The study by Jan-Peter Kleinhans and Julia Hess for the Stiftung Neue Verantwortung – Think Tank at the Intersection of Technology and Society, Berlin, November 2021 can be downloaded here.
Read the authors conclusion here:
“The global semiconductor value chain is not in good health. It is highly efficient and innovative but prone to be disrupted by external shocks*, and it does not adapt well to skyrocketing demand due to diverging long-term business interests of fabs and their customers. This is nothing new to the semiconductor market; in fact, this is neither the first nor the last boom-and-bust cycle.
However, chips play a much more critical role in almost every sector of today’s industry than 10 or 20 years ago. Thus, it is understandable that governments ask questions and wonder what role they could play to strengthen the resilience of the semiconductor value chain. To that end it is crucial to recognize that merely subsidizing fabs and increasing supply chain transparency will ultimately have very little positive impact on its resilience to demand surges and external shocks.
To better cope with demand surges fabs need an economic incentive for overcapacity— not striving for 85% and higher fab utilization rates. Who pays for that if not their customers? Similarly, making the semiconductor value chain more resilient to external shocks certainly involves more transparency in a first step. But any supply chain that depends on chips, such as the automotive supply chain, will also need to invest in substantial inventory on their own and better supplier relationships.
Governments can certainly provide the right incentives to lessen the high geographic concentration, for example in cutting-edge wafer fabrication and back-end manufacturing, at least to some extent in the long term. They may also be able to push industry toward increased supply chain transparency, a better flow of information and strategic inventories. But some of the key challenges within the global semiconductor value chain come down to business models and supplier relationships that are hard to change from the outside.”
*Kleinhans and Hess list 16 shocks (fires, water shortages, earthquakes, power outages, etc.) in their study in 2020 and 2021, mainly in Taiwan and Japan, but also in the US, in China, Malaysia, Vietnam and Germany.
The Stiftung Neue Verantwortung is an independent and non-profit think tank at the interface of technology and society. It ensures its independence by a mixed funding source concept that includes foundations, public funds, and corporate donations.
Jan-Peter Kleinhans is head of the project "Technology and Geopolitics". Currently, his work focuses on the intersection of global semiconductor supply chains and geopolitics.
Julia Hess is project manager of the project "Technology and Geopolitics". Previously, she analyzed AI ecosystems with a focus on governance and surveillance issues.
Paper and resulting papers are published under the CreativeCommons License (CC BY-SA).