By Claude Barfield
You know the semiconductor industry has reached star status when CBS’s “60 Minutes” devotes a long segment to its fortunes, and the front page of The Economist warns that “the most dangerous place on Earth” (Taiwan) houses the plants that manufacture America’s vital advanced microchips. Now, the US is poised to pour some $50 billion of public funds into the sector. A lot is happening with semiconductors; what follows are observations on both the policy state of play and realities of the US and worldwide semiconductor industries.
First, though the “60 Minutes” segment was quite good, it presented an incomplete (and dire) picture of the US semiconductor industry by stressing the drop in US chip manufacturing. While it is true that America’s share of global chip production dropped from around 40 percent in 1990 to 11 percent in 2019, the US semiconductor industry still leads the world in several other respects. In 2019, the American chip industry accounted for about 47 percent of world semiconductor sales (which totaled $412.3 billion), and the US now ranks among the world’s top-five chip exporters (shipping almost $47 billion worth in 2019). American chip companies also spent about $40 billion on research and development (R&D) in 2019, amounting to 16.4 percent of sales.
Additionally, an exhaustive analysis by Nikkei notes some 80 percent of design, software, and processing equipment (etching, ion implantation, wafer inspection, etc.) is in the hands of US companies. Overall, as a recent New York Times headline described, “Despite Chip Shortage, Chip Innovation is Booming.”
Second, concerning Congress’ and the Joe Biden administration’s determination to provide large public funds for US-based chip factory (or “fab”) production, the case rests solidly on security — not innovation — grounds. The world’s largest and most advanced semiconductor company, Taiwan Semiconductor Manufacturing Company (TSMC), is located in Taiwan, now the epicenter of the burgeoning US-China economic and strategic conflict. As China considers Taiwan a “runaway” province and has vowed to reclaim it despite staunch US support, it is prudent to seek safer ground for this indispensable chip supply chain.
For multiple reasons — strategic, economic, or the appeal of US public subsidies — a number of companies have announced plans to build or expand semiconductor fabs at several candidate sites. Two foreign companies and one American company are leading candidates for filling the semiconductor manufacturing gap.
Under pressure from the Donald Trump administration, in May 2020, TSMC announced plans to build a $12 billion plant in Arizona (where it already had a facility). Now, reports indicate TSMC will expand its investment to some six plants, worth $35 billion with capabilities from 30 nanometer (nm) chips down to 5nm. TSMC currently manufactures over 80 percent of the world’s most advanced (3nm) chips, and it is slated to spend $100 billion in capital investment over the next three years — largely for advanced new microprocessors. As with other potential fab developers, TSMC has made it clear that it expects public support from the US government in carrying out its new production plans.
South Korean telecom giant Samsung has also announced plans to build a $17 billion facility — likely in Austin, Texas, but with Arizona and New York as possible alternatives. The foundry will produce advanced (5nm, and later possibly 3nm) chips, and is slated to begin production in late 2023. Samsung is in the process of securing some $800 million in local and state public support (largely through tax breaks) to support its plans.
Intel, the lone large American chip manufacturer, has struggled in recent years, having fallen behind in the race to produce advanced 7nm chips. But under its new CEO Pat Gelsinger, the company has announced highly ambitious — and chancy — plans to reenter the competition for advanced microprocessors and to renew its role in cloud computing services. It has also announced plans to build two new foundries in Arizona — one devoted to less advanced chips for automobiles. On “60 Minutes,” Gelsinger admitted the company had “stumbled,” but held out hope of catching up with TSMC in three to five years. But outside observers, pointing to TSMC’s huge R&D spending plans, think this catchup could take up to a decade.
A number of important questions remain. Regarding the execution of the Biden administration’s fab support program, what are the terms and conditions for private firms receiving US public funds? Will foreign companies such as TSMC and Samsung be eligible for support given their clear technological achievements? To what degree will Congress attempt to limit the substantial sales all three companies have with China?
Finally, how much will Congress or the Biden administration attempt to micromanage the subsidies? Automobile companies are pushing for foundries dedicated to the less advanced microprocessors used in autos and trucks, while the Semiconductors for America Coalition (a new tech company alliance) opposes detailed prescriptions.
There are many unsettled questions and moving targets here, so stay tuned.