U.S. Department of Commerce: The inventory of key chips of US companies is less than five days, and the "lack of cores" will last for at least 6 months

The U.S. government says the global semiconductor shortage will continue at least until the second half of the year.

On the 25th local time, the industry report released by the US Department of Commerce said that there is a clear and continuous mismatch between the supply and demand side of the chip, and these challenges will not be solved in the next six months. According to the report's survey of more than 150 companies in the chip supply chain, some of the median inventory of key chips from U.S. manufacturers and other companies using semiconductors has fallen below 5 days, while in 2019, that number remained around 40 days.

U.S. Commerce Secretary Gina Raimondo said at the launch that U.S. officials plan to investigate possible price-gouging behavior in chips used by auto and medical device makers. The findings also show increased urgency for Congress to approve the U.S. Innovation and Competition Act, which proposes to invest $52 billion to boost domestic chip production.

Matt Weller, head of global research at Jia Sheng Group, told the first financial reporter that as the gap between production and demand decreases, it is predicted that the shortage of semiconductors will improve in 2022. However, the continuous logistics and transportation bottlenecks expose the risks under the idea of just-in-time production management. Therefore, a theme for the chip industry in 2022 will be "reflux", but if the previous practice of offshore sourcing for low-priced raw materials is changed, sacrificing efficiency, it may push up prices in the next few years.

Report: The U.S. government is unable to address supply bottlenecks

The report found that the median demand for chips in 2021 was 17% higher than in 2019, but the supply did not increase accordingly. Some specific chips are suffering from particularly severe supply shortages, such as microcontrollers, analog chips, and optoelectronic chips at certain nodes. The data shows that in the past, the delivery time of these chips was usually between 84 and 182 days. By the end of 2021, the lead time for some key products has been extended to 103 to 365 days. Last year, some suppliers speculated that the shortage might be caused by hoarding. But U.S. officials say the investigation shows hoarding is not the cause of the shortage.

The report notes that producers have little room for fault due to low inventories. Any disruption to overseas manufacturers for any reason, such as an outbreak or extreme weather events, could lead to a halt to production in the United States and forced leave. If an overseas factory is closed for 2 to 3 weeks, and the U.S. factory has only 3 to 5 days of inventory, it may paralyze the production facilities in the United States and force the layoff of workers.

The shortages are particularly impacting medical devices, broadband and the automotive industry, and U.S. officials plan to focus immediately on addressing bottlenecks in those supply chains, the report said. At present, this chip crisis has led to delays in the production of electronic devices and layoffs in the automotive industry.

Chip shortages are also a key driver of rising inflation. Raymondo said this month that a third of the increase in domestic inflation in the United States was caused by high auto prices. As the U.S. midterm elections approach, the crisis is all the more pressing for the Biden administration. The government will continue to investigate potential price gouging by certain semiconductors that have seen "unusually high prices" during tight supply periods, the report said. Raymondo said it may be that agents are charging these high prices, especially in the field of automobiles and medical devices.

But the report also acknowledges the U.S. government's inability to address these bottlenecks and stresses the Biden administration's limited options in responding to the crisis. Despite months of work by the Biden administration to try to ease the shortage, "the semiconductor supply chain remains fragile and demand continues to far outstrip supply," the report said. "The private sector is best placed to address the short-term challenges posed by the current shortage by increasing production, supply chain management to minimize disruptions, and product design to optimize the use of semiconductors." The report reads.

Distant water cannot save near the fire

Raimondo said the report highlights the need for more investment in domestic U.S. manufacturing. Congress must act, she said.

Last year, the U.S. Senate passed a $250 billion bill to promote high-tech research and manufacturing, including $52 billion to expand domestic chip production. But a similar bill has stuck in the House of Representatives, whose version focuses on supply chain issues and wants to include some measures to combat climate change, has sparked resentment among Republicans in Congress.

John Neuffer, president of the Semiconductor Industry Association, said the U.S. risks falling behind other countries that are struggling to boost domestic chip production. "The U.S. just has to keep up with the global playing field to make sure that more chips that our country needs are researched, designed and manufactured in the U.S.," he said. ”

This month, Intel Corporation announced plans to build two chip factories in Lick County, Ohio, to invest $20 billion to provide critical components for electronics, tools and vehicles. Citing industry data, the White House said chip companies have collectively announced nearly $80 billion in new investments in the United States.

However, the chip factory will take years to build. According to US media reports, Intel's factory in Ohio will not be operational until 2025. Many industry executives said the shortage would not ease until the second half of the year, and some products would continue to get stuck until 2023 due to the scarcity of parts. The current demand boom is likely to continue into 2025.

Kiki Sondh, an economist at Oxford Economics, believes chip production is expected to remain buoyant as we move into 2022. As production in key chip-consuming industries such as computers fades, we may see an end to the semiconductor shortage sometime in the second half of next year.

Ben May, head of global macro research at Oxford Economics, told First Financial: "Even if the supply-starved components are re-launched, such as semiconductors, the interference may continue to exist." Because it is likely that there will be a so-called 'pass the parcel' effect. For example, some suppliers in the automotive industry may have cut production due to semiconductor shortages, and if these companies need time to increase production again, this can become a drag factor affecting car production. ”