Could Major Chip Manufacturer Layoffs Affect Domestic Chip Production?

By Logan Wamsley

After the election, one of the first executive orders from President Joe Biden was dedicated to analyzing U.S. supply chains to see how his administration could help boost domestic production, especially for electronic components and semiconductors which overwhelmingly are produced in Taiwan and, to a lesser extent, China. Earlier this year, the U.S. government took this focus a step further by passing a bipartisan bill that offered $52 billion in incentives for companies to expand domestic chip production.

While the stimulus has yet to be formally enacted (funding applications are still months away from being issued), recent developments indicate that even with additional funding the U.S. still has a long road ahead if it wishes to diversify the global supply chain away from the Far East. The latest of these developments comes from Intel Corp., one of the primary lobbyers for the stimulus bill. According to a report from Bloomberg, the largest semiconductor company in the U.S. is planning to lay off thousands of employees in an effort to cut costs following a steep decline in demand for PC processors. Bloomberg states that as much as 20% of certain departments such as sales and marketing could be laid off.

The timing of these measures is not ideal, since just months earlier Intel argued that the stimulus would go a long way to shoring up U.S. jobs. Even still, the layoffs should not come as a huge surprise; in Q2, it reported a net loss of $454 million — a steep drop considering the manufacturer posted a $5 billion gain in the same span a year ago. With shares falling more than 50% this year, Intel finds itself under extreme pressure from its investors to take action now.

Other manufacturers are not faring much better. Taiwan Semiconductor Manufacturing Company (TSMC), which has already committed to building a $12 billion chip factory in Arizona, has said that the decline in PC processor demand has resulted in spending cuts of about 10%, although no announcement has been made regarding layoffs quite yet.

While such layoffs may not have any direct impact on other manufacturers in the industry, what it does do is call into question the ability of domestic chip manufacturers to ramp up chip production on any meaningful scale to impact short-term inventory acquisition strategies. Even with investments in new factories and stimulus money, widespread layoffs will inevitably have an impact on chip production. When trying to strategize how to best acquire inventory to support long-term production goals, organizations must keep these developments in mind. An inventory ownership solution, which allows organizations to acquire multiple years of inventory at once without loss of working capital, may be one such option.