US government chip shortage report doesn't bode well for 2022

The US government has delivered its findings on an investigation into Risks in the Semiconductor Supply Chain and the outlook in 2022 doesn't look good for either manufacturers or consumers. The chip shortage started not long after the first wave of the global COVID-19 pandemic with its effects starting to be felt in the middle of 2020. With lockdowns forcing people to work from home where they could, demand for consumer electronics spiked, while at the same time chip foundries and production lines ground to a halt. The government's report shows that while most chip foundries have been operating at or near capacity, demand continues to soar at up to 20 percent higher than 2019.

While high demand is good news for chip makers, the ongoing supply constraints mean that industries including car makers, consumer electronics makers and the medical devices sector will continue sourcing components to meet demand. As anyone who has been trying to buy a PlayStation 5 or Xbox Series X knows, it still feels like trying to secure a console during launch month even though both consoles have been on the market for well over a year.

Apple CEO Tim Cook says that semiconductor shortages have cost Apple billions of dollars in lost sales while car makers including GM have been hit with similar problems that could have cost the entire US car industry over $200 billion, according the report. Consequently, new car shortages have seen car prices rising and driving inflation.

Problems to persist into the second half of the year

According to the U.S. Department of Commerce, the authors of the report, the majority of fabs are running at more than 90 percent utilization. However, the inventory of chips on hand to OEMs has dropped from a median inventory of 40 days in 2019 to less than five days, further illustrating just how dire the current situation remains.

The authors of the report don't see the situation improving for at least the next sixth months. On the plus side, while the current Omicron outbreak does not appear to pose a significant threat to current production, the situation remains extremely vulnerable to any further adverse events including natural disasters.

The Biden Administrations Commerce Secretary Gina Raimondo used the report to push for Congress to approve the Administration's proposal for a $52 billion investment to rebuild the semiconductor industry. The injection would help reduce U.S. reliance on foreign supply chains and help stabilize local industries and jobs.

The Commerce Department also pointed to Intel's plans to build a new $20 billion foundry in Ohio that would come online in 2025. While its operations won't begin until after the anticipated conclusion of this current crisis, it will create 10,000 local jobs and help reinforce domestically sourced silicon supplies.