US electronics reshoring plan risks missing the boat

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Revitalizing the US semiconductor industry requires balanced investments across the electronics ecosystem, including assembly and test and printed circuit boards (PCBs), according to industry leaders.

As US lawmakers prepare to approve a $52 billion package of stimulus to prop up the domestic semiconductor industry, there are concerns that the bulk of the financial support will go to very profitable chipmakers that don’t need support , while missing the chipped PCB segment.

“There has to be a balance,” says Dan Weber, executive vice president of circuit board manufacturer TTM Technologies, in an interview with EE Times. “If you go back to 2000, 26 percent of the world’s printed circuit boards were made in the United States. Today it is only 4 percent. In the year 2000 there were still 2,000 manufacturers. And today you see 150. So there is no balance.”

In the event of a pandemic or war like the one in Ukraine, the US needs a supply chain robust enough to produce vehicles, pharmaceuticals, 5G equipment and other essential supplies, laminates and other materials, according to Travis Kelly, CEO of Isola Group , which are used to manufacture printed circuit boards. Kelly is also Chairman of the Printed Circuit Board Association of America.

“If we can’t supply night vision goggles for Navy SEALs or circuit boards for the F-35 Joint Strike Fighter, that’s pretty critical,” Kelly told EE Times. “It becomes more tangible when Americans go to hospitals and hear, ‘Hey, we can’t put you on a ventilator.’ We must ensure that as a nation we can deliver what is critical to our people.”

Weber points to Section 851 of the National Defense Authorization Act, which requires that circuit boards for critical applications such as datacom, telecommunications, medical and defense equipment must come from non-US suppliers.

The global printed circuit board industry, which was worth about $60 billion last year, includes an ecosystem of suppliers from which parts from the US have all but disappeared. The US has only one yarn supplier, Kelly says, which is used to make glass fabric in circuit boards.

“They have to ship 90 percent, if not more, of their yarn to Asia to have it spun,” says Kelly. Denkai America is the only US supplier of copper foil, which is used to create circuits in printed circuit boards.

“That’s not a resilient supply chain for me,” says Kelly.

Rebuilding the supply chain requires more than just more sources of materials. The US lags behind in the training of skilled workers.

“We can’t hire enough people to bring the product to market,” says Weber.

Executives are demanding a holistic solution from the US government.

“There are investments in education, but also investments in the private sector. It creates a sustained demand signal,” says Kelly.

“For defense work, you might get a big 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 they don’t produce every month. All of this must be taken into account in order to create a sustainable industry. So it’s investments, it’s incentives.”

According to Weber, part of the investment must go into public-private partnerships.

“You see it in the chip industry, and some of it is set aside for the ecosystem, but not enough in our heads.”

China’s role

China’s printed circuit board industry, the largest in the world, will not migrate overseas, says Weber.

“It will stay there. The Chinese market developed in such a way that it could just stay there. They subsidize the market. They invest heavily in electronics and especially circuit boards.”

TTM has six manufacturing facilities in China and 18 in the United States. Most of the company’s sales come from China.

“You can’t just leave China,” says Weber. You need to build the ecosystem broadly around the world. But especially here in the US, when you think about national security, you have to decide that investing in the US – on top of what’s happening in China – will contribute to sustainability in the global market.”

At the same time, transport costs are increasing. According to Kelly, it used to cost $2,500 to ship a container of circuit boards from Asia to the United States. Now the cost has increased to $25,000. Without helping to build a stable supply of printed circuit boards in the US, the multi-billion dollar government stimulus for domestic chip manufacturing will do little, executives say.

“People will say, ‘Wait a minute, you just spent $52 billion but you didn’t fix the root cause of the problem,'” Kelly said.

Government decision makers, just beginning to understand the complexities of the electronics ecosystem, have placed too much emphasis on building semiconductor fabs, according to industry insiders.

The decision makers

The US Department of Commerce will be the primary decision-maker over how incentives will be allocated, but the DOC lacks expertise in the electronics industry, according to an electronics industry lobbyist who asked not to be identified. The US Department of Defense will also decide how a smaller portion of the $52 billion will be spent.

According to the Washington lobbyist, chip manufacturers such as Intel, Samsung and Taiwan Semiconductor Manufacturing Co. (TSMC) want the US subsidies because they are still evaluating how high the production costs will be in the US and Europe. Europe has created a separate package of incentives for the local production of chips.

“These companies will go where those incentives make the most sense and where the return on investment is most significant, out of sheer need to compete,” he said.

The proposed US semiconductor industry stimulus package would allocate about $2.5 billion for advanced packaging. A small portion of that money will likely go to circuit board manufacturers, according to the lobbyist.

The US Senate and House of Representatives have yet to reconcile their separate versions of the stimulus package, and that likely won’t happen until May this year, he said.

“Some senior members of Congress are reluctant to take this to a formal conference as they could slow it down and jeopardize it. On the other hand, if you don’t take it to a formal conference, there’s more uncertainty about what goes in and what goes out of the package. This is something that congressional leaders are currently arguing or debating.”

Although the stimulus package has strong bipartisan support, this year’s US midterm elections could delay passage of the law until late 2022.

“I think there’s a realization that going beyond May things get harder,” the lobbyist said. “We are in an election year.”

About Christine Geisler

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