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Everyone loves localization of semiconductors, Applied Materials and Intel act

China 2799 Cons. Discr. - Autos 1061 European Union 734 India 448 Info Tech - Tech Hardware 697 Malaysia 113 South Korea 534 U.S. 5005

A summit of CEOs from the semiconductor, automotive and other industries, held at the behest of the White House, focused on the need for transparency of supply chains in the short-term and investment in U.S. manufacturing in the long term. Both sectors have seen supply chain disruptions in the past few months, with the automotive industry particularly affected and needing to cut production and decontent vehicles as discussed in Panjiva’s research of April 6. 

Adjacent to the autos industry, the Truck and Engine Manufacturers Association has also stated that “semiconductor supply constraints risk manufacturers’ ability to produce sufficient aftermarket repair parts to keep existing trucks on the road” according to FreightWaves.

In the short term, the CEO of Intel, Pat Gelsinger, has stated that shortages “can be alleviated, not requiring a three- or four-year factory build, but maybe six months of new products being certified on some of our existing processes“, Reuters reports. 

The most tangible elements of the Biden administration’s support for onshoring of semiconductor manufacturing are the ongoing review of critical supply chains, due to report by early June, and the potential for $50 billion of funding through the proposed infrastructure bill. Yet, the U.S. is not unique in trying to attract new investments in semiconductor manufacturing. China’s 14th Five Year Plan is specifically designed to ensure “science and technology self reliance” with more details on plans through 2035 to emerge during 2021.

The Indian government has reportedly allocated $1 billion of payments for companies setting up semiconductor fabrication facilities in the country as part of the wider “Make in India” program according to Reuters. That move may be linked to a steady expansion in Indian imports of semiconductors. 

Panjiva’s data shows India’s total imports of semiconductors climbed by 21.1% year over year in the three months to January 31. That was led by a 60.5% surge in shipments linked to Jabil while shipments associated with others have declined including a 29.9% drop in imports associated with Flex and a 3.6% dip in shipments linked to Samsung Electronics. 

Chip imports picking up once more

Chart segments Indian imports of semiconductors on a three-month total basis. Source: Panjiva

The European Union, which is seeking to improve its strategic autonomy, has outlined plans to double its share of world semiconductor manufacturing to 20% in 2030 by 10% in 2020. Panjiva’s data, augmented with official data for Taiwan, shows that EU countries represented just 6.6% of global exports in 2019 just behind the United States’ 6.9% share. Both were well behind market leaders South Korea and Taiwan which held shares of 17.9% and 14.4% respectively.

South Korea, Taiwan lead global semiconductor exports

Chart segments exports of semiconductors by origin. Source: Panjiva

Part of the Biden administration’s concerns in the face of such industrial strategies is the risk of facing a strategic competitor that has built a monopoly position in an important commodity. 

Panjiva’s data provides insights into which countries the U.S. is reliant on for goods. These single sources also may represent areas where U.S. companies may also be reliant on specific geographies, exposing them to geographic risk. 

In aggregate there are 498 products, or 9.3% of all products by number at the HS-6 level, where one country accounts for over 90% of U.S. imports. At the 75% threshold that increases to 1,054 products or 20.0% of all products.

Canada represents the largest single source with 187 product categories, based on HS-6 tariff codes, where Canadian imports are more than 90% of the U.S. total. This increased from 2019, where only 178 product categories were represented. These are on the gamut of products, but raw materials and metals are highly represented. 

There was also an increase in the number of products Mexico also saw an increase in products from 26 to 31 – these increases may have been partially related to the USMCA trade deal. 

China also rates highly on this scale, but saw the number of categories it provided 90% of imports for fall to 93 from 96. That may represent companies looking for alternative sources as disruptions from the trade war and COVID pandemic had brought supply diversity to the forefront. 

Importantly it is also mostly focused on consumer goods such as laptop computers and televisions. There are high levels of concentration in upstream commodities, notably rare earths where China accounted for 57.3% of raw and processed materials in 2020. None of the major semiconductor groups are currently dominated by China.

Concentration risk focused on USMCA, China

Chart shows number of products (HS-6) where country represents 90% of U.S. imports. Source: Panjiva

Returning to the short-term picture, Panjiva’s data shows that U.S. imports of semiconductors have returned to growth in February with growth of 4.9% year over year after a contraction of 3.6% in January and a similar decline in Q4’20. The increase has been largely down to a 12.8% surge in shipments from South Korea as well as a 7.6% increase in shipments from Malaysia. An 80.8% jump in imports from the EU and U.K. follows a sharp downturn in 2020 and has returned to levels seen in 2017.

The chips are up, at last

Chart segments U.S. imports of semiconductors by origin. Source: Panjiva

There are signs that the U.S.-based semiconductor manufacturers are starting to scale up production. Panjiva’s data shows that U.S. imports of semiconductor equipment fell by 17.9% year over year in the three months to Feb. 28. However seaborne imports in March have increased by 59.0% year over year, largely driven by a 55.8% increase in shipments linked to Applied Materials. Other importers have yet to achieve such a turnaround including Intel with shipments which fell by 8.3% year over year.

Applied Materials leads upturn in equipment imports

Chart segments U.S. seaborne imports of semiconductor manufacturing machinery and supplies by consignee. Source: Panjiva

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