Making Chips

We need them so we should make them, well argued in this New Geography article.

An excerpt.

“There’s a scene in Raiders of the Lost Ark where Indiana Jones faces off against a guy menacingly brandishing a scimitar. After allowing his enemy to show off some of his moves, Harrison Ford’s Indy character simply pulls out his pistol and shoots him.

“That’s how many manufacturing folks feel about the microchip shortage. Instead of trying to maneuver around a problem that threatens to slice and dice them to death, why can’t America just pull out the big ammo – and build our own chip plants? Be done with the problem.

“And moreover, wouldn’t Flyover Country be a great place to do that? We have at least five arguments in favor of the next U.S. chip plant being built somewhere between the Appalachians and the Rockies. They come from the arenas of geology, hydrology, logistics, education, and serendipity.

First, to the need for our own plants. Clearly, enough is enough. Rather than losing hundreds of billions of dollars, imperiling jobs and companies, frustrating flush consumers, stoking inflation and reinforcing the disappointing reality that one crucial lever of control of the U.S. economy really resides in Asia, not here – can’t America just build a microchip factory or two?

“The answers are “yes” and “it’s complicated.” Constructing new chip plants in this country at the cost of billions of dollars each would take too long to alleviate the current shortages wracking many manufacturing industries. Overall, the chip shortage has cost the car business, for instance, a staggering $110 billion in revenue this year, according to a new forecast by AlixPartners released last week — nearly double the $61-billion hit forecast by the consultancy just four months ago.

“Auto companies and others have been trying ways around the immediate problem, such as using old versions of chips in storage, siphoning chips to their highest-profit models, and juicing software to make up for hardware deficits.

“But car CEOs can’t fully compensate for bad decisions they made in 2020 and before, such as getting overly cozy with just-in-time supply chains and, amid the pandemic, cutting production so that the chips they otherwise would have needed were diverted by chip makers to other customers, such as consumer-electronics companies.

“A big part of the problem was that they were too myopic in their views,” Douglas Kent, executive vice president of strategy and alliances at the Association for Supply Chain Management, told me. “There were wild demand swings in chip utilization in non-competing industry sectors during Covid, and they didn’t have a good perspective on that.”

“And once they’ve pushed through the current chip shortage that could last several more months, over the long term, manufacturers must adopt new risk-management measures, reconsider inventory practices, and source more generic chips that are easier to source and which they could customize via software to their required specs.

“But the most potent solution for U.S. manufacturers and the nation’s economic and military security would be to build more chip plants in this country, including the entire manufacturing supply chain and ecosystem that support them.

“We have under-invested in [semiconductor] production and hurt our innovative edge, while other countries have learned from our example and increased their investments in the industry,” Gina Raimondo, U.S. Commerce Secretary, said during a webcast for Intel’s announcement in March. Congress passed a CHIPS for America Act recently, which provides assistance in grants for advanced semiconductor manufacturing and research.

“Promisingly, Intel already announced in March that it would construct two chip factories in Arizona, at what is already its largest chip-manufacturing site. Another global giant, Taiwan Semiconductor Manufacturing, has started to build its own $12-billion chip factory north of Phoenix.”

Retrieved May 22, 2021 from We Need More Microchips, So Why Not Build Them Here? | Newgeography.com

About David H Lukenbill

I am a native of Sacramento, as are my wife and daughter. I am a consultant to nonprofit organizations, and have a Bachelor of Science degree in Organizational Behavior and a Master of Public Administration degree, both from the University of San Francisco. We live along the American River with two cats and all the wild critters we can feed. I am the founding president of the American River Parkway Preservation Society and currently serve as the CFO and Senior Policy Director. I also volunteer as the President of The Lampstand Foundation, a nonprofit organization I founded in 2003.
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