Tuesday, 11 May 2021

White House convenes industry meeting to discuss chip shortage

by Harry Baldock, Total Telecom
Monday 12 April 21

The government has called together key players including, Taiwan Semiconductor Manufacturing Company (TSMC), Alphabet, AT&T and Intel to discuss the ongoing semiconductor supply crisis

Top officials from the Biden administration are set to meet with over a dozen high-profile CEOs today to discuss the ongoing semiconductor shortage that is having major knock-on effects around the world.  When the coronavirus pandemic first began early last year, the semiconductor industry was heavily disrupted. A rapid fall in demand for certain chips – such as those for the automotive industry – led to a sharp decrease in production, with some factories temporarily ceasing production and others shifting to alternative products…

Top officials from the Biden administration are set to meet with over a dozen high-profile CEOs today to discuss the ongoing semiconductor shortage that is having major knock-on effects around the world. 

When the coronavirus pandemic first began early last year, the semiconductor industry was heavily disrupted. A rapid fall in demand for certain chips – such as those for the automotive industry – led to a sharp decrease in production, with some factories temporarily ceasing production and others shifting to alternative products. 

Now, with the coronavirus situation improving in the US, the demand for vehicles is returning, but the chip production industry is being slow to bounce back. Many factories have shifted focus towards building chips for computers and other electronic devices, the demand for which has been steady or even increasing throughout the pandemic. These chips tend to be more newer, with a higher profit margin, meaning the automotive industry could well find itself at the back of the queue.

To make matters worse, the process of restarting production is itself a slow one, sometimes taking up to 26 weeks to begin producing the chips on a large scale. 

But this delay for the automotive industry is causing major domestic issues in the US. The US government first held a summit to address the shortage back in February, but since then the severity of the crisis has worsened, with General Motors (GM) and Ford saying last week that they would be forced to temporarily shutdown some of their domestic factories.

Today, major figures from the Biden administration, including National Security Adviser Jake Sullivan, National Economic Council Director Brian Deese and Secretary of Commerce Gina Raimondo, are virtually meeting with a host of global stakeholders in efforts to alleviate the crisis. CEO’s from firms throughout the value chain will be present, including GM, Ford, Intel, Alphabet, TSMC, Samsung, and AT&T.

Parts of the chip manufacturing industry, as well as the Biden administration themselves, are pushing Congress to provide $50 billion in funding to support the US semiconductor industry. However, the slow moving nature of the semiconductor manufacturing process means that, even if allocated, these funds would arrive too late to alleviate this immediate shortage. 

Nonetheless, the global chip industry is ramping up their operations around the world. TSMC, for example, has pledged $100 billion over the next three years to increase chip production, and is currently building a $12 billion foundry in Arizona. Just how quickly this acceleration will see supply catch up with demand, however, remains unclear.

Of course, for the US, this situation also has a geopolitical dimension, with the US finding itself overly reliant on foreign countries for its chip production. At the summit in February, Senate Majority Leader Chuck Schumer described semiconductor manufacturing as “a dangerous weak spot in our economy and in our national security", something that the Biden administration will be keen to improve. The US domestic chip producers have shown some willingness to boast their local chip production – Intel, for example, has pledged $20 billion starting in 2024 to build two new fabs in the US – but the government will have to make this acceleration economically viable at a time when East-West competition is reaching new heights.

 

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