Tag: semiconductors

OM in the News: China’s Rare-Earth Escalation Threatens the Global Economy

China’s newest restrictions on rare-earth materials would mark a nearly unprecedented export control that stands to disrupt the global economy and threaten the supply chain for semiconductors, writes The Wall Street Journal (Oct. 10, 2025). Chips are the lifeblood of the economy, powering phones, computers and data centers needed to train artificial-intelligence models. The rule also would affect cars, solar panels and the equipment for making chips and other products, limiting the ability of other countries to support their own industries. China produces roughly 90% of the world’s rare-earth materials.

A rare-earths production site in China

Global companies that sell goods with certain rare-earth materials sourced from China accounting for 0.1% or more of the product’s value would need permission from Beijing, under the new rule. Tech companies will probably find it extremely difficult to show that their chips, the equipment needed to make them and other components fall below the 0.1% threshold.

“These rare-earth minerals and the ability to refine them are just the basis of modern civilization,” said  one industry expert. “It’s an economic equivalent of nuclear war—an intent to destroy the American AI industry,” added a second. The U.S. and other countries are pouring hundreds of billions of dollars into data centers, making AI a key economic engine. China gaining control of the technology would potentially let it catch up in the AI race and upend the world order.

The semiconductor supply chain is vulnerable to actions like China’s because large chip plants require big capital investments from an ecosystem of companies providing specialized equipment, intricate technical processes and final packaging. Companies in the U.S., Taiwan, Japan and the Netherlands all collaborate with one another.

The Trump and Biden administrations have offered subsidies and other policies to aid the process, but domestic capacity generally remains in its infancy. Some analysts said the new rules will fuel new urgency for big tech companies to invest more in these areas.

Classroom discussion questions:

  1. Why are rare earths so important?
  2. Why doesn’t the U.S. produce and process the minerals needed?

OM in the News: Chip Shortages are Still Hurting Auto Makers

Auto makers globally have been grappling with a shortage of semiconductors since late 2020, when a rebound in auto sales took companies by surprise after they had previously moved to reduce chip orders. Auto makers competed for limited supply against electronics companies like Apple and Dell that saw demand bolstered by stay-at-home consumers.

That demand has now eased, and smartphone sales are falling. The car market, meanwhile, has remained relatively strong and Toyota, the world’s biggest auto maker, says it still can’t get its hands on enough chips. Toyota is trimming this year’s production by 500,000 vehicles because of the shortage.

The situation reflects prolonged underinvestment in certain older types of chips that are particularly needed by car makers, writes The Wall Street Journal (Nov. 2, 2022). While slowing demand for smartphones and personal computers has eased shortages of memory and other chips and sparked fears of a glut, pockets of constrained supply remain. Analysts and chip executives say the supply-demand mismatch could drag on for years, that the auto industry isn’t yet near the end of its problems, and some might even worsen.

The problems particularly involve analog chips, which use older technology processing information with gradations, unlike digital chips that differentiate only between on and off signals. Other auto makers beside Toyota have also said they are grappling with a tight supply of legacy chips. Cars use hundreds of analog semiconductors for purposes such as moderating how much power is drawn from a battery, yet new investment has largely been funneled into developing more advanced chips.

Due to the nature of vehicles today, even if it’s just one type of semiconductor that’s in short supply, a car can’t be built. Toyota said it would temporarily give buyers of some models in Japan one smart key instead of two to help ration supplies.

Classroom discussion questions:

  1. What options do auto industry operations managers have when faced with a chip shortage?
  2. Why is there still a semiconductor shortage?

OM in the News: The Battle for Chip Manufacturers

A Taiwan-based company plans to build a $5 billion factory in Texas to make silicon wafers used in semiconductors, but the deal hinges on financial incentives bogged down in Congress.

GlobalWafers said its planned factory in would be the first U.S. silicon wafer-facility in more than two decades and create as many as 1,500 jobs, as well as helping fuel the expansion of the U.S. chip-making industry. But the firm said the plant will require financial incentives included in the Chips Act, which is aimed at increasing chip production in the U.S. “If the Chips Act is not passed, we have to pivot to South Korea, as costs there would be substantially less,” said the CEO. (The Chips Act would provide $52 billion to build up the U.S. semiconductor industry).

South Korea, Japan and members of the E.U. are all offering hefty subsidies to ensure stable supplies of chips that power consumer, industrial and military products amid a global shortage, reports The Wall Street Journal (June 27, 2022). 

The GlobalWafers plant in Texas would contribute to a U.S. effort to boost domestic production of advanced semiconductors and reduce reliance on imports by supplying materials to companies such as Intel and Taiwan Semiconductor (TMSC). These leading semiconductor manufacturers have pledged significant investments in new U.S. factories to make chips to meet strong demand, and to relieve shortages that have disrupted production of a range of products, including automobiles.

Silicon wafers made by TSMC, which is among the leading semiconductor manufacturers that have pledged significant investments in new U.S. factories

The existing U.S. manufacturing capacity of silicon wafers will be able to supply only 20% of the estimated domestic demand by 2025, and the wafers won’t be suitable for some of the advanced chips planned to be manufactured at the new production facilities currently being built by Intel, TSMC and Samsung. Most advanced semiconductors, as well as silicon wafers, are manufactured in Northeast Asia. In 2021, 92% of the world supply of advanced semiconductors came from one company, TSMC.

The U.S. share of the global semiconductor market has fallen to 10%-12% from 40% previously. “In search of cheap labor, we’ve watched a lot of our manufacturing leave our shores,” said the U.S. Commerce Secretary. “As a result, the lack of chip production in the United States is hurting our economy and also our national security.”

Classroom discussion questions:

  1. Why is this an important OM issue?
  2. What might happen if the Chips Act fails to pass Congress?

OM in the News: Ford and GM Move into Chip Making with Vertical Integration

Detroit’s two biggest auto makers, writes The Wall Street Journal (Nov. 19, 2021)—Ford and GM—are looking to get into the semiconductor business, after a year of computer-chip shortages that snarled their global factory output. Ford just announced a strategic agreement with U.S.-based semiconductor manufacturer Global Foundries to develop chips, a pact that could lead to joint U.S. production. GM said it was forging ties with Qualcomm and NXP Semiconductors, to codevelop and manufacture computer chips.

The moves are the latest examples of how pandemic-related disruptions are prompting companies to exert greater control over their supply chains by moving production closer to home, or in some cases in-house. Multinational companies got an early shock in the health crisis when border closings, local restrictions and lockdowns caused chaos. Some have decided on permanent solutions.

Businesses have also continued to face shipping delays. In the auto industry, car companies are starting to unwind decisions made over decades to outsource key components to suppliers. Recent moves by auto makers to vertically integrate (a topic in Chapter 11) by getting into battery production and semiconductors are a modern day nod to when they owned huge parts divisions and operated steel mills.

The semiconductor shortage has scuttled output of millions of planned vehicles industrywide this year. Ford’s move would go a step further by eventually bringing some chip development inhouse. It said designing its own chips could improve some vehicle features—such as automated driving capabilities or battery systems for electric vehicles— and potentially help Ford sidestep future shortages.

GM and Ford exploring the chip business shows how car companies are selectively bringing key technologies in house to develop expertise in areas they see as critical to competitiveness. Better, faster chips, for example, will be needed for everything from multimedia touch screens to remote software updates to fix defects.

The auto industry’s pivot to electric vehicles is also accelerating a shift to vertical integration, with many car companies worried they won’t be able to secure enough battery supplies and raw materials to meet their growth targets. Ford, VW, GM and other major auto makers are teaming with battery companies to build new factories that they say will give them a technical advantage and more stable future supplies.

Classroom discussion questions:

  1. What are the advantages and disadvantages of bringing chip production inhouse?
  2. Explain what is meant by “vertical integration.”

OM in the News: The Chip Famine Persists

The chip famine is starving the global auto industry and putting car buyers on a strict diet, writes The Wall Street Journal (Sept. 23, 2021). So far this year, 7 million cars that were supposed to be produced haven’t been. Auto companies are shutting down production lines for weeks at a time and furloughing employees as a result of the chip shortage. Toyota has slashed its production 40% this month. But the chip famine won’t be solved quickly, as supply won’t catch up with demand until late 2022 and into 2023.

The inventory of new cars in the U.S. is only about 30% of pre-pandemic levels, and buyers snap up used cars as soon as they find them. Rental companies reduced their inventories during the pandemic and now don’t have enough cars to meet demand.

Cars need more than 1,000 computer chips for functions like raising windows, adjusting AC, and cruise control. They don’t need advanced chips like those in smartphones. Instead, they use mass-produced microcontrollers. Over the past decade, fewer companies have produced these chips. But an adequate supply of chips is going to become even more important for the auto industry’s future. Electric and self-driving vehicles require both leading-edge and traditional chip technology, and an EV powertrain has 3 times as many semiconductors as a traditional engine. The average vehicle currently contains about $450 worth of semiconductors–a number expected  to double by 2030.

The auto industry’s reliance on a shrinking supply base to produce semiconductors was risky. The pandemic has turned that risk into a serious shortage. Beginning in 2020, auto makers had to compete for chips against electronics manufacturers producing goods for locked-down consumers and 5G mobile networks.

Covid outbreaks also shut down factories, breaking links in the supply chain. The Vietnamese plants that fabricate chips for Asian manufacturers stopped working in August. A drought in Taiwan disrupted water-intensive chip production; a fire at a Japanese semiconductor factory restricted supply; and a winter storm hit semiconductor plants in Texas. Some auto companies are paying premiums to secure chips.

The obvious answer to the chip famine is to increase manufacturing capacity. But that is expensive and takes time. Semiconductor companies may not want to invest in traditional chip technology when future demand likely will come from higher-value chips for applications like AI. While the chip industry has announced nearly $400 billion in new investment as the chip famine unfolded, only a small portion of this investment will be used to address the chip shortage afflicting auto makers.

Classroom discussion questions:

  1. Why can’t chip makers increase capacity quickly to handle the high demand?
  2. Which analytic model in Supp. 11 of your Heizer/Render/Munson text can be used to address supply chain difficulties?

OM in the News: The Chip Crisis Finally Hits Toyota

Toyota’s Motomachi plant is one of the factories with suspended production.

The global semiconductor shortage has finally started to bite at Toyota, highlighting how a resurgence in Covid-19 infections from the Delta variant is now stifling chip manufacturing in Southeast Asia, worsening a parts crisis for car companies.

Japan’s largest car maker said Thursday it was cutting production in the country by 40% because of a shortage of semiconductors, highlighting how the scarcity is hitting even the best-prepared companies. In North America, Toyota is reducing factory output by between 40% and 60%. In total the cost will be 140,000-170,000 fewer vehicles manufactured. Toyota had recently touted its ability to insulate itself from the global shortages that burned its peers thanks to stockpiles of components and close relationships with suppliers.

Ford and GM also are scheduling more downtime at North American factories, in part because virus-related restrictions overseas are further adding to chip-supply constraints. Ford this year has lost output of more than 160,000 F-150 trucks, its top-selling vehicle and main profit driver. GM expects to make 100,000 fewer vehicles in North America in the second half of this year.

For much of this year, the chip-shortage challenges in the auto industry have largely stemmed from car companies miscalculating how quickly auto sales would bounce back and not ordering enough semiconductors, writes The Wall Street Journal (Aug. 20, 2021). Now, the auto industry is confronting a new wrinkle with a resurgence in Covid-19 infections in Southeast Asia, particularly in Malaysia, denting output at computer-chip factories that are already straining to fill orders. This region is where semiconductors are assembled into small components that control everything from engines to headlights.

The shortage has had a silver lining for Toyota and other car companies because the dearth of cars on dealer lots has pushed up prices.

Classroom discussion questions:

  1. What techniques shown in Supp. 7 of your Heizer/Render/Munson text are available for matching capacity to demand?
  2. What is the cause of the global chip shortage, and what is the solution?