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[Tim Culpan] Weak link in global chip supply chain

Oct. 18, 2021 - 05:31 By Bloomberg
Plans to survey chipmakers and keep tabs on the supply chain to head off further disruption highlight just how disconnected the US government is from the realities of a $500 billion industry that spans the globe. Instead, American diplomats would do well to work with allies to build an integrated real-time database that will last well beyond the COVID-19 pandemic.

A request last month by Commerce Secretary Gina Raimondo for semiconductor companies to detail their sales, products, technology and inventory was coupled with a threat that the White House might invoke a Cold War-era law to force them into submission. Such intimidation is counter-productive, and ruffled feathers in Taipei, Seoul and Beijing at a time when Washington needs to open lines of communication with other nations.

The survey, which the US wants completed by Nov. 8, includes 26 questions that range from the mundane -- “What are the (general) applications for the semiconductor products and integrated circuits that you purchase?” -- to the downright intrusive -– “List each product’s top three current customers and the estimated percentage of that product’s sales accounted for by each customer.”

A bitter response from China was to be expected, with critics there pointing to the move as evidence that the US wants the data merely to suppress the country’s rising power. Officials in allies Taiwan and South Korea were more circumspect, yet quick to defend their champions -- Taiwan Semiconductor Manufacturing and Samsung Electronics -- from having to leak confidential information.

In truth, the reaction from some quarters, including politicians and media, was overblown. Lost in the rancor was the fact that this survey is a standard tool deployed by the Commerce Department to get a handle on an issue, and responses are entirely voluntary. Applying the Defense Production Act to force compliance is an unnecessary stick that likely won’t apply to foreign companies, anyway.

That said, the survey is likely to be redundant by the time replies are compiled and analyzed. Semiconductors are one of the fastest-moving sectors of the global economy. At TSMC, for example, inventory levels regularly rise or fall by 20 percent or more within just a few months. And new products that are built with the latest technologies get rolled out every quarter or two.

When a report is finally prepared -- likely at the end of the year -- almost 12 months will have passed since TSMC’s announcement that relieving the auto-chip shortage was its “top priority” and that it was shifting capacity to handle it. Whatever information the US government can glean from these surveys -- which will be absent the truly sensitive client information that companies shall refuse to provide -- could have already been ascertained from industry groups or a handful of sell-side research reports. For example, that automotive accounts for just 4 percent of TSMC’s sales, and has barely changed in three years, is public information released with each earnings report.

It’s possible that the data Commerce collates will show some buyers have been stockpiling chips, a fact already widely reported, or that there’s a need for capacity in some technology nodes -- also well known. But in the fast-changing world of semiconductor supply and demand, all this will be backward-looking information.

To try to grapple with the situation in real time, the Commerce Department last week announced the establishment of an early alert system that will “help the interagency Supply Chain Disruption Task Force to coordinate US government resources to help resolve supply chain bottlenecks occurring due to the global chip shortage.” Its method of reporting: send us an email.

Raimondo’s explanation for the system is revealing. “We need to hear directly from impacted businesses when they are experiencing a COVID-related semiconductor supply chain disruption,” she said.

Deploying a manual process built for a short-term event is the kind of approach industry is unlikely to take seriously. The chip sector collates and processes reams of supply chain data, using it to tweak every aspect of operations. Most is automated through global systems supplied by the likes of SAP and Oracle.

This is what the US should be tapping into. It’s highly unlikely that China will want to partake, but there’s a good chance that like-minded partners in Taiwan, Japan, South Korea and Europe would be willing to work with companies in their own geographies to feed data into a central system -- on the provision that each of them get equal access to it.

One of the big mistakes Washington has made during this chip shortage is to act like the US is the only victim and its needs usurp anyone else’s. If it truly wants to fix this problem, and prevent future occurrences, the government ought to get back into alliance building and show the world that it’s ready to create a global solution.

Tim Culpan
Tim Culpan is a Bloomberg Opinion columnist covering technology. -- Ed.