Supply Chain Matters has featured a number of prior blogs highlighting how escalating trade developments and actions related to both the U.S. and China, and specifically focused on high tech supply chain networks, Huawei Technologies, and other targeted high-tech providers are providing increasing concerns to perceived decoupling relative to semiconductor and high-tech supply networks. Our last commentary was published in late August.

The latest development in these ongoing tensions occurred last week with the Trump Administration threatening export controls on Semiconductor Manufacturing International Corporation (SMIC), China’s largest fabricator of semiconductor chips. That threat was another shock for the industry in that the implication is that China will elect to accelerate development of its own semiconductor supply network.  As high-tech industry supply chain teams well know, reliance on Asia based chip fabricators and packaging firms is a reality, and as the Trump Administration continues to escalate tensions in this sector, the stakes grow far more significant in terms of the bifurcation of semiconductor, smartphone, and telecommunications supply networks.

Semiconductor manufacturing

This threat prompted the industry group SEMI, representing U.S. semiconductor interests to issue a letter of concern to U.S. Secretary of Commerce Wilbur Ross regarding the implications.

We would like to call reader attention to Business Network CNBC’s published report, A brewing U.S.- China Tech Cold War Rattles the Semiconductor Industry. This report does a great job of contrasting U.S. government pushes for onshoring with the implication of what that involves with the U.S. share of global manufacturing capacity currently at 12 percent, While there a number of efforts now underway to change this situation, including a recent announcement from Taiwan based chip fabricator TSMC that it will invest in a new U.S. semiconductor facility in Arizona.

The report further highlights the hurdles for U.S. based industry itself as China has committed an astounding $120 billion to shore up that country’s domestic semiconductor manufacturing capability.

This week the Semiconductor Industry Association indicated that the U.S. federal government needs to deploy upwards of $20 billion, to as much as $50 billion to make the United States an attractive location for semiconductor supply networks.  The stakes are being characterized as continued leadership of this sector as a whole in terms of design, intellectual property, and influence.

A further insight brought forward by the CNBC report is that: “While large manufacturers have the financial wherewithal and industry connections to navigate through disruptions in the supply chain, many small and mid-sized tech manufacturers in the U.S. do not.”  Lead times for semiconductors as well prices are already rising for such firms. Supply Chain Matters found that statement to be extremely pertinent since it is start-ups and small nimble designers where innovation resides. The other argument here is a denial of global alliances and global trade forces that surround this industry that just cannot be dismissed.

In our last blog focused on global semiconductor supply networks, we pointed to related areas to monitor.

One was how China retaliates in the notions of controlling access to its own domestic market for high tech products, or in the access of U.S. high tech producers to China’s existing and vastly developed high-tech component supply networks. Now, the stakes are likely and all-out effort to develop comprehensive design and manufacturing capability of cutting-edge technology.

Similarly, prominent U.S. based high-tech producers could likely be targets for added scrutiny by China’s regulators, possibly disrupting existing supply or market access agreements.

We would now add the uncertainty as to how much the U.S. government is really willing to invest in this termed strategic industry, given the many other industries that are seeking financial assistance as a result of the ongoing COVID-19 disruption to markets and to supply network workers. That certainly includes aerospace supply networks and Boeing’s ongoing challenges.

For existing industry supply chain management or strategic procurement teams, the implication remains a highly sensitized cycle of geo-political tensions with short and longer-term implications. Short-term rests with the eventual outcome of the U.S. Presidential election that occurs in November, and how voters weigh-in on existing policies and economic challenges. Longer-term is centered on the strategic technology access and volume manufacturing opportunities that are presented by moving toward a regionally based strategy of supporting market demand and more regionally based high tech supply networks.

High uncertainty remains under statement for this industry segment as is the growing realization that the de-coupling threat is becoming far more likely.


Bob Ferrari

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