Manufacturers Have Less Than Five Days’ Supply of Some Computer Chips, Commerce Department Says

Manufacturers and other buyers of computer chips had less than five days’ supply of some chips on hand late last year, leaving them vulnerable to any disruptions in deliveries, the Commerce Department reported Tuesday as it pushed Congress to endorse federal aid for chipmakers.

The report highlighted the severity of a global shortage that has hobbled manufacturing and fueled inflation for more than a year, and that defies easy solutions.

Manufacturers’ median chip inventory levels have plummeted from about 40 days’ supply in 2019 to less than five days, according to a survey of 150 companies worldwide that the Commerce Department conducted in September 2021.

“This means a disruption overseas, which might shut down a semiconductor plant for 2-3 weeks, has the potential to disable a manufacturing facility and furlough workers in the United States if that facility only has 3-5 days of inventory,” the Commerce Department concluded in a six-page summary of its findings.

Survey respondents said they didn’t see the problem going away in the next six months. Some industry executives say shortages could last into 2023.

“We aren’t even close to being out of the woods,” Commerce Secretary Gina Raimondo said Tuesday as she presented the findings.

Median demand for chips among buyers that responded to the survey was as much as 17% higher in 2021 than 2019, as consumer purchases of electronics surged and as more products required computer chips to function.

The report found that computer chips based on older technology are in particularly short supply, creating special problems for manufacturers, including automakers, that need them.

Auto manufacturers worldwide have had to idle factories and slash output as a result, causing shortages of new and used cars. The collapse in auto sales to consumers because of the chip shortage shaved more than two percentage points from U.S. gross domestic product growth in the third quarter.

Driving the crisis is a lack of chip manufacturing capacity worldwide. Chip factories are among the most expensive and time-consuming manufacturing facilities to build.

The Senate last year passed legislation that would provide $52 billion in subsidies to encourage construction of domestic chip factories, with the hope of spurring more investment. The measure has been tied up for months in the House, though House Democrats are expected to introduce their version of the legislation as soon as this week.

“This new data underscores that it’s time to stop dragging our feet on this. The House has been sitting for months on a good bill to build more semiconductors here in the U.S., and there’s urgency to act now,” Senator Mark Warner, D-Va., a vocal supporter of the legislation, said Tuesday.