The semiconductor chip shortage is old news, but when the second-largest public company in the history of the U.S. stock market says it just left $6 billion in potential sales on the table as a result of limited chip supply — as Apple just did — it reinforces why the U.S. economy needs to rethink how it sources its semiconducting technology so that doesn’t happen again. This short-term supply chain phenomenon will pass, but tech executives and policy advisors say the future may be one of even larger, longer-term supply chain shocks. A shift from decades during which the largest companies benefitted from a manufacturing model in which “designed in California” and “assembled in Asia” was king needs to occur to shore up the supply of key components.
From $2 trillion Apple to $1 billion lidar sensing technology marker Ouster, the supply chain policy of industry and government needs to change.
Mark Frichtl, co-founder and chief technology officer at Ouster, said as the maker of products that have dozens or hundreds of integrated parts, it needs to manage and make sure it can get all of those. “Anyone making electronic devices has to do that,” he said, and it is now a global problem affecting all industries, whether phones or cars or Lidar sensors.
Policy advisors and executives across industries are worried that the business sector is not planning for the long-term supply shocks that may be far worse than what has been a short-term crisis.
The current commercial issues causing the supply chain shortages will end, but ” what frightens me the most is the geopolitical … the politics of this is just getting starting in Washington and Beijing,” Dewardric McNeal, managing director and senior policy analyst at Longview Global, who worked for the Secretary of Defense on East Asia and China security relations during the Obama administration, said at a recent CNBC Technology Executive Council Town Hall.
Policy discussions about a semiconductor “rebalance” and “sovereignty of the supply chain” or “minimal viable manufacturing capacity” have McNeal concerned that industry is unprepared for what is coming. If not handled properly, the resulting situation could lead to mandates on companies to buy a certain percentage of domestic chips.
On Friday in an op-ed for The New York Times, Republican Senator Josh Hawley of Missouri outlined his proposal for a “made in America” rethinking of the supply chain including domestic content requirements.
“Telling me how to allocate is bad for a chip CEO. Telling me where I need to locate is bad. So I’m concerned we have a real train wreck coming even when we got beyond some of the short-term stuff,” McNeal said. “The man-made stuff, the political stuff, I don’t know if industry is quite prepared to really understand how bad it is going to get between Washington and Beijing.”
The auto industry is a good example, where the chip shortage continues to wreak havoc for carmakers. The car industry is all about efficiency and gaining scale, and in a future scenario in which companies have to start divvying up semiconductor buying based on a government mandate, “you start chipping away at these economies of scale,” said Mark Fields, former Ford CEO and current interim CEO at Hertz, on the recent CNBC TEC Town Hall. “It’s not a good economic choice.”
Fields said over the past half-decade, many of the economic decisions made by automakers on where to source supply did not take into account the recent geopolitics and trade decisions and that may yet come back to haunt the automakers. “I think some manufacturers will be pretty surprised to see the economic decision or rationale that was so compelling back then really didn’t turn out to be the case. So I think there is going to be a lot of soul-searching over what’s the best thing to do to balance both the economics and the geopolitics of this.”
