This paper explains how a confluence of issues, triggered by the health crisis, led to the current chip shortage and the innovations spurring a need to build chip production capacity, particularly in the United States. The analysis also outlines U.S. policy considerations, given the current scenario, by exploring semiconductor production lead times and factory build costs.

The chip shortage, highlighted by the COVID-19 pandemic, has created ripple effects throughout the tech industry. About a year ago, when automotive manufacturers revised sales forecasts and cut-back on supplies, including semiconductor chips, available chip capacities were filled up by companies building tech thriving in the 2020 stay-at-home economy, such as laptops, tablets and gaming equipment.

Today, businesses, governments and consumers are seeking the benefits that digitization has to offer, fueling demand for a new generation of emerging technologies requiring advanced chips. Although the pandemic significantly accelerated adoption for tech devices, we had already seen an uptick in demand for consumer tech products over the last 10 years across the globe. For example, connected and “smart” consumer technology products such as digital health and smart home tech has seen volumes swell in recent years.

A newly released white paper by the Consumer Technology Association (CTA)® sheds light on the current chip shortage issue, systemic issues facing the supply chain and U.S. policy activities affecting semiconductors.

The major technology trends influencing demand for semiconductors over the next decade include:

5G Wireless Ecosystem

The 5G network rollout is prompting an upgrade cycle in smartphones. CTA projects over a half billion 5G-enabled smartphones will ship to the U.S. over the next four years. According to the Taiwan Semiconductor Manufacturing Company (TSMC), 5G phones have 30% to 40% more chips than their 4G counterparts. What’s more, 5G chips will likely find themselves in an increasing variety of connected consumer devices that leverage the advanced capabilities of the new network.

Automotive Evolution

Autonomous driving, advanced driver assistance systems (ADAS) and battery power management all require logic and computing power, driving a growing industry-wide dependence on semiconductors. The industry is expecting chip demand to expand dramatically over the next five years as the automobile industry adds electric vehicles (EVs) to fleets, which can require more than 3000 chips per EV.

Cloud Computing

The growing popularity of cloud-based services has fueled a great need for the construction, maintenance and updating of data centers throughout the country. Data centers thrive on servers, memory, storage and network equipment. An economy hungry for compute-heavy applications will require data centers to keep up with cutting edge advances in computer hardware to remain competitive.

Industrial Internet of Things (IIoT)

Connectivity and computing — and therefore, semiconductors — are essential to IIoT, which refers to the large number of machines and devices that are connected to the Internet used in the manufacturing, logistical and agricultural sectors. When we consider increasing demand from these commercial and industrial segments, near-term global chip demand projections stemming from IIoT applications will soon tally in the hundreds of billions.

Although the semiconductor chip shortage feels like a novel event, the emergence of bottlenecks did not occur in a vacuum or overnight, the paper points out. We believe that while the pandemic certainly accelerated the conditions for the present shortage, the semiconductor supply chain contains a variety of systemic issues that will make any quick resolution of the shortage a difficult challenge. These longer-term issues include order lead times, new factory build times, investment costs, geopolitical impacts on supply chains and environmental factors.