In January 2022, the Department of Commerce cited that U.S. manufacturers and other companies that use semiconductors are down to less than five days of inventory for key chips. In contrast, only three short years ago in 2019, companies typically maintained 40 days of inventory for key chips. According to Commerce Secretary Gina Raimondo, “We aren’t even close to being out of the woods as it relates to the supply problems with semiconductors.”
The current semiconductor shortage stems from a perfect storm of Pandemic-induced microelectronics supply and demand disruptions, increasing supply chain complexities (see Part 2), and domestic policy actions (see Microelectronics Supply Chain and US Legislation blog).
The catalyst for the crisis originates back to the start of the Covid-19 pandemic, Spring 2020, when the decrease in demand for new cars caused automakers to respond by decreasing their orders for parts (including semiconductors). However, several months later when the demand for cars bounced back, automakers were unable to procure the supply of semiconductors needed. While automakers cut back semiconductor orders in the wake of the Pandemic, large consumer electronics companies increased their orders, securing supply for the next few years. These companies were responding to the increased consumer and commercial demand for microelectronics devices, such as laptops and tablets, critical to the facilitation of remote work and education.
While the start of the Pandemic is an easy date to pinpoint the start of the supply crisis we are currently experiencing, it only acted as an accelerant to a more systemic problem: the increasing complexity and fragility of microelectronics supply chains.
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