(Bloomberg) — The Biden administration has concluded that a global semiconductor shortage will persist until at least the second half of this year, promising long-term strain on a range of U.S. businesses including automakers and the consumer electronics industry.
U.S. officials plan to investigate claims of possible price gouging for chips used by auto and medical device manufacturers, Commerce Secretary Gina Raimondo said Tuesday.
“We aren’t even close to being out of the woods as it relates to the supply problems with semiconductors,” Raimondo said in a briefing with reporters discussing the findings of an industry report her agency conducted that was released Tuesday.
The report, based on information from more than 150 companies in the chip supply chain, shows “there is a significant, persistent mismatch in supply and demand for chips.” The companies don’t see the problem being solved in the next six months, according to the report.
The Commerce report highlights the limited options available to the Biden administration as it tries to respond to the crisis, which has caused production delays for electronic devices and furloughs in the auto industry. The chip shortage is also a key driver of higher inflation, which has bedeviled President Joe Biden’s White House and threatens to help swing Congress to Republican control in November’s midterm elections.
Read more: Biden Urges Congress to Pass Chips Bill Amid Global Shortage
Median inventory has fallen from 40 days to fewer than 5 days, resulting in no room for error, Raimondo said.
Any disruption for overseas manufacturers, such as a Covid outbreak or weather-related incident, could lead to production shutdowns and furloughs in the U.S.
“The semiconductor supply chain remains fragile,” the report said, despite months of work by the Biden administration to try to relieve shortages. “Demand continues to far outstrip supply.”
Most industry executives have cautioned that the shortage won’t ease until the second half of this year, with some products continuing to be delayed by the scarcity of parts into 2023. While the industry may never be able to escape its roller-coaster nature, the current demand boom may last until 2025.
The shortage is particularly impacting the medical device, broadband and auto industries, according to the report. U.S. officials plan to immediately focus on resolving bottlenecks in those supply chains, the report said.
The administration also will investigate potential price gouging for certain types of semiconductors that have seen “unusually high prices” during the supply crunch, according to the Commerce report. Raimondo said it’s brokers, particularly in the auto as well as medical device sectors, that appear to be charging those increased prices.
Many semiconductors are sold through third-party distributors such as Avnet Inc. and Arrow Electronics Inc. that have traditionally acted as intermediaries between electronics makers and semiconductor manufacturers. Some companies, such as Texas Instruments Inc. are changing that model and forging more direct relationships with chip buyers.
The agency did not find any hoarding of chips, which was previously believed to have been a contributing factor to the shortage.
The Biden administration demanded last year that companies in the semiconductor supply chain provide information about supplies and demand for chips to help identify bottlenecks. Suppliers and consumers of chips have at times accused each other of impropriety and obfuscation in their transactions.
Raimondo and her team received responses from nearly every major semiconductor producer and from companies in multiple consuming industries. Her agency is following up with companies that didn’t respond or whose responses weren’t as comprehensive.
The report also found that median demand for chips was as much as 17% higher in 2021 than 2019, without commensurate increases in supply.
The Commerce Department report all but concedes that the government is powerless to resolve the bottlenecks.
“The private sector is best positioned to address the near-term challenge posed by the current shortage, via increased production, supply-chain management to minimize disruption, and product design to optimize the use of semiconductors,” it says.
But Raimondo said the report underscores the need for more investment in domestic manufacturing. Legislation that has stalled in Congress would dedicate $52 billion dollars to encourage semiconductor makers to build factories in the U.S.
“Congress must act,” she said.
Still, any new plants wouldn’t come online for years, offering no immediate relief for the shortage.
Raimondo has for months urged lawmakers to pass the measure, to no avail. Some members of Congress have said Biden should have gotten personally involved in the effort earlier.
Intel Corp. last week announced a $20 billion chip-making hub on the outskirts of Columbus, Ohio, which the company expects to grow to be the world’s biggest silicon-manufacturing site. The plant is expected to be operational by 2025.
Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co. are also expanding their investments in the U.S., though that production won’t come online this year, either.
Raimondo and her team hope that in the meantime, increased information-sharing between chip suppliers and consumers can help minimize mismatches between supply and demand.
(Adds more from report, starting in 11th paragraph.)
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