Geopolitics 'shaping AI chips supply chain' - EY's Steinberg

EY Global Supply Chain and Operations Leader Glenn Steinberg says AI chips supply chain being shaped by geopolitics, disruption and cost

The supply of powerful microprocessors destined for use in AI applications will grow in geopolitical strategic importance, says Glenn Steinberg, EY Global Supply Chain and Operations Leader.

Recent advances in generative AI (GenAI) – and its remarkably high adoption rate – means the future of AI is dependent upon a readily available supply of super-powerful chips, says Steinberg.

In an interview with Supply Chain Digital, he says: “The new AI capability requires massive computing power that runs on supercharged GPUs capable of handling the demands of next-generation artificial neural networks, which are at the heart of this capability. 

“As AI applications continue to proliferate across all sectors, including military and R&D, the need for faster, cheaper and more readily available semiconductor chips will become vital for national security and economic growth."

Steinberg points out the fabrication of AI chips in semiconductor plants uses the most advanced technology available “to aggressively improve performance and reduce power consumption”. 

AI Chip manufacturing needs to improve for nearshoring 

He adds that so-called ‘back-end of line’ steps in the manufacturing process – such as assembly, test and packaging – need to be improved to enable the nearshoring and onshoring of chip production, a strategy that is in response to global shortages in the supply of semiconductors

Steinberg points out that advances in chip technology require new semiconductor manufacturing equipment, meaning fabricating chips at scale is hugely expensive, with costs being an estimated US$15bn. 

Cost, he says, has been a key driver of “the significant consolidation in the semiconductor industry”.

He observes how, two decades ago, there were around 100 companies fabricating chips, but that now this number is around the 30 mark.

“The semiconductor supply chain evolved to be global, lean and heavily anchored in Southeast Asia,” says Steinberg. “But with globalisation, the concentration of production and geopolitical conflict  all of concern, countries are now seeing the geopolitical landscape shifting.”

He adds: “Recent difficulties in getting chips in a timely manner, at reasonable price – or at all – has underscored the fact that chip supply is essential to countries’ economies and national security.”

It is national security concerns that are at the heart of the current trade war between the US and China.

Powerful AI chips a security concern for US

AI chips are immensely powerful, and it is their potential for use in military applications that prompted the US government to place export restrictions on certain advanced AI chips – such as those made by NVidia – to China and the Middle East.

The US State Department has also announced that it is to partner with the government of Costa Rica “to explore opportunities to diversify and grow the global semiconductor ecosystem”. 

“The objective is to create a more resilient, secure, and sustainable global semiconductor value chain,” Steinberg explains. “It will start with a review of Costa Rica’s current semiconductor industry development, regulatory framework, as well as workforce and infrastructure needs.”

Signing off with advice to organisations reliant on reliable supplies of semiconductors who wish to mitigate against disruption, Steinberg has the following tips:

  • Establish category management for semiconductor chips, particularly for critical, hard to get components
  • Redesign products to use newer chips made with more readily available fabrication technology
  • Establish partnerships with distributors, contract manufacturers, and even chip companies directly to have more “headlights” into coming issues with chips they need.

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