Microelectronics

The electronics industry, for the purpose of this study, is defined as the group of firms that engage in one or more aspects of the design, manufacture, testing, assembly, and packaging of microelectronic semiconductor integrated circuits (ICs). As a whole, the U.S. electronics
industry is healthy. Many old and new firms have flourished thanks to Moore’s Law and market growth, despite industrial disaggregation consolidation and high entry barriers, particularly in manufacturing. Industry revenues have tripled over the past 20 years, and new semiconductor
applications (e.g. cognitive computing, artificial intelligence) combined with growing markets in Asia portend an additional 50% growth over the next five years. 

ICs are critical components to U.S. government national security capabilities and are prolific in space, nuclear, intelligence, missile defense, land/air/sea platforms, and command and control applications. While the industry is healthy, the U.S. government faces several challenges to resource the required ICs. These include:

• Commercial market forces drive the electronics industry, and the center of gravity is increasingly shifting to Asia and especially China. ICs are in almost every military system, but the U.S. military demand represents only 0.3% of the industry.  DoD has unique performance requirements and little market power to influence industry structure, conduct, or performance, making DoD susceptible to access, availability (i.e., obsolescence), and supply chain security risks. The same is true of other U.S. national security organizations.

• Electronics industry supply chains are increasingly disaggregated and geographically dispersed. From design to packaging, a typical IC undergoes production processes in more than four countries on several continents and travels more than 25,000 miles. This highly global and interdependent supply chain is increasingly vulnerable to disruption (access) and malicious activities (assurance).

• Risks to the U.S. government include counterfeit parts, intellectual property (IP) theft, and malicious tampering, which may cause premature failure or introduce cyber or espionage vulnerabilities. Market forces do not create industry incentives to address these requirements, and burgeoning device complexity precludes the U.S. government’s ability to inspect/test for these vulnerabilities.

Given the strategic importance of microelectronic semiconductors in providing leading edge performance for national security and defense systems, the U.S. government—in its roles as sponsor, buyer, and regulator—must actively manage risks associated with access, availability,
and supply chain vulnerabilities, while fostering an environment in which the U.S. industry can flourish, meet national security needs, and retain its technological edge and global competitiveness. Government efforts should concentrate on (1) fostering future U.S. IP development, (2) balancing supply chain risks of access and security assurance, (3) reducing availability (obsolescence) risks, and (4) preventing the transfer of critical technologies and know-how to potential adversaries.

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