US Electronics Reshoring Plan Risks Missing the Boat

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Reviving the US semiconductor industry will require balanced investment in the entire electronics ecosystem, including assembly and test, as well as printed circuit boards (PCBs), according to industry executives.

While U.S. legislators prepare to approve a $52 billion package of incentives to help shore up the domestic semiconductor industry, there are concerns that most of the financial support will go to very profitable chipmakers that don’t need assistance while the struggling PCB segment is overlooked.

“There needs to be a balance,” says Dan Weber, executive vice president of PCB maker TTM Technologies, in an interview with EE Times. “If you go back to the year 2000, you had 26 percent of the world’s PCBs manufactured in the US. Today there’s only 4 percent. Back in 2000, there were 2,000 manufacturers as well. And today you’re looking at 150. So, there’s no balance.”

In the event of a pandemic or a war like the one underway in Ukraine, the US will need a supply chain that’s robust enough to make vehicles, pharmaceuticals, 5G equipment and other essential products, according to Travis Kelly, CEO of Isola Group, which supplies laminates and other materials used to make PCBs. Kelly is also chairman of the Printed Circuit Board Association of America.

“If we can’t supply night-vision goggles for Navy SEALs or printed circuit boards for the F-35 Joint Strike Fighter, that’s pretty critical,” Kelly told EE Times. “It gets more tangible when you have American people going into hospitals and hearing, ‘Hey, we can’t get you on a ventilator.’ We need to make sure that as a nation, we can supply what’s critical to our population.”

Weber notes Section 851 of the National Defense Authorization Act that requires PCBs for critical applications such as datacom, telecom, medical and defense equipment to come from suppliers that are not US adversaries.

The global PCB industry, worth about $60 billion in revenue last year, includes an ecosystem of suppliers, parts of which have nearly disappeared from the US. The US has only one supplier of yarn that’s used to make the woven glass in PCBs, according to Kelly.

“They have to ship 90 percent, if not more, of their yarn overseas to Asia to get it woven,” according to Kelly. Denkai America is the only US supplier of copper foil used to make the circuits in PCBs.

“That, to me, is not a resilient supply chain,” Kelly says.

Rebuilding the supply chain will need more than increased material sources. The US is falling short in education of skilled workers.

“We can’t employ enough people to get the product out,” Weber says.

The executives are looking for a holistic solution from the US government.

“It’s investments in education, but it’s also investments in private industry. It’s creating a demand signal that’s sustainable,” according to Kelly.

“For defense work, you may get a large order that takes a lot of capacity out of a manufacturing facility for three months, and then you don’t see that demand signal again for another year. Maybe it’s a guided missile that they’re not producing every single month. All of this has to be looked at in order to create a sustainable industry. So it’s investments, it’s incentives.”

Some of the investment needs to be in public-private partnerships, according to Weber.

“You’re seeing it in the chip industry, and part of that is set aside for the ecosystem, but not enough in our mind.”

China’s role

China’s PCB industry, the world’s largest, will not migrate overseas, Weber says.

“It’s going to stay there. The Chinese market developed in a way that has allowed it to just stay there. They’re subsidizing the market. They’re investing heavily in electronics and particularly circuit boards.”

TTM has six production facilities in China and 18 in the US. Most of the company’s revenue comes from China.

“You can’t just leave China,” Weber says. You need to build the ecosystem broadly around the world. But particularly here in the US, if you’re thinking about national security, you need to decide that investment in the US — in addition to what’s happening in China — will help sustainability in the global market.”

In the meantime, transportation costs are soaring. It used to cost $2,500 to ship a container of PCBs from Asia to the US, according to Kelly. Now, the cost has ballooned to $25,000. Without helping to build a stable supply of PCBs in the US, the billions of dollars of government incentives for domestic chip manufacturing will accomplish little, according to the executives.

“People are going to say, ‘wait a second, you just spent $52 billion but did not correct the root cause of the problem,’” according to Kelly.

Government decision-makers, who are only starting to understand the complexities of the electronics ecosystem, have put too much emphasis on building semiconductor fabs, according to industry insiders.

The decision makers

The US Department of Commerce will be the main decision-maker on how incentives will be allocated, but the DOC lacks expertise on the electronics industry, according to an electronics industry lobbyist who requested anonymity. The US Department of Defense will also decide how a smaller portion of the $52 billion is spent.

Chipmakers like Intel, Samsung and Taiwan Semiconductor Manufacturing Co. (TSMC) want the US incentive money because they are still evaluating how high production costs will be in the US and Europe, according to the Washington lobbyist. Europe has created a separate package of incentives for local production of chips.

“These companies, just by sheer need to compete with one another, will go where those incentives are most meaningful and where the return on investment is as most significant,” he said.

Draft legislation of the incentive package for the US semiconductor industry would allocate about $2.5 billion for advanced packaging. A small part of that money is likely to go to PCB makers, according to the lobbyist.

The US Senate and the House still need to reconcile their separate versions of the incentive package, and that’s not likely to happen until May this year, he said.

“There’s some reluctance on the part of some congressional leaders to take this to a formal conference thinking that could slow it down and imperil it. On the other hand, if you don’t take it to a formal conference, it creates greater uncertainty about what gets in the package and what is taken out. That’s something that right now congressional leaders are or fighting over or discussing.”

While there’s strong bipartisan support for the incentive package, the US midterm elections this year may delay passage of the legislation until the end of 2022.

“I think that there’s a recognition that if you get past May, things start to get more difficult,” the lobbyist said. “We’re in an election year.”

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