When The Chips Are Down: The Care and Feeding of Canada’s Semiconductor Crisis
The world is currently in the throes of a global semiconductor shortage. And Canada as a player in the innovation marketplace, falls woefully behind a long line of comparative economies. Keeping things close to home could be the direction of the future, say pundits.
By Carter Hammett
Whether it’s your hearing aid, smart phone or dishwasher, those little guys are everywhere and the world can’t get enough of them.
We’re talking semiconductors—also known as chips –of course, and the world is experiencing a serious crisis in their absence.
Indeed, in addition to impacting everything from border crossings, influencing video conferencing and remote employment while sending masks and sanitizer sales through the roof, COVID19 has had an unprecedented effect on the global supply chains we rely on so heavily for chips.
For the uninitiated, semiconductors are tiny ubiquitous chips that fortify virtually every electronic product on the market, including ventilators, video games and just about any other electronic gadget you can think of. The chips are powered by miniscule transistors that are thousands of times smaller than a strand of hair. Globally-speaking, industry is worth a resounding $7 trillion U.S.
Our dependency on them is so great, it’s created a kind of technological welfare. During the initial stages of the pandemic, ventilators were in short supply, so much so that we couldn’t accelerate imports of them fast enough, let alone produce any here at home.
And if you think that’s all that’s been affected think again. This year has seen the autotech industry shaken like it’s never been shaken before. The average new car contains over 1000 chips. With a jump in demand for home electronics, the lack of available chips has hindered production at several big auto players including Honda, Chrysler and GM. The outcome has included massive layoffs and substantial dips in revenue.
Auto parts suppliers state that the chip shortage is even worse than initially anticipated. Magna International Inc. released a statement outlining a projected 1.6 million less vehicles this year. And that figure could be much higher than expected.
Automakers have been forced to redirect their energies from cars to more profitable SUVs and trucks, while some manufacturers have reduced features like HD radio, smart mirrors and other features.
Ford has been hit hard, no thanks to a fire at one of its major chip suppliers. Other casualties include the closure of an assembly plant in Malaysia which has recently been sent reeling due to recent COVID outbreaks. Meanwhile, GM has suspended some truck production, including shutting down a CAMI plant in Ontario and giving over a 1000 employees their layoff notices.
Complicating things further, in a bid to cut costs, most microelectronics and semiconductor production has moved offshore within the last decade. In 1990 The United States manufactured 37% of all chips. By last year that figure had shrunk to a measly 12% with the lion’s share of production distributed between China, Taiwan and South Korea. And with border closures, longer lead times, and sudden plant closures supply chains have been left wanting.
Another variable that needs to be taken into account is that chip manufacturing simply isn’t designed to adapt to massive shifts in demand. A single chip can take up to six months to produce, meaning supply cannot keep up with the demand.
No easy solutions
All of these elements have overlapped and forced business leaders to consider the question of how to build more durable supply chains. Some of these include having a diverse number of suppliers in different parts of the world, so if one part suffers, other suppliers can pick up the slack.
Another solution proposed could include integrating business planning to include a multi-pronged approach to changes in supply and demand. This includes an agile response with business partners in response to sudden shifts in market demand.
Some pundits have dared whisper about another idea so crazy it just might work: keep it close to home.
Homegrown
It’s almost unfathomable to believe that your cellphone has more computing power than the computers that were used by NASA to land a person on the moon back in 1969. According to the US-based Semiconductor Industry Association, the United States is the world leader with 47% global market share and sales last year of $208 billion. The American semiconductor industry employs more than 250,000 people and supports about 1.6 million additional jobs. Semiconductors are a Top 5 U.S. export and 80% of all sales are to overseas buyers.
In comparison, Canada’s role in the semiconductor marketplace is only the tiniest of slices of the global pie. Canada’s revenue from semiconductor and other electronic component manufacturing is estimated to reach US$3.8 billion dollars by 2024, according to Statistica.com. Compare this to the world’s largest chipmaker, Taiwan Semiconductor Manufacturing Co., which generated US$47.78 billion in 2020.
Co-existing alongside a global pandemic has forced industry leaders to step back and take stock of the national potential that Canada has, if not to be a global leader, than certainly, a more independent player within the semiconductor sector.
In May of this year, “a select group of globally recognized Canadian founders, business leaders, chip manufacturers, and investors announced Canada’s Semiconductor Council. With a mandate to build and lead Canada’s national semiconductor strategy and action plan, the coalition will work towards advancing Canadian competitiveness, strengthening trade partnerships, bolstering supply chain resilience, and propelling Canada to the forefront of the US$7 trillion global semiconductor industry.”
“The coalition recognizes the importance of positioning Canada as a global leader from research to design to manufacturing in the $7 trillion global industry that is critical to our national technological security, supply chain resiliency, a green economic recovery and global competitiveness. Chips and semiconductor products are embedded in everything from EVs to medical devices, consumer electronics, and precision agriculture,” says the Council’s chair, Sarah Prevette via email.
Prevette, who is also the founder of Future Design School, was named by Inc Magazine as one of the top entrepreneurs in North America. She’s also an active technology investor and renowned thought leader in human-centred design. Prevette founded Future Design School which works with academic institutions around the world to cultivate critical competencies that align with growing industries.
“As Chair of council, my role is to bring awareness of our message and ensure that we meet our mandate to lead and build Canada’s national semiconductor strategy and action plan.”
Part of that strategy includes a mixture of corporate and government investment to keep things not only embedded in the Canadian landscape but also to be able to envision a future that includes a place at the table for our own subject matter experts.
“We’re competing against major chip-producing countries like South Korea and Taiwan. In order for Canada to become a more competitive global player, we need to forge a shared vision among industry leaders, chip manufacturers, policymakers, and investors. In order for our homegrown hardware startups to grow and scale here in Canada — and to not exit too early at low valuations — they need access to very expensive technologies, and they need to see a future for themselves in Canada. Right now, we’re seeing too many of our best and brightest minds in the semiconductor sector leaving for better opportunities abroad.”
Which hampers Canada’s overall strategy when it comes to innovation. In June of this year, The Conference Board of Canada released its Innovation Report Card 2021.
“Innovation is the process through which economic or social value is extracted from knowledge—by creating, diffusing, and transforming ideas—to produce new or improved products, services, and processes,” states the report. In this regard Canada scores a solid “C”—up two notches from a year ago–compared to 16 peer countries. Canada took the 13th spot, just behind Japan. The countries with the top scores were Switzerland, the United States and Sweden. Somewhat surprisingly, countries ranking lower than Canada included France, Australia and The United Kingdom.
Provincially, Ontario received the highest grade with a solid “C.” New Brunswick and P.E.I. scored dead last with “D” scores. The Atlantic province with highest score was Nova Scotia in 19th place.
“Canada continues to exhibit relatively weak innovation performance. Volatile resource prices, changing demographics, and increasing economic protectionism are exposing Canada’s business innovation weakness and generating pressure to become more innovative in the coming years,” states the report.
“In Canada, we’ve long been known for our abundance of natural resources, and while exporting raw materials will probably always play a role in our economy, we can no longer rely on it if we hope to build an advanced, modern economy. Innovation starts with thinking bigger about what our role can be in the global economy. We need to transition to a producer of advanced technologies; not just an importer and a consumer of them. We have some of the most highly educated graduates and most highly skilled professionals in the world, but if we don’t provide them with opportunities to build scalable companies and transformative careers, we risk losing them to more innovative countries,” says Prevette.
So one of the more obvious solutions to the innovation problem is realizing that Canada has the potential to bring its tired, dated overreliance on traditional forms of economic generativity solidly into the 21century. Old school reliance on imports have sometimes proven to be unreliable—witness the recent Suez Canal debacle—when we can start looking towards the future and the capacity to produce our own semiconductors and the rewards that accompany that.
Wake up call
When Canada’s Semiconductor Council announced its launch in May of this year, a press release said, in part: “As the global chip shortage continues to threaten major industries in Canada and around the world, there’s an urgent need for Canada to establish itself as a developer and manufacturer of semiconductor products — both for domestic use and global export. A rejuvenated semiconductor sector will also help Canada to build small business capacity, drive economic recovery, reach our decarbonization goals, and strengthen technological security.”
The question becomes how to accomplish this exactly? There appears to be little or no consensus as to what approach to take in a post-pandemic economy.
Some pundits believe that Canada, with the proper buy-in and investment, has the power to become a key player in the innovation economy, chiefly by prioritizing R & D as well as manufacturing chips. Whether tapping into our top talent of tomorrow and planning for the next cycle of thought leaders in STEM, or pulling talent in from around the world as we welcome the next wave of economic New Canadians, a thriving semiconductor sector means substantial job creation.
“For every semiconductor job that is created; nearly five highly-skilled tech jobs are created. Semiconductors need to be viewed as a powerful tool to help us not only forge a vital new industry, but to create meaningful careers and to power our economic recovery. We have a rare opportunity to create new exciting career paths and opportunities for our Canadian youth; where Canadians can envision themselves as hardware design engineers or advanced manufacturing experts. It is also a fantastic opportunity to attract global talent, including students, world-class researchers and global founders who choose Canada to start, build and scale global businesses in semiconductor design, innovation and manufacturing,” says Prevette.
Not so fast say some naysayers. Canada has little-to-no chance of going up against the world’s heavy hitters competitively. In that regard Canada would do well to consider carving out a corner for itself by becoming a key player in the development and manufacturing of specialty products.
One example of this is photonics, which use light to perform actions exercised by electronics, including mechanical sensors and quantum devices. Perhaps instead of focusing on a vehicle’s main computer within the car, consider applications which can be used across multiple industries instead.
Whatever the outcome, there can be little doubt that Canada’s need to ramp up its manufacturing of semiconductors in some form is a priority that can no longer be ignored. The feds have recognized emerging technologies like 5G, cybersecurity and quantum computing as priorities but seem to have over looked that all of these rely on semiconductors to power them.
“Chips are the brains behind the technologies, and even though we can’t really see them, they power virtually everything we rely on,” says Prevette. “So yes, the challenge for the council is to help the government and other stakeholders understand the critical role that chips play in all corners of our economy. If a thriving and reliable semiconductor industry is not a priority, it will be difficult to grow these other technologies in a sustainable way. The time for action is now and we need to think boldly to really leapfrog to the forefront and be a credible leader in a sector that impacts all Canadians.”
