May 15, 2021

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Government Won’t Fix the Semiconductor Shortage

5 min read

Jerry Sanders,

a former chairman of the Semiconductor Industry Association and a founder of

Advanced Micro Devices,

predicted in the 1970s that “semiconductors would prove to be the crude oil of the information age.” It was an understatement.

Midprice automobiles today are controlled by 100 or more silicon chips. Cars couldn’t meet legal standards for mileage or pollution—or even start—without chips, let alone connect to the internet or display a fancy digital dashboard. A supply shortage on only one or two chips can shut down an assembly plant that occupies 100 acres and employs 10,000 people. That’s what has happened to many automotive plants over the past six months. Both the auto and semiconductor industries have requested government help, but the problems aren’t of a kind that subsidies and regulation can fix.

In the late 1970s cars became computerized. My first Silicon Valley employer, American Microsystems, once “lost the recipe” and cut off the supply of memory chips to a Lincoln Continental plant. Without our chips, cars couldn’t be started.


later dropped us as a vendor, the penalty for shutting down an auto plant.

Soon the automotive industry created an extensive repertoire of reliability and sourcing qualifications that prevented many such problems but also mired the industry in bureaucracy. Today, the qualification process for a new chip vendor takes 18 to 24 months or more. That’s why automotive companies can’t simply buy a scarce chip from another vendor in a crunch to keep the lines running.

The demand for chips in electronic products has exploded over the years, shrinking the automotive industry’s share of the chip market to around 10%. Automotive customers now sometimes have to wait in line behind other big customers with faster qualification cycles and better pricing. Auto makers have bemoaned the problem publicly—including at the White House—but they should take responsibility for their own supply problems.


weathered the pandemic-induced shortage by holding only a few weeks of chip inventory (or by inducing its semiconductor partners to do that on its behalf).

Auto companies slashed their chip orders at the pandemic’s outset, and supply responded accordingly. But when auto demand surprised everybody by staying strong, and auto makers suddenly needed more chips, the semiconductor industry couldn’t respond quickly enough. Even with robotic factories, it takes 12 weeks on average to make a silicon wafer—longer if advanced processes are required—and that’s before back-end assembly and shipping around the world. President Biden says he is “studying” supply chains, but every knowledgeable person in the industry knows that politics and subsidies are irrelevant. The market players will fill this chip shortage before the Democrats and Republicans finish arguing about whose fault it is.

The U.S. has wasted money “solving” the chip problem before. In 1987 the Sematech consortium began spending $500 million in government funds that did zero for the industry. Due to the relentless pace of progress under bare-knuckle competition, Sematech’s Austin, Texas, chip plant, was obsolescent when it opened. The layoffs started in 2002.

Today, the Semiconductor Industry Association is recycling old Sematech-era arguments for pork-barrel funding. It argues the industry is critical to America, and its plants cost a lot of money, but erroneously concludes the government should subsidize it. The semiconductor industry is well off and has a high market valuation, giving it access to cheap capital. More important, “free government money” induces horribly inefficient spending and undeserved payouts to executives and shareholders. I’ve seen it.

Semiconductor industry advocates argue that other countries will take market share if the U.S. government doesn’t help. But the governments of Europe and mainland China have been throwing money at chip companies for decades, and neither has a highly competitive chip industry. China’s biggest chip company,

Semiconductor Manufacturing International Corp.

, or SMIC, is irrelevant compared with Taiwan’s free-market foundries.

Taiwan Semiconductor Manufacturing Co.

, TSMC, was founded and run by two veterans of

Texas Instruments

and competes on a research-and-development budget far smaller than


. Former President Trump also dealt a near-fatal blow last year to SMIC by preventing the export of advanced U.S. semiconductor equipment to China.

It is true that America has slipped to a 12% market share in semiconductor manufacturing, but it doesn’t follow that firms need government help not to slip further. Around 60 years after the commercialization of the integrated circuit, most chips have become commodities with little strategic value, and their manufacturing has been pushed offshore by relentless demand for lower cost.

These losses aren’t dire. Silicon Valley’s Intel, Advanced Microdevices and


make state-of-the-art processors; Boise, Idaho-based

Micron Technology

manufactures advanced memories; and Wilmington, Mass.-based

Analog Devices

still dominates the market for analog chips. U.S. defense chips aren’t dependent on foreign sources, and TSMC, the winner from Asia, is building a plant in Arizona. More important, the industry has moved into the software age, in which the code that drives the chip is usually more important than the chip itself. The U.S. dominates in software, as Google well knows.

There is no need to give taxpayers’ money to some of the smartest and richest corporations in the world. Chip companies thrive in free markets and barely survive in controlled economies. This message shouldn’t be controversial, but in 1991 my distaste for pork-barrel spending got me labeled “The Bad Boy of Silicon Valley” on the cover of BusinessWeek. My proposed solution to the current chip problem? Do nothing and let the invisible hand fix the problem free of charge.

Mr. Rodgers was founding CEO of Cypress Semiconductor Corporation and is a former chairman of the Semiconductor Industry Association.

Main Street: The president’s labor agenda is the same one he brought to Washington in 1973. Images: Getty Images/AP Video Composite: Mark Kelly

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2021-04-28 18:33:00

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