In 2020 the pandemic hit and, like other businesses, semiconductor factories were hit by shutdowns and labor shortages. This caused a delay in shipments to their customers, primarily automobile and phone companies, who all worked on the principle to purchase only what is needed today in order to reduce capital investments for inventory.
We saw General Motors had to temporarily close down some assembly plants and Apple Co. could not ship its smartphones. On top of it all, purchasing managers trying to "play it safe" doubled their orders, causing additional shortages, at least in the near future.
This was bad for the economy and, as always, misreading the cause (believing there were not enough chip factories) U.S. Commerce Secretary Gina Raimondo called the semiconductor shortage a "national security crisis," a catchphrase used often to entice Congress to spend money.
As a result, Congress sprang into action and authorized $52 billion for new semiconductor factories and related research.
They even enticed the Taiwan company TSMC to invest $12 billion for a chip factory in Arizona. Spurred by the government money, U.S. companies followed suit.
Here is Intel Co. which will spend $20 billion, and Micron Technology will invest up to $100 billion in a massive production facility in upstate New York. It is very questionable that this industry will find sufficiently trained people to operate such plants let alone the manpower and metals to build that many new facilities.
On top of it, there is only one company (in Holland) which can provide the special blue-light laser etching equipment needed to make chips with nano-meter sized spaces between components, thus enabling the fastest and least energy consuming chips.
What will be the result of all this panic stricken expansionism? Certainly an oversupply of semiconductors two years from now.
The good thing is that it will lower the price of chips. The bad thing is that it will impale the profit margins of semiconductor companies further burdened by interest expenses, due to the credit burden of construction.
We see, anticipating the future, that the market is already adjusting stock prices for such companies as Intel, from $ 56 down to $29, or Advanced Micro Devices from $155 to $75.
The semiconductor industry trade group reported that the U.S. accounts for only 12% of the world's semiconductor capacity.
This is highly misleading; more capacity is really not needed since the U.S. imports each month about $ 6.5 billion worth of chips primarily from Asia, not because of U.S. production capacity but because the foreign chips are cheaper, due to lower labor costs.
Dr. Hans Baumann, a former Corporate Vice President and founder of his company, is a well known inventor, economist, and author having published books on scientific, economic, and historical subjects. Read Dr. Hans Baumann's Reports — More Here.
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