Returning IC manufacturing to U.S. shoresStory
June 14, 2021
Supply cycles these days are slow whether you are buying lawn furniture, lumber, raw materials, or mission-critical microelectronics. Reasons range from the pandemic and the resulting economic slowdown to the Suez Canal blockage to tariffs. You name it, you order it, you likely have to wait months to get it.
While homeowners can suck it up and wait for their Adirondack chairs, the U.S. military is uncomfortable depending on international suppliers for the integrated circuits (ICs) needed for defense-related satellites, radar, and electronic warfare systems.
The roots of IC offshore manufacturing headaches can be traced back to the 1990s, when much of U.S. semiconductor manufacturing expertise started leaving North America in search of the lower labor costs found in alternative locations like Taiwan.
Running a foundry is enormously expensive without government help. Strategic radiation-hardened foundries like those owned by BAE Systems in Virginia and Honeywell in Minnesota were supported by U.S. government dollars and so survived the exodus. Others either went under or moved their IC production overseas.
Fast-forward 25 years to 2021, where global conditions are fueling a push to return semiconductor manufacturing to U.S. shores. “Companies are finding it hard to get their hands on electronics across multiple industries,” says Anton Quiroz, CEO of Apogee Semiconductor. “This climate actually started just before the pandemic, but the pandemic definitely compounded it.”
Domestic pressure has been building to return the capability to the U.S., but those 1990s economic challenges remain. “Domestic production is very focused on lower-cost ways respond to military needs,” says Dave Young, CTO for Cobham Advanced Electronic Solutions (CAES). Bringing semiconductor manufacturing onshore “means competitiveness from a cost standpoint will be challenging,” he continues. “But it needed a kick-start, as we are seeing lead times taking as long 18 months and need all avenues for our disposal to meet demands.” CAES, which historically has been foundry-agnostic, now partners with the SkyWater Technology foundry in Bloomington, Minnesota, for U.S.-based strategic rad-hard manufacturing, Young adds.
Economic pressures are substantial, but geopolitical concerns also concern U.S. government officials and their allies, as most of the world’s microelectronics technology is dependent on semiconductor foundries located offshore in Taiwan.
While the U.S. is friendly with Taiwan, China still considers Taiwan part of China and they want it back. A potential war over Taiwan’s independence leaves U.S. officials quite concerned.
“Taiwanese contract manufacturers account for two-thirds of global chip sales,” according to an article in the May 1-7 issue of the Economist titled “Living on the Edge.” The largest of these is Taiwan Semiconductor Manufacturing Company (TSMC), which has pledged to open a foundry in Arizona in 2024. Even with that expansion, though, the company still maintains most of its expertise in its home location, with about “90% of its 56,800 staff … based in Taiwan,” according to the Economist article.
Not content to rely on TSMC’s plans – nor those of other domestic and international companies pledging to expand manufacturing in the U.S. – the DoD is increasing funding for domestic microelectronics production. That investment is necessary for our onshore IC production to succeed. “For, example the Air Force’s FY 2022 budget request calls for $885 million for commercial microelectronics,” says Larry Hayden, senior director, sales and business development, Vorago Technologies.
“This isn’t the first time there has been a push to increase U.S. semiconductor manufacturing,” he says. “In the past these have been seen as fads, but what is unique this time is the significant investment from a variety of sources – from the U.S. government to Intel to global foundries – into U.S. facilities.”
Enabling a trusted supply chain also motivates DoD microelectronics funding. As former Under Secretary of Defense for Acquisition and Sustainment Ellen Lord said in a DOD News article last year on defense.gov, “We can no longer clearly identify the pedigree of our microelectronics. Therefore, we can no longer ensure that backdoors, malicious code or data exfiltration commands aren’t embedded in our code.”
Rebuilding that trust by returning manufacturing to U.S. territory won’t happen overnight, so companies must strategize to work around these shortages and ensure dependable supply chains.
“Thanks to tariffs and other delays, even our strongest suppliers have gone from eight weeks to 30 weeks for their delivery timetables,” says Marti McCurdy, owner and CEO of Spirit Electronics. “We are trying not to play into any of that. We work to make sure the most critical programs do not get shortchanged on supply by planning 12 months ahead for such situations. Our supplier-managed inventory program is helping secure the supply chain with projected forecasting and placing orders to secure a solid backlog with our suppliers even though the lead time is long.”
For more from McCurdy, Hayden, Young, and Quiroz, see our Industry Spotlight article on trends in rad-hard electronics on page 30.