‘Geographically Diversify Manufacturing’ To Solve Supply Chain Crisis: Analyst

‘There’s no question we need to geographically diversify manufacturing. We absolutely have put too much dependence on Asia without having a more predictable macroeconomic and geopolitical relationship,’ says Daniel Newman of Futurum Research.

The semiconductor supply chain crisis has been exacerbated by the United States’ complete dependence on other nations to build the chips and that needs to change, according to an analyst.

“There’s no question we need to geographically diversify manufacturing,” said Daniel Newman, founding partner and principal analyst at Futurum Research. “We absolutely have put too much dependence on Asia without having a more predictable macroeconomic and geopolitical relationship … It could change based on factors that have nothing to do with our business relationships, or our product development.”

American chipmakers today build well north of 90 percent of their semiconductors in Taiwan and nearly all the remainder in Korea with no manufacturing capabilities closer to home, Newman said Monday during the 2021 Best of Breed (BoB) Conference, hosted by CRN parent The Channel Company. This leaves the supply chain susceptible to Chinese disruption given China’s strained relationship with Taiwan, he said.

[Related: Coronavirus Strains IT Supply Chain: ‘We’re Down To Buying Computers From Costco]

But the tide appears to be turning, Newman said, with Intel announcing plans to invest $20 billion here in the U.S. This pivot has occurred as companies like Intel realized there was a massive opportunity to scale and grow their business through foundry and fabrication rather than more offshoring, according to Newman.

“Having more capacity to handle more of the manufacturing here means we can augment in different situations where we have supply constraints as well as advance the efforts and innovation here in the United States,” Newman said. “Had the money that’s been spent in yields and buybacks been spent in building infrastructure to scale and produce, would we be in the same situation?”

Newman urged elected officials to reach across the aisle and put policies in place that result in a certain percentage of the world’s manufacturing coming back to the U.S. Elected officials need to ensure these manufacturing jobs pay adequately and implement regulations that limit the collateral damage America is susceptible to if geopolitical or other circumstances reduce the availability of chips from abroad.

He also lamented the adoption of ‘just in time” production strategy in recent decades that has resulted in pretty much no one up or down the supply chain carrying any surplus. Just in time has made manufacturing much more profitable but also creates considerable risk since if any part of the chip is missing or unavailable, Newman said it becomes impossible to produce at volume or at scale.

“We’ve got decades here of just in time delivery that has basically hamper our ability to handle any sort of disruption in our supply chain, and when it’s a disruption this large that affects so many parts, up and down our labor supply, we are not able to deliver,” Newman said. “And it creates a problem that just exacerbates itself because the solution of building more capacity is not an immediate one.”

He believes an inflection point has been hit that will result in everyone from Intel and GlobalFoundries to Samsung, TSM and Micron increasing capacity and American manufacturers bringing some capacity to the U.S. If these companies can find the right quality talent and reach production scale, Newman believes late 2022 could be when semiconductor supply is at last greater than semiconductor demand.

“Our lust for apps, social media, mobile devices, PCs, and building next-generation enterprises that have the best technology to try to create the most excitement for employees and facilitate the future of remote and hybrid work,” Newman said. “All of this will continue to drive investment in data centers on from the public cloud, more apps, more data, more demand. We have to be able to meet that.”

The U.S. needs to bring more semiconductor manufacturing back to this country to make sure America is protected even if China and Taiwan start to spar, according to Dale Shulmistra, CEO of New York-based Invenio IT. America can focus on the higher-end components of chip manufacturing such as advanced wafer fabrication to ensure the work is financially sustainable, Shulmistra said.

“We can’t just be building apps and software appliances,” Shulmistra said. “I think we have to make building equipment a priority.”