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Chip shortage leaves US companies at dangerously low level of semiconductors, report says

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Chip shortage leaves US companies at dangerously low level of semiconductors, report says

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WASHINGTON — U.S. manufacturers and other companies that use semiconductors have just five days of inventory left for key chips, the Commerce Department said Tuesday, citing the results of a new survey.

In 2019, companies typically maintained 40 days of inventory for key chips, according to the Commerce Department report. Now, for the same chips — defined as 160 products that companies identified as the hardest to acquire — companies are operating with less than five days of inventory, according to the report.

Commerce Secretary Gina Raimondo said the survey results show the urgency for Congress to approve the U.S. Innovation and Competition Act, which provides $52 billion to boost domestic production of fleas.

“We’re not even close to being off the hook on semiconductor supply issues,” Raimondo told reporters on Tuesday. “The semiconductor supply chain is very fragile, and it will remain so until we can ramp up chip production.”

Since September, the Commerce Department has sought detailed industry data from major companies in the semiconductor supply chain. Its report was based on a survey of companies, including hardware and equipment suppliers; semiconductor manufacturers; and automotive, industrial and healthcare companies that need chips for their products.

The Covid pandemic has strained global supply chains, causing freight backlogs that have driven up costs. Today, some companies are looking for longer-term solutions to prepare for future supply chain crises, even though these strategies come at a high cost. Photo illustration: Jacob Reynolds

Low inventory is a particular concern because of how a single stoppage can then impact the supply chain. With such thin inventories, shutting down an overseas factory earlier in a company’s supply chain, for more than a few days, can cause its inventory to run out.

“This means that a disruption overseas, which could shut down a semiconductor plant for 2-3 weeks, has the potential to disable a manufacturing plant and furlough workers in the United States if that plant only has 3-5 days of inventory,” Commerce said. Ministry report said.

The Commerce Department released its findings as part of a campaign to revive US innovation and competition law.

The Senate passed its version of the $250 billion measure to boost high-tech research and manufacturing in a bipartisan vote last year, but the measure did not advance in the House.

“This semiconductor shortage is the result of a significant supply-demand mismatch, further exacerbated by the pandemic,” the Commerce Department said.

He cited insufficient manufacturing capacity as the No. 1 problem, “and that’s what the president’s proposal is designed to accelerate.”

President Biden has often pointed to semiconductor shortages as part of efforts to control supply chain issues and inflation. While much of the focus has been on their use in automobiles and the resulting production slowdowns, the president noted their use in a variety of products, from refrigerators to hospital equipment.

“America invented these chips,” Biden said at an event last week touting Intel Body

plan to invest at least $20 billion in new chip manufacturing capacity in Ohio. Over the years, more chip production has moved overseas, mostly to low-cost Asian countries.

The White House, citing industry data, says chip companies have announced nearly $80 billion in new investments in the United States that are expected to run through 2025. “We’re going to tag everything we can ‘Made in America,’ especially these computer chips,” Biden said.

John Neuffer, president of the Semiconductor Industry Association, said the United States risks falling behind other countries that are struggling to increase domestic chip production.

“The United States simply needs to level the global playing field to ensure that more of the chips our country needs are researched, designed and manufactured on American soil,” he said.

The Commerce Department’s summary of its information highlighted particular chips — certain microcontroller nodes, analog chips, and optoelectronic chips — that are suffering from a particularly acute supply shortage.

In a briefing with reporters, officials said they had not uncovered evidence the shortages were the result of companies hoarding chips. Some suppliers had speculated last year that hoarding could be a partial explanation for the shortages.

The data showed that these chips typically had a lead time – the time from start to product delivery – of between 84 and 182 days. By the end of 2021, this had doubled for some key products, and the delivery time had extended to 103-365 days.

The Commerce Department said it would also take additional steps to increase supply chain transparency, noting that the industry is so complex that producers early in the supply chain are far removed from end users. and therefore do not always have the ability to see what will be the demand for certain products, while chip consumers “do not always know where the chips they need come from”.

Write to Josh Zumbrun at Josh.Zumbrun@wsj.com and Alex Leary at alex.leary@wsj.com

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Chip shortage leaves US companies at dangerously low level of semiconductors, report says

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