Diversifying access to suppliers is essential to circumventing supply chain challenges as numerous geopolitical factors continue to affect global trade and commerce, David Zinsner, executive vice president and CFO for semiconductor chip manufacturer Intel, said during a panel hosted by the Wall Street Journal on June 14.
Ensuring access to a diverse list of potential suppliers is essential, Zinsner said, noting companies within the chip industry are also taking steps to grow their inventory in order to combat growing shortages of key materials.
“I think the industry in general is absolutely carrying larger buffer inventory to manage supply chain shocks and there's multiple things that have occurred,” he said. “It's not just one geopolitical pandemic, obviously, [there are] climate-related challenges that have occurred now more recently that certainly impacted supply chains so for sure, there needs to be an adjustment in the supply chain.”
Lockdowns, climate change, the Russian-Ukrainian conflict and other global factors have made collecting the raw materials necessary for semiconductor chip creation, such as neon and palladium, increasingly difficult. Many of the raw materials needed to craft these chips are in “fairly concentrated regions,” Zinsner stated, noting Intel is speaking with both U.S. and European entities regarding the importance of global diversification to help to combat these and related difficulties.
“This really is a perfect example of why that's necessary, because once there's a shortage in one region of the world, it creates significant issues across the globe,” he said. “So we're making a lot of investment in the U.S., [making] significant investment in Europe to build out a more global diversified supply chain to help accommodate the challenges in the future.”
Combating shortages and global competition
Shortages contributed to a surge in demand for chips in 2021, a boon for chip makers such as Intel, which reported a record high in annual revenue of $79 billion for 2021 — making it the world’s largest semiconductor chip manufacturer in terms of revenue. The company announced a $20 billion investment in January to build out two new manufacturing plants near Columbus, Ohio, to meet surging semiconductor demand. It announced similar investments in Europe in March, earmarking approximately $17 billion USD (€17 billion) to build out a semiconductor site in Germany, an R&D and design center in France, and various manufacturing and foundry services in Ireland, Italy, Poland and Spain.
Declining consumer demand for PCs in increasingly saturated markets such as the U.S., inflation, and other notable geopolitical factors have since punctured this bubble, however, with Intel’s first quarter revenue dipping 7% year-over-year (YoY) in April to $18.4 billion. The chip manufacturer also recently froze hiring in its PC desktop and laptop chip division for at least two weeks as part of an effort to cut costs, according to a memo obtained by Reuters June 8.
While Zinsner expects PC demand to settle, shortages of raw materials and the subsequent chip crunch have also exacerbated the economic tug-of-war between the U.S. and China regarding the future of chip manufacturing. China has splurged on orders for chip making equipment, with orders rising 58% last year — making it the industry’s biggest market for a second consecutive year, according to a Monday Bloomberg report. Taiwan also remains a key source of imports for U.S. technology companies, responsible for nearly 90% of chip production for large-scale U.S. companies.
U.S. regulation surrounding the semiconductor chip industry, meanwhile, is inching its way through Congress, with the House and Senate having both passed different versions of the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Bill for America Act, a bill meant to bolster U.S. competitiveness in the sector. CEOs from 100 companies including Alphabet Inc, Amazon and Microsoft have added their signatures to a letter sent to Congress, urging the Senate and House to reach an agreement and to pass a completed bill on to President Joseph Biden for signing, according to a Wednesday Reuters report.
Passing the CHIPS bill is key for making the appropriate investments within the U.S. needed in order to meet demand, Zinsner said of the legislation.
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