President Biden signed The Chips and Science Act" into law Tuesday, in a bid to help the U.S. regain a leading position in semiconductor chip manufacturing. It's aimed at countering China's growth and making the U.S. less reliant on foreign suppliers. Daniel Newman, Founding Partner & Principal Analyst, at Futurum Research joined Cheddar News to discuss.

Opening Bell

How Onshoring Chip Production Can Help Fight Inflation

for more on this Daniel Newman, founding partner and principal analyst at future. Um Research joins us now, Daniel glad to have you on this morning. This package includes $52 billion in funding to boost semiconductor manufacturing here in the U. S. And it comes after. I mean what has been years of contending with the global chip shortage? Can you discuss how potentially game changing this act is for the chip industry and what sort of impact we're gonna be seeing in the ongoing chip shortage? Yeah this is a really big moment. It was fantastic to have the opportunity to watch. So many of the leaders from the semiconductor industry all head to Washington yesterday. Uh many of them are in my network. I saw a litany of these postings on uh from you know many of the manufacturers from intel's Pat Gelsinger to companies like marvel and uh silicon labs and these smaller semiconductor makers. All these leaders coming together and agreeing upon the fact that we needed to do something here. Uh We we weren't just facing a shortage I think over the last two years we had this moment for semiconductors where everybody became aware of how important they are in our lives but we needed a major overhaul because all of the manufacturing of leading edge semiconductors had basically left the United States. We went from around 37% in 1990 of all semiconductors manufactured here to less than 10% and almost 0% of the leading edge. This is gonna be what the bill is gonna help change. We're gonna be able to invest more in the manufacturing of leading edge which are the newest technologies often think about things like your phones, but these these go into everything. Then of course we need to build more resiliency. We saw what happened when a brief shutdown in china slowdown chips in manufacturing and assembly when substrates and the parts and pieces needed to make semiconductors couldn't be uh couldn't be uh there wasn't enough availability and then all of a sudden we couldn't get any chips. So this law is gonna be big but it's gonna take some time. And I think that's one of the things that not everybody is fully aware of and that's actually my next question because while we need this resiliency right now, the reality is this doesn't fix the problem. Right now, let's talk timeline, what's the timeline of this bill actually having a real impact on the industry? Yeah, it's gonna be a probably two years minimum. And we've seen the major project that intel is doing in Ohio, we know that there's expansion going on in Arizona there's rumors of additional capacity and going into texas and then there's some planned additional capacity in in the Austin texas area and and all these projects, it takes a few years, you have to build the fab, you have to bring the talent in, you have to set up all the equipment and the machinery, it's a major process to do this. So it's not like we signed the bill and all of a sudden we're just gonna start pumping out more chips but maybe that's maybe that's okay because as we've seen these last quarter results from some of these tech companies we're seeing maybe a little bit of that slowdown being caused by some of the Fed's moves by some of the slowing in the economy. Although this morning's inflation data looked a little bit better but that also showed signs of rolling over and that's what we needed to have happened in the short term. As we needed to see demand slow just a little bit. The demand for chips in play places like data centers and automotive. I don't see that slowing as much as some people think some of the discretionary dollars we saw pc numbers fall off pretty hard this last quarter. If you look at Intel's results that was evident in NVIDIA announced early this week that their numbers are going to slow down um in the gaming being the number one thing cited but that also had a lot to do with the crypto business and the mining business slowing so much. But all these things depend on chips this bill is going to expand capacity. What I find interesting that's related to obviously this bill and even what you mentioned a moment ago the C. P. I. Data that we got this morning you know around inflation is that I think there is a greater connection there that hasn't fully been made right. When we look at inflation, for example, the biggest issue with inflation that is, it is, it has been supply side for the better part of the last year and a half the Fed has only had the op to tackle it from the demand side, but I think this bill potentially addresses that supply side concerns with inflation, albeit not immediately, but over time it does help with that. Can you hone in on that a little bit more in terms of how bringing more chips to production could actually help fight inflation. The supply side inflation that we're actually dealing with more than anything. Yeah, absolutely much of the pricing and the impact of things like Gpus and computers, phones, uh the demand did surge from the pandemic, but we could not keep up with supply. So demand surged well above normal levels. And even though supply was able to bump up a little bit, we actually created, manufactured more chips. So even though we heard all about the supply chain shortage over the last few years, we saw a double digit percentage creases and chips, but we were hyper dependent on one part of the globe and that part of the globe had major slowdowns and if we had more resiliency expanding capacity here in the United States expanding in with nations like europe, where we saw globalfoundries reached recently announced on something and then of course we heard Mike Brown made a big announcement here having more capacity for memory for compute for all all the types of processors that are needed to go into a vehicle, is going to enable us to make more finished goods, that will make more available availability, that availability means it might bring prices down, it might bring availability up. So we had to kind of have parity on the demand and supply side and over the next few years, that's going to be the opportunity gets created. If we have more manufacturing being done out of one single part of the world, it could create more supply, that additional supply of course, will bring down some of these price concerns. It also just seems like the better way to handle the inflationary issues that we're dealing with right now, you kind of, you know, ramp up the supply side, you don't have to worry about demand destruction. It's a better way almost for all parties, especially, you know, the economy, um, since it avoids, you know, recessionary fears and what not want to also get your thoughts on engage on the reality that, you know, we've had the supply chain issue over the past few years now, years now, outside of chips, what else do you think? You know, onshore, because this is essentially on shoring, right, what else do you think on shoring can help to reduce our reliance when it comes to foreign suppliers. Yeah, we've gotta, we've gotta make my focuses on technology. But we've got this challenge that we've offshored the vast majority of manufacturing and in so many different industries and of course there's cost of labor that can be higher. This is where public private partnerships become important. The finished goods, manufacturing being done here in the United States can certainly bring pressures down. Um What we did was of course, we, we pushed for more efficiencies in our supply chain. We wanted to bring pricing down that brought pricing down to consumers, but in the process of that, we eliminate a lot of jobs. We eliminated portions of the middle class um doing more on shoring could certainly create some relief and supply chain. It may or may not immediately impact pricing in some of these industries because it cost more to manufacture stuff here. But we saw during the pandemic, we can't be completely dependent on one part of the world. Certainly, that was a major lesson that that hopefully we've gotten, you know out of the pandemic, you mentioned again earlier this bill, the likelihood of it actually going into effect and having an impact is, is probably with the timeline of at least two years that's typical for kind of government activity and government trying to solve a problem, but we know the private sector typically moves a lot faster. So I'm curious what kind of on shoring are we seeing in the private sector. Do you have any insight there? Well, I mean, I think you're hearing announcement after announcement of additional manufacturing capacity being created here in the United States, That's why I mentioned, you know, just this week, the micron announcement, we know what intel is planning to do, We know T. S. M. Is planning, so all these are semiconductor manufacturers are planning to make more chips here more on the leading edge, which is what the bill focuses on, but more on some of the older process technologies as well, have been part of what's been going on here. You know, we all saw what happened to the automotive industry. That was one of the biggest and most obvious. Uh the economics have to make sense though, and that's been the biggest problem for many of these manufacturers balancing the costs of adding capacity here and adding manufacturing here with wanting to continue to be able to grow and deliver to customers with the pricing that they've been, you know, becoming accustomed to when we've used offshoring to lower so many costs along the way. Aside from, you know, chipmakers directly, I'm curious what other industries do you think are set to reap the most benefits from this bill? I think top of mind for me, I think, you know, um, makers, I think, you know, cell phone makers, the likes of that computer maker, you know, computer chip makers, what else? Well, all the finished goods that that's a great point. Every every finished good with a chip is feeding a different industry. You've got appliances, you've got automotive, you've got consumer electronics and things like televisions and of course you've got, um, you know, your HVAC systems, everything that depends on chips could certainly benefit from having more availability. Those older processes are very important. Most of what slowed us down wasn't actually these leading edge processes. That stuff is more about national security and technology leadership. Um, the automotive industry was a great example, but being able to get more phones, get more laptops, we saw a big constraint there of course the demands come down and that's gonna help a lot. But this bill is focused on, on, on those industries that use a lot of semiconductors, cloud computing and servers for enterprises, uh, security hardware that is required to secure our, you know, our enterprises, our government and municipal systems. Those are all going to be beneficiaries of having an act that's not only focused on manufacturing more though. And we haven't really talked about that here, but also focusing on the R and D. The technology leadership and making sure that the United States stays, as you mentioned earlier in this segment, stays at the front where we've seen china invest endlessly to try to be the in the world and semiconductors and semiconductor manufacturing critical and ironic in this industry, right, because chips were created here, We kind of invented them and then we off shored a lot of them and now we're coming back to on shoring them and hopefully staying at the forefront of this space. Daniel really appreciate your time and your anti Daniel Newman, founding partner and principal analyst at research.