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Challenges in Stabilizing the Defense & Aerospace Supply Chain: The Cyclical Nature of the Semiconductor Market

Defense and Aerospace

Chips have long held to a boom-and-bust cycle, and the defense & aerospace supply chain is feeling the pressure now more than ever before as commercial shortages inevitably impact military and aerospace supply chains.

For nearly as long as it has existed, the semiconductor industry has experienced relatively frequent boom and bust cycles, around every five years. A cycle of strong demand, creating an oversupply, followed by a precipitous crash, has long defined the semiconductor industry. Impacts of this cycle have resonated more broadly in the past two years, with the automotive industry taking the punitive initial brunt of the chip shortages.

No part of the global semiconductor supply chain is fully insulated from the impacts of semiconductor boom and bust cycles. These cyclical shifts can destabilize the high-reliability supply chain by reducing supply and increasing the risks around sourcing. The United States defense supply chain has a history of weathering these cycles, but strategies to anticipate and guard against shortages remain critical.

The history of the U.S. military’s efforts to stabilize the defense & aerospace supply chain

The concept of securing the defense & aerospace supply chain is not new. As Air Force Magazine notes, the US launched the Very High-Speed Integrated Circuit Program, known as VHSIC, in the 1970s; the purpose of this billion-dollar investment was “to accelerate computer chip development; in the 1980s, it invested a similar amount in Sematech, which included matching industry contributions to try to revitalize domestic chip manufacturing after Japan arose as the world’s leading chip supplier.” Since then, not only has the global semiconductor market changed, but the interaction of military and technology has also shifted significantly.

A2 CEO Frank Cavallaro recently shared with Military Embedded that “historically, the military drove technology innovation in their platforms, which live for decades.” As a result, “they could drive the roadmaps and lead times of semiconductor manufacturers. Since the U.S. Department of Defense (DoD) transitioned to a COTS [commercial off-the-shelf] procurement model in the 1990s, that became less and less the case. Today, the military is more a consumer of technology than a driver and is at the whims of commercial supply chains, especially when it comes to semiconductors.” This is in large part because of the rapid life cycles of current semiconductors, which are not conducive to maintaining high reliability tech over years or even decades.

As Air Force Magazine points out, current supply challenges of the commercial semiconductor supply chain, if unchecked, threaten to spill over into military and aerospace verticals. These would further complicate the problem of sourcing for high-reliability verticals. The impacts to these verticals are also less immediately visible than consumer products, given the slower speed of the military procurement process.

A turning point for semiconductor stability: 2022 or beyond?

Interestingly, some signs point to the semiconductor industry reaching more level ground for the first time in 2022, with sustained growth rather than a typical crash. Behind this is the massive demand that the semiconductor supply chain will need to fuel, which Bloomberg points out may just result in delaying an eventual crash in 2025 or beyond. Whether this plays out to ease the boom-and-bust cycle remains to be seen, and chip shortages are likely to continue to cause lead times into 2023 until supply catches up with demand.

Another factor that will play out long term is the growth of semiconductor manufacturing globally. China has rapidly developed their semiconductor facilities in recent years. The U.S. has launched a major effort to expand domestic semiconductor production as well, with facilities in development across the U.S. The semiconductor supply chain is highly complex and the results of these efforts are yet to play out. Stabilization of the supply chain is likely a longer-term effort. In the meantime, efforts to shore up the high-reliability supply chain that fuels U.S. defense and aerospace verticals are more critical than ever before.

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