In an interview with the BBC, Cisco CEO Chuck Robbins gave a frank assessment of the current semiconductor shortage:
“We think we’ve got another six months to get through the short term.”
This was not good news for anyone in the computing or telecommunications industries, but it wasn’t exactly unexpected. Over the last year, a combination of U.S. sanctions of China and operational issues due to Covid have brought computer chip production to a near halt.
The router baron also said:
“The providers are building out more capacity. And that will get better and better over the next twelve to eighteen months.”
And while that much is true, with Intel promising to open two new fabrication plants in Arizona as soon as possible, it does little to ease the market’s short term woes. Three out of every four chips are currently produced in Asia, with a large chunk of fabrication taking place in Taiwan. And with the trade barriers laid down by the past two U.S. administrations, the political mess will take time to unravel.
Made in Taiwan
Time enough, perhaps, for the Taiwan Semiconductor Manufacturing Company to get their new fabrication plants online. TSMC is the world’s biggest contract semiconductor manufacturer, and they’re spending $100 billion to ramp up production over the next three years. They are calling on Taiwan’s government to protect its chip industry, much like other major nations do with big government subsidies. So far, there’s been no official response.
As of right now, even local issues in the region can rock the entire tech world. Spikes in Coronavirus infections have forced the closure of several major testing and distribution centers for Taiwanese microchips. This just adds to the global insecurity sparked by having such vital fabrication almost entirely reliant on a small region, particularly when China’s desire to reunify with Taiwan is taken into account.
But until additional fabrication can be ramped up in the U.S. and the E.U., most semiconductors will continue to be made in Taiwan.
The Industry Read It Wrong
The current situation with computer chip rarity can be traced back to a misstep taken by the majority of big tech companies at the start of the Covid-19 pandemic. In Chuck Robbins’ own words:
“What happened is, when Covid hit, I think everyone thought that the demand side was going to decline significantly. In fact we saw the opposite, we saw the demand side increase. So what happened was that all the manufacturers, like us and the car manufacturers and everyone, sent lower demand signals to the providers of semiconductors. They then reduced their capacity, and at the same time demand went up instead. Which was a complete shock to so many of us.”
It is estimated that demand for semiconductors went up by 25% during the pandemic, spearheaded by the work from home initiatives that drove laptop, tablet, and mobile phone sales throughout late 2020 and early 2021. Microchip production has been struggling to keep up ever since, and entire industries such as car manufacturing have suffered as a result.
The U.S. to the Rescue?
New U.S. President Biden has made the semiconductor shortage a priority. In both his infrastructure plan and in a new budget request, Biden has put funds in place to build domestic chip manufacturing capacity, earmarking over $50 billion to invest into the sector.
He also held a virtual CEO summit focusing on semiconductor supply chain resilience. Every major semiconductor consumer and producer attended. His opening statement summed up the drive of the actions that he wished to take:
“The reason I’m here today, with all of these technology manufacturing leaders around the country and all over the world on these screens, is to talk about how we strengthen our domestic semiconductor industry and secure America’s supply chain.
This is an issue that has broad support in the United States Congress. We’ve talked about whether or not we’re doing anything in terms of bipartisanly. Well, we are. Both sides of the aisle are strongly supportive of what we’re proposing.”
He went on to state his disappointment with America’s past commitment to semiconductors:
“This is a moment for American strength and American unity; for government, industries, and communities to work together to make sure that we’re ready to meet the global competition that lies ahead, not continuing to slide in terms of our investment. We’re ranked, like, number 25th in the world now. That’s not American. “
Cisco is Preparing for the Long Game
CFO Scott Herren reiterated the statements that his CEO made to the BBC earlier in the year. During the mid-May earnings call he said:
“I think the supply chain issues will stay with us at least through the end of this calendar year.”
He then told attendees that Cisco had made their own arrangements to weather the storm for the next seven months:
“We’ve locked in both supply and pricing with some of the key component providers.”
Investing what is doubtlessly a significant amount of money for long term semiconductor stability is something that many of the bigger hardware companies will need to consider over the next few months.
The Future of Semiconductors
Some within the semiconductor industry do not see silicon as the material of the future. In a modern return to its roots, it is quite possible that the future of semiconductors lies within the chemical element of germanium.
Because energy moves through germanium three times faster than silicon, it is the perfect candidate for the core of the tiny transistors that lay at the heart of memory and microprocessors. In fact, any semiconductor that makes use of CMOS circuits can benefit from the addition of germanium.
The extent of which this technology will be adopted in next generation chips remains up in the air. But the fabrication process might need to be significantly modified in order to fully embrace this new material. As the race continues to build faster semiconductor plants all around the world, that infrastructure investment might need to be revisited or at least ‘topped up’ to incorporate new materials that will continue to push back Moore’s Law.