Semiconductor sector focused on cost, efficiency over resilience – Intel CEO

Tom Brown

21-Jan-2022

LONDON (ICIS)–The massive proliferation in end products for semiconductors in the wake of digitisation led the sector as a whole to focus on cost and optimisation of supply chains over resilience, according to the CEO of producer Intel.

Demand spikes and logistics disruption during the coronavirus pandemic have driven extreme chronic supply tightness for semiconductor chips, which has resulted in automotive manufacturers missing production forecasts and scarce availability of many consumer electronics products.

The drive towards digitisation has resulted in far more widespread demand for chips as well as increased usage for products such as vehicles that already relied heavily on them.

Surging demand led the sector to focus on efficient, cost-effective supply chains, with resilience less of a priority, according to Intel chief Pat Gelsinger.

“Everything is becoming digital, and everything digital runs on semiconductors, and what we saw is that focused on cost of supply chain and the optimisation of that and we lost sight of [that] resilience, what I would call a geographically-balanced resilient supply chain,” he said, speaking at a World Economic Forum (WEF) event.

As the sector has evolved, Europe has diminished in prominence from the source of 44% of semiconductor chips globally to less than 10%, while the US’ share of the market has fallen from 37% to 12%, as players in other regions scaled up production and western players built out capacity in the rest of the world.

Lawmakers in some regions are looking to reverse this shift, with European Commission President Ursula von der Leyen announcing this week plans to propose draft legislation aimed at increasing local EU semiconductor supplies.

“By 2030, 20% of the world’s microchips production should be in Europe,” Vvon der Leyen said this week.

The CHIPS for America act, introduced in the US Senate in November 2021, aims to offer tax credits and other stimulus measures for investments in semiconductor manufacturing facilities in the US through to 2026.

“We’re enthusiastic to see that rebuilding,” Gelsinger said.

Calling the measures a “moon shot”, Gelsinger added that security of supply for semiconductor chips stands to become as important than oil in the years to come.

“If we would accomplish [stronger US and EU supplies], we would now be building a resilient global supply chain for something that’s more important to our future than where the oil reserves are,” he added.

The move in western markets to reduce reliance on chip supplies further afield is understandable in light of the issues of the last few years, but the drive to rebuild domestic production in mature markets and reduce reliance on global producers risks making the supply chain less competitive, according to Ngozi Okonjo-Iweala, director-general for the World Trade Organization (WTO).

“I understand the phenomenon of trying to secure supply chains and diversify them, it’s also a way of managing risk,” she said, also speaking at the event.

“So, it’s understandable to see people trying to near-shore or on shore some of their supply chains, but I would caution not to take this too far.”

Focus article by Tom Brown

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