HUDSONVILLE, Mich. (WOOD) — A little over a year after a global semiconductor chip shortage forced General Motors to temporarily idle eight plants, the supply squeeze continues beyond vehicles.

“(Semiconductor chips are) really the brains to all of our products… anywhere from a toaster, coffee pot, to unlock your doors in your car, to roll the windows up, they’re everywhere. They just have a control of all the little bits and pieces of our lives,” explained Matt Simms, CEO of Simms Electronics in Kentwood.

Simms has worked in the electronics industry for about 30 years, the last two decades in product development. During last month’s Commodity Trends Outlook event by The Right Place, he said the recent supply challenges are unprecedented.

“Never seen anything like it. I mean, we’ve had bumps in the road where there’s been certain parts that we couldn’t get, but nothing, nothing like this. The semiconductor and the chip problem, in 30 years, I’ve just never, never seen anything like it before,” he said.

Simms said the shortage has kept his business busy “trying to fix the problem” by redesigning products, but projects are taking a lot longer to complete.

“A product that would take us eight months to a year to develop can take up to almost two years now to develop just because we can’t get the parts,” he said. “It’s kept us pretty busy but unfortunately a lot of our customers are struggling because they just can’t ship product.”

NO SHORT-TERM SOLUTION

For Americans, the ongoing chip situation means two things: a slowdown in new technology and higher prices on their new gadgets and gizmos.

Semiconductor chips take a lot of energy to create because manufacturers must heat quartz enough to extract the raw silicon needed for the chips. Simms said one silicon smelting process line alone takes up enough energy to supply more than 80,000 average homes a year.

But energy prices have skyrocketed since countries began cutting off oil and natural gas imports from Russia, relying on a smaller supply elsewhere. Add to that OPEC+ announcing it will be releasing fewer barrels of crude oil and you have a recipe for higher chip prices.

Longer chip wait times also mean new product developments will be slowed. The U.S. heavily relies on overseas production for its semiconductor chips — Taiwan-based TSMC produces more than 50% of the supply, according to Simms. And although Congress approved the $54 billion CHIPS and Science Act to grow production in the U.S., it’ll a while to catch up. Simms said it takes about five years and $5 billion to $15 billion to build a semiconductor chip manufacturing facility.

“(The CHIPS Act) is going to help but it’s not going to fix everything, that’s for sure,” Simms said.

HOW WE GOT HERE

While the COVID-19 pandemic exposed weaknesses in the global supply chain, Simms said the automotive chip shortage actually dates back to 2018 when the Trump administration entered a trade war with China.

“It raised the prices, put tariffs on certain products, so people weren’t bringing in parts as fast. They were kind of riding the edge, they were just taking those parts when they needed them, so they didn’t buy enough,” Simms explained.

Then came raw material shortages, the pandemic, manufacturing plant fires, and floods and outages that forced NXP to shut down its semiconductor plant in Texas.

“It wasn’t just COVID, but obviously COVID was the main factor. It was just a big ripple effect,” Simms said.

And as products get “smarter” and global demand for electronics grows, Simms said the demand for semiconductor chips will continue to skyrocket.

WHAT WE CAN DO NOW

If you’re wondering whether the U.S. recycles old chips, Simms says forget it. We are a victim of our own tech success.

“Technology is moving so fast, they’re not capable to do some of the functions that we want them to do today, that we expect them to do today,” Simms said. “Those older parts just can’t perform like what you have in your hand with an iPhone. The level of expectation in technology is just too high.”

To ease the chip crunch, Simms thinks the U.S. needs to bring some of the manufacturing it sent overseas to Asia back home. The good news is that’s already happening: TSMC is building a manufacturing facility in Arizona that’s expected to be operational in 2024. Intel broke ground on its own fabrication plant in Arizona last year and expects it to be up and running in 2023. IBM and Micron also recently announced plans to build plants in the U.S., with support from the CHIPS and Science Act.

Simms thinks the chips market will stabilize in the first half of next year and long wait times will slowly start to ease in the second half of 2023. For the time being, he encourages companies to “get creative,” using components that are more readily available and streamlining products so they have fewer parts.

“It’s kind of tough. Right now we just don’t have good answers to how fast this is really going to turn around. So we continue to just look for parts and try to focus in on certain parts we can get and just wait it out until these bigger companies will get their plants up and running and get ahead,” he said.

Simms said while the situation has slowed down his clients, they’re still moving forward to innovate and come out with new products.

“They’ll wait it out. I think a lot of investors kind of realize what’s going on and I think they all feel it’s short term, but when I say short term it’s still a few years that we’ve got to kind of deal with this,” Simms said. “I think a lot of people, they’re going to wait it out and continue. I have not seen anything canceled, I’ll put it that way.”