WASHINGTON ― Defense firm L3Harris Technologies says it bought back and cannibalized its own radios to meet customer demands amid shortages of computer chips and some components.
The company and others across multiple sectors have been hampered by a semiconductor shortage that stretches back nearly two years. Industry executives said they expect supply chain challenges to last longer than originally anticipated and that the chip shortage will drag into mid-2023 or beyond — potentially forcing businesses to get creative.
Speaking at a Morgan Stanley event last week, L3Harris Chief Financial Officer Michelle Turner said a “big-name chip supplier” she did not identify wasn’t able to meet her firm’s demand heading into the fiscal quarter that began in July. That forced the company to find circuits, called field-programmable gate arrays, from an unusual source.
“We went to one of our customers, where we knew they were disposing of some old radios. We took those radios back, we broke them down. We’re using the [field-programmable gate arrays] within those radios to rebuild them into the current formation, to be able to meet the demand and deliver,” Turner said.
L3Harris, also known for making intelligence, surveillance, and reconnaissance gear; avionics; and night vision equipment, considers the chip shortage “an acute pain point,” Turner said. Wider supply problems, she said, have forced the company to stockpile products in its supply chain to ensure it can ship its wares quickly, she told the Morgan Stanley conference.
The chief executive of America’s No. 2 defense firm Raytheon Technologies, said microchips could continue to be scarce beyond mid-2023.
“We’re working with our distributors ― and it is just a day-to-day challenge,” Greg Hayes said Sept. 14 at the Morgan Stanley event. “We don’t see that rectifying itself until probably sometime in the middle of next year if we’re lucky, and as people are bringing on more capacity.”
“We’ve all talked about electronics, chips. We remain hand-to-mouth just like everybody else. We are seeing some stabilization, I would tell you, in the supply chain there,” he added.
Defense officials said earlier this year production of Raytheon’s Javelin and Stinger missiles, a key part of U.S. aid for Ukraine in its fight against Russia, has been hamstrung by persistent semiconductor manufacturing delays. The Javelin anti-tank weapon is made by a joint venture with Lockheed Martin.
Defense firms, ahead of the semiconductor shortage, were comfortably able to have manufacturers execute short production runs of specialized chips for use in weapons systems. But because those runs aren’t cost-effective, chip manufacturers aren’t rushing to do them now, said Bryan Clark, a defense analyst at the Hudson Institute.
“That’s been a problem, that DoD’s vendors depend on the same chip suppliers as everyone else,” Clark said. “These foundries are incentivized to do large-scale commercial work because that’s where they can make a lot of money ... which meant that in some cases DoD vendors were having to wait in line behind commercial firms.”
The Pentagon is increasingly turning to generic commercial chips that are both suitable to replace older, bespoke chips in its weapons and easier to get, according to Clark.
Gordon Stein, the vice president of U.S. operations for General Dynamics Land Systems, which makes the Abrams tank and other armored vehicles, said defense firms ought to work together to purchase scarce materials and components.
“We’re only a tiny little bit of microelectronics [consumers] compared to the industrial and the automotive and the 5G infrastructure,” Stein, speaking at a Washington think tank event this week, said of the defense industry. “We’re talking about collaboration and communication here across the industrial base. We have to talk to solve these problems.”
The U.S. and Europe have been pushing aggressively to build chipmaking capacity and reduce reliance on producers now mostly based in Asia.
Several chipmakers last year signaled an interest in expanding their American operations if the U.S. government is able to make it easier to build chip plants. Earlier this month, chipmaker Micron broke ground on a $15 billion factory in Boise, Idaho, and Intel began building a $20 billon computer chip facility in Ohio.
Intel had delayed groundbreaking on the $20 billion plant until Congress passed the bipartisan CHIPS and Science Act. The bill includes $39 billion in manufacturing incentives, with $2 billion for the legacy chips used in automobiles and defense systems.
Expanding semiconductor manufacturing domestically took on new urgency during the pandemic and as most production has shifted overseas. The U.S. share of the worldwide chip manufacturing market has declined from 37% in 1990 to 12% today, according to the Semiconductor Industry Association, and shortages have become a potential risk.
Deputy Defense Secretary Kathleen Hicks has called semiconductors “ground zero of our tech competition with China.” During a visit to Indiana last month, she hailed local firm SkyWater Technology’s plans to build a semiconductor facility and the passage of the CHIPS and Science Act days earlier.
“This new law will help ensure that America has and makes the technology that powers everything from F-35 stealth fighter jets to the smartphones in our pockets,” Hicks said.
Beyond semiconductors, the electronics industry called on President Joe Biden, in a letter Tuesday, to prioritize domestic development of printed circuit boards and another component in circuitry, called integrated circuit substrates, under Title III of the Defense Production Act.
Electronics trade groups argued that without bolstering domestic supplies of microelectronics components, U.S. made chips would need to be assembled in other countries, which risks lengthening and slowing the supply chain for microelectronics.
“Presently, there are no U.S. manufacturers that can produce the volume of IC substrates needed to support defense and commercial needs,” the letter reads.
With reporting by The Associated Press.
Joe Gould was the senior Pentagon reporter for Defense News, covering the intersection of national security policy, politics and the defense industry. He had previously served as Congress reporter.