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Austin feeling the pinch as semiconductor chip shortage drags on

Austin is home to some major chip manufacturers, but none around the world can catch up with the demand for semiconductor chips.

AUSTIN, Texas — Experts call the semiconductor chip shortage the result of a perfect storm.

Some major chip manufacturers call Austin home, including Samsung, NXP and Applied Materials. A combination of the coronavirus pandemic, the Texas winter storms, a drought in Taiwan, a factory fire in Japan and tariffs from China have caused a shortage of chips most did not see coming.

"You couldn't think of these ingredients in the last two or three years and probably timed it sequentially to hit where we are today as far as what the market shortage is," said Mark Pollard, the chief operating officer of Astute Electronics.

Pollard helps connect companies who have excess semiconductor chips with those who need them. A long-standing issue in the industry Pollard noticed is that many larger companies are buying up smaller companies and limiting trade competition.

"There's fewer and fewer options in the semiconductor channel," Pollard said.

Right now, the supplies have dried up and everyone needs chips.

"Now you've got governments getting involved saying we're going to invest in foundries because it's a matter of national security," Pollard said. "We never want to be without our own raw material to make the components that go into warfighting systems, defense satellites and everything down to cellphones and 5G, which is also sucking up demand as well as that comes online."

Not only are the chips in short supply, but so are the parts to make them. Taiwan is facing a historic drought, which has caused a big backup in the production of silicon wafers for the chips.

"Because the largest foundry in the world is in Taiwan and you need a lot of water to make silicon, which is what they make at these foundries. So they were backed up," Pollard said.

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According to Pollard, semiconductor chips are the fourth-most traded good across the world every day, behind only crude oil, refined oil and vehicles. Coincidentally, the shortage has also led to vehicle prices jumping.

Semiconductor chips are in nearly all modern technology from phones and laptops to the F-35 used by the U.S. military. 

"We found after COVID-19 that we were very dependent and vulnerable to supply chains coming out of China when it came to medical supplies, to rare earth minerals, but most importantly, advanced semiconductor chips," Rep. Michael McCaul (R-Austin), said.

McCaul and Sen. John Cornyn (R-Texas) filed legislation called the CHIPS for America Act. The legislation passed at the end of 2020, and now Congress is looking where to appropriate funding for the program.

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"Just like we became energy independent, we have to be chips independent, semiconductor independent," McCaul said. "It will be a $50 billion Department of Commerce grant program, which is highly significant, along with an investment tax credit, which will then incentivize these manufacturers to break the supply chains out of vulnerable areas in the world and bring them back to the United States."

McCaul added this money would be separate from the $50 billion already set aside by President Joe Biden's infrastructure plan. In April, President Biden held up a silicon wafer while urging Congress to push for investment in American chips.

"I've never seen a politician all of the semiconductor before, it seemed sort of like an awakening to the world that we live in," Pollard said. "This is really going to kind of pave the way for the world to say, 'Look, guys, this is the fourth most traded product each day in the world. And most people don't even know what it is or what it looks like. And we've got a problem. And it's going to affect our economy. It's going to affect families. It's going to affect school districts. And we're going to have to adapt and mitigate this challenge.'"

Pollard added semiconductor chip shortages are unsurprisingly cyclical. Every three to five years, a shortage comes along. It tends to ebb and flow with the rise and fall of the global economy. 

"The supply chain is a very, very complex situation that nobody has the perfect software tool or crystal ball to predict. What do I need to buy today that I'm going to need in three months or six months or 12 months?" Pollard said.

The shortage the world faces now is unique and forcing Pollard and politicians to turn toward independence.

"We have some resources in North America, not nearly enough," Pollard said. "A disproportionate amount of silicon comes from Taiwan and China. That's well documented. The European Union is even more vulnerable. They have no foundries, so they have zero reliance on themselves for that."

Pollard said the $50 billion from President Biden's plan is a good start, but the demand for silicon will be constant and growing.

As the demand grows, so does the academic interest in the industry.

"The semiconductor industry is very large and diverse, so if people want to work in it, there's many jobs," Dr. Alberto Quinonez, department chair of engineering technology at Austin Community College, said.

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Quinonez's department works with manufacturing companies for apprenticeship partnerships, connecting students with internships and jobs in the semiconductor and manufacturing industry.

"We started that in 2019. Currently, we have about 12," Quinonez said. 

Quinonez agrees with Pollard that the industry is in a unique bind.

"There's just been a perfect storm, if you will," Quinonez said. "The pandemic caused people to work from home, right, and to do online work and classes, which means that more people need things like tablets and webcams and laptops and a lot of technology, including the technology to provide the Wi-Fi."

As many common products become 'smart,' like refrigerators or HVAC systems, Quinonez notes demand for these chips will only rise.

"Before the pandemic, we kind of took, I would think, of computer chips for granted," Quinonez said. "Now that there's a shortage, we see the importance and significance of this technology. And, hopefully, this will help let people know that there is demand. There are companies in the area who build this and they're always looking to recruit new talent."

NXP, Allied Materials and Infineon all produce chips in Austin but did not respond for comment. Samsung declined an interview. McCaul said these companies, as well as others like Dell and IBM in Austin, will all be able to benefit when CHIPS for America has funding.

"It's really a win-win," McCaul said.

According to summary documents provided by McCaul's staff, the U.S. used to produce 37% of the world's supply of semiconductor chips in the 1990s. As the supply and demand have both grown, U.S. manufacturers only make up 12% of the supply.

Pollard can't predict exactly when the shortage will end but knows it won't be anytime soon.

"The impacts are going to be felt for at least two years," Pollard said. "Oftentimes the semiconductor supply chain is six to 12 months before you actually see that product in the consumer market and getting in the hands of the person that's actually using that device."

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