Fixing Semiconductor Shortage Isn’t As Easy As Building New Foundries

Correcting the semiconductor shortage can’t be done with a short term fix. Between high production costs and long lead times, increasing chip supply isn’t as easy as building more production facilities. 

"For the last 40 years, the semiconductor industry has been known for wild shortages and wild oversupply. You can't really build a small factory. You've got to build this mega factory," said Jim Feldhan, President of Semico Research. 

Semiconductor fabrication plants, also known as fabs or foundries, take billions of dollars and years to construct. Designing and constructing chip parts, known as wafers, is a months-long process that includes heating silica sand over 3,000 degrees Fahrenheit. 

"You have a lot of orders coming in. You can't just really, on a whim, change it. And by the way, this whole process, it takes about four months for the whole wafer to become usable," said Bharat Kapoor, Partner in the Strategic Operations Practice at Kearney. 

The fabs are also complex. They require specialized, multi-million dollar machines to make semiconductors, and enclosed, dust-free rooms to make chips. 

The U.S. is trying to boost its supply chain. In February, President Joe Biden signed an executive order to review policy recommendations to bolster semiconductor production

Several major semiconductor producers, like the Taiwan Semiconductor Manufacturing Company, are also investing in new U.S. fabs.  

“TSMC has announced something in Arizona, and it's already broken ground for expanding in Arizona. But those announcements were just made. Factories have started building in 2021. So the production isn't really expected before 2024," said Gaurav Gupta, VP Analyst at Gartner. 

But shoring up semiconductor supply will require the U.S. to diversify where it is importing chips from. That will also take some geopolitical navigating.  

"With these few minimal fabs coming up, this will basically help the U.S. to retain its worldwide production percentage. The production percentage from the U.S. is about 11 to 12 percent. With these limited new foundries, the capacity additions will just help it retain, or maybe add a percentage point or so," Gupta said.

"I don't see a competition kind of an environment where everybody sings Kumbaya," Kapoor said. "That's why if you look around, we only talk about U.S., Taiwan, China, Korea — Japan a little bit. India is getting into the mix, the European Union is getting aggressively into the mix. I mean, pretty much everybody knows the importance of it."