A Major Supply Chain Security Issue Is Starting to Get More Attention

Tom Temin And I guess we talked several months ago about the need for supply chain and cyber insurance of the substrate that is the backbone of any electronic device. What’s the new development in what’s happening on Capitol Hill?

David Schild Lots of progress since our last conversation in March. The President has designated printed circuit boards and integrated circuit substrates as critical federal technology under the Defense Production Act. As you probably know, we have heard a lot about this law in recent years. We used it during COVID to make the ventilators much faster. This designation is very important because it eliminates a lot of red tape and allows the government to move much more quickly to acquire American-made printed circuit boards and integrated circuit substrates. So this is huge progress. There’s also a lot going on on Capitol Hill. The National Defense Authorization Act once again pushes the Pentagon to secure its microelectronics supply chains, especially in the commercial standard area, which is very important. And then we have standalone legislation, sort of our version of the CHIPS Act, that moves forward to hopefully shore up this critical industry. And as they say, chips don’t float, all these wonderful semiconductors that we are going to make in the United States need integrated circuits, substrates and boards to do their job. We believe we should build the entire technology stack right here in America.

Tom Temin And there’s a cybersecurity factor to that. Is that fair to say? Because something could be integrated into a circuit board. These are not simple structures, they are multi-layered and there is interconnection between the layers. Someone could even insert a small chip into a circuit board. I imagine.

David Schild The fact that we have a reliable microelectronics supply chain is a matter of great concern to officials across the national security establishment. And of course, as we take more and more production, research, development and innovation overseas, I think that introduces risk that we wouldn’t otherwise tolerate in our supply chains. And so, yes, being able to say that we know where these things are manufactured, we know who is doing the manufacturing, that’s certainly important for anyone involved in a federal acquisition.

Tom Temin I think that, you know, from a simple physics standpoint, someone could add a trace that wasn’t in the original design, which could create a backdoor to monitor. There are all kinds of ways to get to what’s going on in a circuit, other than just hacking it from the signal it emits. And so, if you could adjust that output signal without the knowledge of the person who built the board, who built the circuit in these embedded systems, then you could do a lot of damage on the cyber front.

David Schild Boards are highly sophisticated pieces of technology, far from being simple green plastic supports. You’re talking about a complex laminate of woven glass, precious metals like gold, copper, and certainly a number of specialized chemical formulations. And there’s a lot of engineering, even at a very small nanoscale level, that’s going into production. So you are absolutely right. It would be difficult to look at a card and say with certainty that we know this is something safe for the end user, and that’s again why we want to get back into production. We have fallen off a cliff from where we were before. In the past, 30% of printed circuit boards were made in the United States. This represented 2,200 companies. Today, there are fewer than 150 companies, representing only 4% of the global market share. Thus, the United States which invented this technology no longer owns its production or even controls a significant percentage of the portfolio.

Tom Temin And there are circuit boards within their circuit boards. I mean, the main board of a high-end router, for example, you know, is an extremely complicated part. But there’s also the circuit boards that maybe go into a hearing aid, a little thing with just a few layers and, you know, a chip on it, that sort of thing. The question is therefore what is the distribution by original manufacturing technology?

David Schild So that’s an excellent point. Everything from F-150s to F-35s will have a circuit board. Absolutely. If electricity is flowing there today and, you know, your listeners can look around their house or their office and circuit boards are everywhere. It is a ubiquitous piece of technology. But we’re certainly not pushing for the federal government to bring the boards found on a massive scale in dishwashers, garage door openers, and thermostats back to the commercial market. The simplest technologies will remain in production abroad. Market forces saw to that. But we think in high-tech areas like banking, critical infrastructure, certainly the energy grid, medical devices, those are certainly areas, I think, where we need to have more production in the United States. And you think about anything outside of traditional defense applications that depends on reliable microelectronics, right? The ability for us to do our banking, the ability for the lights to stay on. Certainly, everything that’s happening in terms of decarbonization, electric vehicle chargers, electric vehicles, it all depends on PCBs and substrates. I think it makes sense to know that we control a significant portion of that supply chain.

Tom Temin And besides, garage doors are also available on the Internet these days. We speak with David Schild. He’s the executive director of the Printed Circuit Board Association of America and for the military or anyone or any contractor, you know, that has critical circuits, there’s another cyber danger. And that’s if the board is not only manufactured but also shipped overseas in the final production assembly situation, the wave soldering equipment, that means the critical circuits themselves have to be shipped to where the cards are assembled and returned, which is another vulnerability. .

David Schild Yes, supply chain resilience has been getting a lot of attention lately, as has this idea of ​​reducing risk and decoupling from foreign sourcing. And you’ve seen throughout the National Defense Authorization Act a lot of language talking about preventing foreign ownership and control and influence over our critical supply chains. If you say we’re going to make new semiconductors in places like Ohio and Arizona, I don’t think the vision is that those products will then have to be shipped across an ocean for the next part of the ecosystem, the next part of the stack, to then return to the United States, perhaps for final assembly and onto store shelves or end users. I think this is not the vision the administration and Congress are seeking. Manufacturing nodes, regional hubs. This is what you hear Secretary Raimondo talking about. I think it really is the future.

Tom Temin All right. And then there is a bill that has been introduced in the House several times now. Your invoice is back. It’s called HR 3249, Protection of Printed Circuit Boards and Substrates. What is the support for it and what are the real chances of anything happening during this session? Because, you know, they still have a few other things to do before that.

David Schild This is a difficult time for anyone trying to move policy forward in Washington. But I will say that I think the wind is at our backs in terms of focusing Congress on the need to do more things here in America and certainly to address the growing threat that exists from a security perspective. national security. The PCB Act essentially focuses on two things: direct support for our industry. Just as the CHIPS Act supported the semiconductor industry so we could hire new workers, so we could break ground on new facilities with the critical tools needed to produce PCBs. I think, more importantly, a tax credit for people who buy circuit boards accomplishes what so many VPs of operations or supply chain managers want to do right now. They want to diversify their supply chains. They want to reduce risks. Perhaps they want to lessen their dependence on Asia. But how can this be achieved when financial results do not support these measures? A tax credit to say that when you buy American products, we’re going to bring those costs back into a competitive position. We believe this creates the demand signal needed to truly drive a manufacturing push.

Tom Temin And how labor-intensive our premium panel manufacturing is. I mean, a lot of this is automated, meaning the more things are automated, the less they need to be in China or Southeast Asia.

David Schild Automation is becoming more and more part of our business. But I can tell you that if you walk through a PCB factory, it’s a very fascinating mix of old school and new school manufacturing. You see many chemical processes to do the etching work to layer and plate the copper which of course we need to make PCBs. And at the same time, you have clean rooms and people and, you know, the bunny suits doing, you know, very small, very precise work to establish critical paths and operate the boards. And I’m very glad you brought this up, because I was at a facility recently and we have trained technicians that do visual inspections of these cards, because we can’t yet teach a computer or a camera to us ensure these connections are reliable. the same way a highly trained human eye technician can perform this work. So there’s always a very engaged, very educated and skilled workforce involved in this process. And so we think from an employment perspective, of course, you know, in the same way that semiconductor factories are going to lead to great economic development. We are ready to send thousands of people to work on PCB manufacturing.