In the case of the United States and Europe, that would mean new advanced chip factories to balance concentration in Taiwan and South Korea.

"We don't have enough semiconductor manufacturing in the United States. And it's got to be fixed with the assistance of the US government," John Neuffer, chief executive officer of the association, said.

  • Reporting by Reuters

Also on ATF:

China's Xiaomi to launch electric car business with $10bn investment

Huawei records modest 2020 growth as US sanctions take a toll

Chips Semiconductors TSMC Taiwan EV