![\"\"](\"https://content.ibisworld.com/media/rgfh4up3/semiconductorsupplychain2.png?rmode=max&width=720\")
Semiconductors underpin almost every modern defense capability, from secure communications and radar to precision-guided munitions, satellites and nuclear command-and-control systems. This creates a considerable need for semiconductor manufacturing infrastructure. The Semiconductor Industry Association notes that US-headquartered companies lead globally in design and core IP, capturing roughly half of global semiconductor sales, particularly in design-intensive segments.
\n\n
However, the US captured just 12.0% of global semiconductor manufacturing capacity in 2022. This means that the semiconductor brains of US defense systems are often designed in the US but fabricated and packaged abroad, including in regions that could be contested or cut off in a crisis. The US has been losing ground on manufacturing capacity.
\n\n
Electronics shortages are not typically cited as the primary cause of delays in major US defense modernization programs. However, broader supply chain and industrial-base constraints, which includes electronic components, have been a contributing factor to delays. New engine prototypes under the Next Generation Air Dominance (NGAD) initiative have been pushed back by more than two years, initially expected in late 2027 with new documents now indicating mid-2030, and officials have pointed to supply chain struggles among the reasons for the delay.
\n
Similarly, the Sentinel ICBM program has experienced severe cost growth and schedule delays, with oversight reports citing supply chain, software and infrastructure challenges as key drivers. Also, the US Navy's SSN(X) next‑generation attack submarine program is also expected to be delayed, with reporting in 2024 indicating production beginning in the 2040s from the initial estimates of the 2030s. Official reporting emphasized industrial‑base capacity and budgetary constraints leading to delays.
\n
![\"\"](\"https://content.ibisworld.com/media/ywqm53ux/shutterstock_1894622350.jpg?rmode=max&width=720\")
Unlike many commercial applications, defense systems require chips that can operate at high speed and accuracy while withstanding extreme conditions, including high G‑forces, prolonged vibration, wide temperature swings and radiation in space or nuclear environments. These demands drive continued reliance on radiation-hardened and other legacy-node devices, making many legacy chips strategically vital. At the same time, most large commercial fabricators prioritize high-volume, advanced-node production for consumer markets, while defense microelectronics often require radiation hardening, specialized packaging and long qualification and testing cycles that tie up tools and capacity for relatively small volumes, making them uniquely complex to produce and easier for manufacturers to de-prioritize.
\n\n
South Korea accounts for 37.0% of global manufacturing capacity for chips below ten nanometers, with the remaining 63.0% being produced in Taiwan, giving these countries a central role in producing the world's most advanced semiconductors. Also, China accounted for an estimated 69.0% of legacy node production globally in the third quarter of 2023. This dominance in terms of international infrastructure doesn't begin at the manufacturing stage. China mines an estimated 69.2% of the world's rare earth minerals but processes an estimated 90.0% of them, which are crucial for the production of semiconductors. On the other hand, the US mined an estimated 11.5% of the world's rare earth mineral volume in 2024. The US is very reliant on imports from China; 94.0% of US yttrium imports came from China, a key input in semiconductor manufacturing. Also, 47.5% of rare earth inputs used in South Korean semiconductor manufacturing came from China in 2024. These figures show that even when chips are manufactured in allied countries, their critical inputs often originate from Chinese-controlled supply chains.
\n\n
\n
These vulnerabilities are early-warning indicators of broader production risks. If a single foundry, materials supplier or defense-specific fab encounters trouble, the effects will can ripple through various programs.
\n\n
The semiconductor capacity gap in the US exists because demand for chips is growing faster than the industry's ability to add usable production. Building new fabs is a slow and expensive process, requiring layers of environmental, safety and local permitting requirements. Difficulties have been encountered during the construction of Taiwan Semiconductor Company's facilities in Arizona. The company announced delays of at least a year for the construction of its second facility in Arizona, citing licensing and labor issues.
\n\n
US research, development, test and evaluation (RDT&E) is robust. Still, many defense chip prototypes are built on specialized or older manufacturing processes that do not easily translate to the large, commercial factories that make most of the world's chips. This makes it slow and expensive to move from a successful lab prototype to mass production. Export controls on advanced chips and manufacturing tools bound for China, combined with growing geopolitical risks surrounding Taiwan-centered production and key materials, increase uncertainty.
\n\n
Missile systems and interceptors are among the most vulnerable segments of defense. Every round relies on highly specialized, rigorously validated microelectronics that can't be replaced on short notice. Missile guidance, seekers and flight-control units rely on hardened processors, radiation-tolerant memory and precision sensors that undergo years of qualification and are tightly controlled for reliability and security. Delays or redesigns of these chips can slip flight-test schedules, force new software and hardware integration work, driving up cost overruns for primes and sub-tier suppliers. The commercial sector, including automotive and aircraft manufacturers, is pulling on the same parts of the supply chain, increasing difficulties and competition for sourcing domestically produced products.
\n\n
At the same time, demand from AI companies and cloud providers is tying up the limited chip manufacturing and advanced packaging capacity through massive, long-term contracts. That leaves smaller, defense‑specific orders, often on older but still critical mature node technologies, waiting longer in line and facing a higher risk of not getting the volume they need.
\n\n
The CHIPS Act channels tens of billions of dollars into US manufacturing and R&D, underpinning new or expanded fabs from Intel, TSMC and Samsung. Together, these projects will significantly increase the US leading-edge logic capacity and create more options for defense and commercial buyers to source advanced chips domestically.
\n\n
![\"\"](\"https://content.ibisworld.com/media/g2afmhup/semiconductorsupplychain1.png?rmode=max&width=720\")
While this considerable investment is a strong start, gaps remain. The DoD's Trusted Supplier programs cover only a limited set of high‑assurance facilities, with GlobalFoundries still the only commercial high‑volume foundry holding full Trusted Foundry status.
\n\n
Also, defense segments still rely heavily on legacy or mature-node chips, whereas these new builds and expansions focus on producing smaller, advanced chips. Also, even with announced projects such as Amkor's Arizona campus and Intel's investments in EMIB and Foveros, domestic advanced packaging will remain tight through most of this decade. The United States accounts for just 3.0% of the global semiconductor packaging, assembly and test capacity.
\n\n
Although large discoveries and projects, such as the development of rare earth deposits near Wheatland, Wyoming and the Brook Mine–linked work with the National Energy Technology Laboratory, offer a pathway to more domestic sourcing over time, the United States continues to rely heavily on imported rare earths and critical minerals. Even when facilities begin production, finding qualified workers for these facilities will likely be difficult. The Semiconductor Industry Association forecasts that the US semiconductor workforce will expand from an estimated 345,000 jobs in 2023 to 460,000 by 2030, go unfilled, representing a nearly 115,000-job increase. However, the association warns that 67,000 of these new positions are likely to remain unfilled.
\n\n
Defense demand can act as a first, hard customer that drives the development of new US semiconductor capabilities. By issuing multi-year, high-assurance contracts for trusted legacy nodes, radiation-hardened parts, secure packaging and AI-grade processors, defense de-risks private capital expenditures and justifies new domestic fabs, advanced packaging lines and materials facilities. Historically, this dual‑use path turned early defense investments in radar, GPS and the internet into commercial platforms. Today, similar spillovers can help accelerate a more resilient electronics supply chain in sectors such as automotive and cloud computing.
\n\n
Rebuilding domestic semiconductor strength is no longer optional—it underpins military readiness, global credibility and long-term economic resilience.
","TimeToRead":6,"FinalWord":null,"KeyTakeaways":null,"DatePublished":"2026-01-12T00:00:00Z","DatePublishedTimestamp":0,"DateFormatted":"January 12, 2026","UrlSlug":"/semiconductor-supply-chain/","SeoTitle":"Designed in the US, Built Abroad: The Semiconductor Risk in US Defense","SeoDescription":"US defense relies on chips manufactured overseas, reflecting strong US design leadership but limited domestic manufacturing capacity and supply chain risks linked to China.","SeoImageUrl":"/media/cozh5p0k/socialmedia-logo.png","Tags":["Defense","Innovation","Semiconductor","Manufacturing","Trade","China","Business Growth","Supply Chain","Growth","Economic Growth"],"Sectors":null,"Toc":null,"Culture":"en","IsFeatured":false,"IsHidden":false},"Item2": {"Id":8080,"Key":"5b1c607a-d2c1-45c7-81e1-55a0e3854a77","Title":"Designed in the US, Built Abroad: The Semiconductor Risk in US Defense","Country":"United States","CountryId":1,"AuthorId":5254,"AuthorName":"Matty O'Malley","AuthorTitle":"Industry Analyst","AuthorPhoto":"/media/iwxophe1/ibisworld-logo-profile-picture.png","AuthorBio":"Matt is an Industry Analyst working out of IBISWorld's New York office.","Image":null,"CategoryId":1126,"CategoryName":"Analyst Insights","Persona":null,"Content":"Semiconductors underpin almost every modern defense capability, from secure communications and radar to precision-guided munitions, satellites and nuclear command-and-control systems. This creates a considerable need for semiconductor manufacturing infrastructure. The Semiconductor Industry Association notes that US-headquartered companies lead globally in design and core IP, capturing roughly half of global semiconductor sales, particularly in design-intensive segments.
\n\n
However, the US captured just 12.0% of global semiconductor manufacturing capacity in 2022. This means that the semiconductor brains of US defense systems are often designed in the US but fabricated and packaged abroad, including in regions that could be contested or cut off in a crisis. The US has been losing ground on manufacturing capacity.
\n\n
Electronics shortages are not typically cited as the primary cause of delays in major US defense modernization programs. However, broader supply chain and industrial-base constraints, which includes electronic components, have been a contributing factor to delays. New engine prototypes under the Next Generation Air Dominance (NGAD) initiative have been pushed back by more than two years, initially expected in late 2027 with new documents now indicating mid-2030, and officials have pointed to supply chain struggles among the reasons for the delay.
\n
Similarly, the Sentinel ICBM program has experienced severe cost growth and schedule delays, with oversight reports citing supply chain, software and infrastructure challenges as key drivers. Also, the US Navy's SSN(X) next‑generation attack submarine program is also expected to be delayed, with reporting in 2024 indicating production beginning in the 2040s from the initial estimates of the 2030s. Official reporting emphasized industrial‑base capacity and budgetary constraints leading to delays.
\n
Unlike many commercial applications, defense systems require chips that can operate at high speed and accuracy while withstanding extreme conditions, including high G‑forces, prolonged vibration, wide temperature swings and radiation in space or nuclear environments. These demands drive continued reliance on radiation-hardened and other legacy-node devices, making many legacy chips strategically vital. At the same time, most large commercial fabricators prioritize high-volume, advanced-node production for consumer markets, while defense microelectronics often require radiation hardening, specialized packaging and long qualification and testing cycles that tie up tools and capacity for relatively small volumes, making them uniquely complex to produce and easier for manufacturers to de-prioritize.
\n\n
South Korea accounts for 37.0% of global manufacturing capacity for chips below ten nanometers, with the remaining 63.0% being produced in Taiwan, giving these countries a central role in producing the world's most advanced semiconductors. Also, China accounted for an estimated 69.0% of legacy node production globally in the third quarter of 2023. This dominance in terms of international infrastructure doesn't begin at the manufacturing stage. China mines an estimated 69.2% of the world's rare earth minerals but processes an estimated 90.0% of them, which are crucial for the production of semiconductors. On the other hand, the US mined an estimated 11.5% of the world's rare earth mineral volume in 2024. The US is very reliant on imports from China; 94.0% of US yttrium imports came from China, a key input in semiconductor manufacturing. Also, 47.5% of rare earth inputs used in South Korean semiconductor manufacturing came from China in 2024. These figures show that even when chips are manufactured in allied countries, their critical inputs often originate from Chinese-controlled supply chains.
\n\n
\n
These vulnerabilities are early-warning indicators of broader production risks. If a single foundry, materials supplier or defense-specific fab encounters trouble, the effects will can ripple through various programs.
\n\n
The semiconductor capacity gap in the US exists because demand for chips is growing faster than the industry's ability to add usable production. Building new fabs is a slow and expensive process, requiring layers of environmental, safety and local permitting requirements. Difficulties have been encountered during the construction of Taiwan Semiconductor Company's facilities in Arizona. The company announced delays of at least a year for the construction of its second facility in Arizona, citing licensing and labor issues.
\n\n
US research, development, test and evaluation (RDT&E) is robust. Still, many defense chip prototypes are built on specialized or older manufacturing processes that do not easily translate to the large, commercial factories that make most of the world's chips. This makes it slow and expensive to move from a successful lab prototype to mass production. Export controls on advanced chips and manufacturing tools bound for China, combined with growing geopolitical risks surrounding Taiwan-centered production and key materials, increase uncertainty.
\n\n
Missile systems and interceptors are among the most vulnerable segments of defense. Every round relies on highly specialized, rigorously validated microelectronics that can't be replaced on short notice. Missile guidance, seekers and flight-control units rely on hardened processors, radiation-tolerant memory and precision sensors that undergo years of qualification and are tightly controlled for reliability and security. Delays or redesigns of these chips can slip flight-test schedules, force new software and hardware integration work, driving up cost overruns for primes and sub-tier suppliers. The commercial sector, including automotive and aircraft manufacturers, is pulling on the same parts of the supply chain, increasing difficulties and competition for sourcing domestically produced products.
\n\n
At the same time, demand from AI companies and cloud providers is tying up the limited chip manufacturing and advanced packaging capacity through massive, long-term contracts. That leaves smaller, defense‑specific orders, often on older but still critical mature node technologies, waiting longer in line and facing a higher risk of not getting the volume they need.
\n\n
The CHIPS Act channels tens of billions of dollars into US manufacturing and R&D, underpinning new or expanded fabs from Intel, TSMC and Samsung. Together, these projects will significantly increase the US leading-edge logic capacity and create more options for defense and commercial buyers to source advanced chips domestically.
\n\n
While this considerable investment is a strong start, gaps remain. The DoD's Trusted Supplier programs cover only a limited set of high‑assurance facilities, with GlobalFoundries still the only commercial high‑volume foundry holding full Trusted Foundry status.
\n\n
Also, defense segments still rely heavily on legacy or mature-node chips, whereas these new builds and expansions focus on producing smaller, advanced chips. Also, even with announced projects such as Amkor's Arizona campus and Intel's investments in EMIB and Foveros, domestic advanced packaging will remain tight through most of this decade. The United States accounts for just 3.0% of the global semiconductor packaging, assembly and test capacity.
\n\n
Although large discoveries and projects, such as the development of rare earth deposits near Wheatland, Wyoming and the Brook Mine–linked work with the National Energy Technology Laboratory, offer a pathway to more domestic sourcing over time, the United States continues to rely heavily on imported rare earths and critical minerals. Even when facilities begin production, finding qualified workers for these facilities will likely be difficult. The Semiconductor Industry Association forecasts that the US semiconductor workforce will expand from an estimated 345,000 jobs in 2023 to 460,000 by 2030, go unfilled, representing a nearly 115,000-job increase. However, the association warns that 67,000 of these new positions are likely to remain unfilled.
\n\n
Defense demand can act as a first, hard customer that drives the development of new US semiconductor capabilities. By issuing multi-year, high-assurance contracts for trusted legacy nodes, radiation-hardened parts, secure packaging and AI-grade processors, defense de-risks private capital expenditures and justifies new domestic fabs, advanced packaging lines and materials facilities. Historically, this dual‑use path turned early defense investments in radar, GPS and the internet into commercial platforms. Today, similar spillovers can help accelerate a more resilient electronics supply chain in sectors such as automotive and cloud computing.
\n\n
Rebuilding domestic semiconductor strength is no longer optional—it underpins military readiness, global credibility and long-term economic resilience.
","TimeToRead":6,"FinalWord":null,"KeyTakeaways":null,"DatePublished":"2026-01-12T00:00:00Z","DatePublishedTimestamp":0,"DateFormatted":"January 12, 2026","UrlSlug":"/semiconductor-supply-chain/","SeoTitle":"Designed in the US, Built Abroad: The Semiconductor Risk in US Defense","SeoDescription":"US defense relies on chips manufactured overseas, reflecting strong US design leadership but limited domestic manufacturing capacity and supply chain risks linked to China.","SeoImageUrl":"/media/cozh5p0k/socialmedia-logo.png","Tags":["Defense","Innovation","Semiconductor","Manufacturing","Trade","China","Business Growth","Supply Chain","Growth","Economic Growth"],"Sectors":null,"Toc":null,"Culture":"en","IsFeatured":false,"IsHidden":false},"Item3": {"Id":8080,"Key":"5b1c607a-d2c1-45c7-81e1-55a0e3854a77","Title":"Designed in the US, Built Abroad: The Semiconductor Risk in US Defense","Country":"United States","CountryId":1,"AuthorId":5254,"AuthorName":"Matty O'Malley","AuthorTitle":"Industry Analyst","AuthorPhoto":"/media/iwxophe1/ibisworld-logo-profile-picture.png","AuthorBio":"Matt is an Industry Analyst working out of IBISWorld's New York office.","Image":null,"CategoryId":1126,"CategoryName":"Analyst Insights","Persona":null,"Content":"Semiconductors underpin almost every modern defense capability, from secure communications and radar to precision-guided munitions, satellites and nuclear command-and-control systems. This creates a considerable need for semiconductor manufacturing infrastructure. The Semiconductor Industry Association notes that US-headquartered companies lead globally in design and core IP, capturing roughly half of global semiconductor sales, particularly in design-intensive segments.
\n\n
However, the US captured just 12.0% of global semiconductor manufacturing capacity in 2022. This means that the semiconductor brains of US defense systems are often designed in the US but fabricated and packaged abroad, including in regions that could be contested or cut off in a crisis. The US has been losing ground on manufacturing capacity.
\n\n
Electronics shortages are not typically cited as the primary cause of delays in major US defense modernization programs. However, broader supply chain and industrial-base constraints, which includes electronic components, have been a contributing factor to delays. New engine prototypes under the Next Generation Air Dominance (NGAD) initiative have been pushed back by more than two years, initially expected in late 2027 with new documents now indicating mid-2030, and officials have pointed to supply chain struggles among the reasons for the delay.
\n
Similarly, the Sentinel ICBM program has experienced severe cost growth and schedule delays, with oversight reports citing supply chain, software and infrastructure challenges as key drivers. Also, the US Navy's SSN(X) next‑generation attack submarine program is also expected to be delayed, with reporting in 2024 indicating production beginning in the 2040s from the initial estimates of the 2030s. Official reporting emphasized industrial‑base capacity and budgetary constraints leading to delays.
\n
Unlike many commercial applications, defense systems require chips that can operate at high speed and accuracy while withstanding extreme conditions, including high G‑forces, prolonged vibration, wide temperature swings and radiation in space or nuclear environments. These demands drive continued reliance on radiation-hardened and other legacy-node devices, making many legacy chips strategically vital. At the same time, most large commercial fabricators prioritize high-volume, advanced-node production for consumer markets, while defense microelectronics often require radiation hardening, specialized packaging and long qualification and testing cycles that tie up tools and capacity for relatively small volumes, making them uniquely complex to produce and easier for manufacturers to de-prioritize.
\n\n
South Korea accounts for 37.0% of global manufacturing capacity for chips below ten nanometers, with the remaining 63.0% being produced in Taiwan, giving these countries a central role in producing the world's most advanced semiconductors. Also, China accounted for an estimated 69.0% of legacy node production globally in the third quarter of 2023. This dominance in terms of international infrastructure doesn't begin at the manufacturing stage. China mines an estimated 69.2% of the world's rare earth minerals but processes an estimated 90.0% of them, which are crucial for the production of semiconductors. On the other hand, the US mined an estimated 11.5% of the world's rare earth mineral volume in 2024. The US is very reliant on imports from China; 94.0% of US yttrium imports came from China, a key input in semiconductor manufacturing. Also, 47.5% of rare earth inputs used in South Korean semiconductor manufacturing came from China in 2024. These figures show that even when chips are manufactured in allied countries, their critical inputs often originate from Chinese-controlled supply chains.
\n\n
\n
These vulnerabilities are early-warning indicators of broader production risks. If a single foundry, materials supplier or defense-specific fab encounters trouble, the effects will can ripple through various programs.
\n\n
The semiconductor capacity gap in the US exists because demand for chips is growing faster than the industry's ability to add usable production. Building new fabs is a slow and expensive process, requiring layers of environmental, safety and local permitting requirements. Difficulties have been encountered during the construction of Taiwan Semiconductor Company's facilities in Arizona. The company announced delays of at least a year for the construction of its second facility in Arizona, citing licensing and labor issues.
\n\n
US research, development, test and evaluation (RDT&E) is robust. Still, many defense chip prototypes are built on specialized or older manufacturing processes that do not easily translate to the large, commercial factories that make most of the world's chips. This makes it slow and expensive to move from a successful lab prototype to mass production. Export controls on advanced chips and manufacturing tools bound for China, combined with growing geopolitical risks surrounding Taiwan-centered production and key materials, increase uncertainty.
\n\n
Missile systems and interceptors are among the most vulnerable segments of defense. Every round relies on highly specialized, rigorously validated microelectronics that can't be replaced on short notice. Missile guidance, seekers and flight-control units rely on hardened processors, radiation-tolerant memory and precision sensors that undergo years of qualification and are tightly controlled for reliability and security. Delays or redesigns of these chips can slip flight-test schedules, force new software and hardware integration work, driving up cost overruns for primes and sub-tier suppliers. The commercial sector, including automotive and aircraft manufacturers, is pulling on the same parts of the supply chain, increasing difficulties and competition for sourcing domestically produced products.
\n\n
At the same time, demand from AI companies and cloud providers is tying up the limited chip manufacturing and advanced packaging capacity through massive, long-term contracts. That leaves smaller, defense‑specific orders, often on older but still critical mature node technologies, waiting longer in line and facing a higher risk of not getting the volume they need.
\n\n
The CHIPS Act channels tens of billions of dollars into US manufacturing and R&D, underpinning new or expanded fabs from Intel, TSMC and Samsung. Together, these projects will significantly increase the US leading-edge logic capacity and create more options for defense and commercial buyers to source advanced chips domestically.
\n\n
While this considerable investment is a strong start, gaps remain. The DoD's Trusted Supplier programs cover only a limited set of high‑assurance facilities, with GlobalFoundries still the only commercial high‑volume foundry holding full Trusted Foundry status.
\n\n
Also, defense segments still rely heavily on legacy or mature-node chips, whereas these new builds and expansions focus on producing smaller, advanced chips. Also, even with announced projects such as Amkor's Arizona campus and Intel's investments in EMIB and Foveros, domestic advanced packaging will remain tight through most of this decade. The United States accounts for just 3.0% of the global semiconductor packaging, assembly and test capacity.
\n\n
Although large discoveries and projects, such as the development of rare earth deposits near Wheatland, Wyoming and the Brook Mine–linked work with the National Energy Technology Laboratory, offer a pathway to more domestic sourcing over time, the United States continues to rely heavily on imported rare earths and critical minerals. Even when facilities begin production, finding qualified workers for these facilities will likely be difficult. The Semiconductor Industry Association forecasts that the US semiconductor workforce will expand from an estimated 345,000 jobs in 2023 to 460,000 by 2030, go unfilled, representing a nearly 115,000-job increase. However, the association warns that 67,000 of these new positions are likely to remain unfilled.
\n\n
Defense demand can act as a first, hard customer that drives the development of new US semiconductor capabilities. By issuing multi-year, high-assurance contracts for trusted legacy nodes, radiation-hardened parts, secure packaging and AI-grade processors, defense de-risks private capital expenditures and justifies new domestic fabs, advanced packaging lines and materials facilities. Historically, this dual‑use path turned early defense investments in radar, GPS and the internet into commercial platforms. Today, similar spillovers can help accelerate a more resilient electronics supply chain in sectors such as automotive and cloud computing.
\n\n
Rebuilding domestic semiconductor strength is no longer optional—it underpins military readiness, global credibility and long-term economic resilience.
","TimeToRead":6,"FinalWord":null,"KeyTakeaways":null,"DatePublished":"2026-01-12T00:00:00Z","DatePublishedTimestamp":0,"DateFormatted":"January 12, 2026","UrlSlug":"/semiconductor-supply-chain/","SeoTitle":"Designed in the US, Built Abroad: The Semiconductor Risk in US Defense","SeoDescription":"US defense relies on chips manufactured overseas, reflecting strong US design leadership but limited domestic manufacturing capacity and supply chain risks linked to China.","SeoImageUrl":"/media/cozh5p0k/socialmedia-logo.png","Tags":["Defense","Innovation","Semiconductor","Manufacturing","Trade","China","Business Growth","Supply Chain","Growth","Economic Growth"],"Sectors":null,"Toc":null,"Culture":"en","IsFeatured":false,"IsHidden":false}}}