Manufacturing Microchips: Why The COVID-19 Pandemic Has Led To A Global Shortage Of The Tiny Technology
Intel is the the world’s largest semiconductor company. Last week, Intel announced a $20 billion manufacturing expansion in Arizona — touted as the largest private sector investment in state history. That expansion includes creating 3,000 new high-tech jobs, 3,000 construction jobs and more than 15,000 indirect jobs.
"If ask a lot of the students about semiconductor companies, they don’t really give a hoot about semiconductor companies. They all believe they want to go work for Google, Facebook and Amazon. They don’t realize that without semiconductors, these companies would not exist," said Ajit Manocha is CEO of SEMI, an industry group made up of semiconductor companies.
He said people don’t appreciate the technology. Semiconductors run the electronic functions in everything — from alarm clocks to sprinklers and of course, your smartphone.
Semiconductors are the materials that hold positive and negative electric charges that allow for control and memory functions. Individual semiconductors work on integrated chips to make the electric charge flow properly — and make the alarm clock, sprinkler, or smartphone do what you want it to.
"So in the automobile, we’re involved particularly in electric vehicles of taking battery from the battery pack, changing the voltages and currents to serve different parts of the vehicle and powering all the varying electronics that go into the vehicles," said David Somo, SVP of Corporate Strategy and Marketing with ON Semiconductor, a global supplier of microchip conductors — based in Phoenix.
About one-third of ON’s sales come from manufacturing microchips for cars. But, when the pandemic hit in the first half of 2020, car sales plummeted by 40 to 80%, according to Somo — and so, too, did orders for car-based microchips.
"Of course, when your sales are dropping precipitously, companies are not ordering components or materials to build new automobiles. we saw demand drop off and we rationalized as an industry our capacity," he said.
And car makers slashed production — globally. But other electronics, namely smartphones have been selling out during the pandemic as people build out home offices. And the microchips built to go into those are outselling demand and manufacturing can’t keep up.
Think of it like the chips you eat. ON was making potato chips — but we stopped eating potato chips at the height of the pandemic, and instead have been doubling down on tortilla chips — or the chips used in phones, and laptops, smart TVs. And that’s led to a global shortage.
Now, as potato chips come back, and we want all our chips, grocery stores are struggling to restock — something we’re very familiar with during the pandemic.
"There’s semiconductors and then there’s semiconductors. There’s 45 chips in your cellphone. And lack of any one of those chips whether it’s memory or whether it’s power management chips can gait the shipping of the whole chip set," said Sue Armstrong, SVP of Engineering at Qualcomm, one of the biggest manufacturers of microchips in the world.
That's gait as in movement. And there’s not enough movement of manufacturing — not nearly enough to fill the demand we have for smartphones and personal electronics and other needs — like rolling out a vaccine, a process that also uses microchips.
"People are wondering how we got the vaccine rolled out so soon, in less than one year — not one company - three companies in the U.S. And people don’t realize that behind this success is the role of semiconductors," said Manocha.
“"People are wondering how we got the vaccine rolled out so soon, in less than one year ... And people don’t realize that behind this success is the role of semiconductors."
— Ajit Manocha, CEO of SEMI
As part of Operation Warp Speed, the U.S. government and biomedical researchers are using microchip processes to speed up vaccine rollout.
A big part of the appeal of semiconductors is that they can be made to be super small — less than half an inch square in many cases. Which can make it transportable and helpful when you are fighting a pandemic and need to get a vaccine shipped.
As Intel begins its expansion in Chandler later this year, Samsung is also looking at Arizona . It announced in early March plans to build a $17 billion dollar chip factory — and it is considering Arizona as a potential site.
In June, Arizona Sen. Kyrsten Sinema co-sponsored bipartisan legislation to fund semiconductor manufacturing. Called CHIPS (Creating Helpful Incentives to Produce Semiconductors for America Act). It calls for $10 billion for a new federal grant program. The purpose is to incentivize microchip makers to build new U.S. facilities. It also includes an investment tax credit. The total package is $22 billion.