The United States spends billions on chip production. Will it be enough?

The US government is doing all it can to boost domestic semiconductor manufacturing, pumping billions of dollars into this constrained sector and putting in place all available policy mechanisms to give it a competitive edge in Asia.

When the pandemic hit in 2020, companies initially reduced their orders for these essential microcomponents needed for smartphones, computers, cars, and many other products. Then, when people started working from home, the demand for information and communication technologies – and the chips that power them – increased. There was a shortage of chips, and car factories had to stop production because they couldn’t get chips. This contributed to a spike in prices for new and used vehicles, one of the main contributors to the painful inflation that Americans were feeling at the time.

In a statement earlier this year, Commerce Secretary Gina Raimondo viewed the shortage of semiconductors as a matter of national securitybecause it revealed the US manufacturing industry’s dependence on imports of semiconductors from abroad. Chips are also used in essential military services and are needed in cybersecurity tools.

The Biden administration and lawmakers rallied to respond by passing a bill called the “CHIPS and Science Act” in August. The degree includes $52 billion to boost semiconductor manufacturing in the United States. Of this amount, $39 billion is for production incentives, $13.2 billion for research and development and worker training, and $500 million for international information technology security and movements in the semiconductor distribution chain.

In this context, several large companies have announced major investments in the American manufacturing industry. Taiwan Semiconductor Manufacturing Company (TSMC), an industry leader, has invested at least $12 billion to build a semiconductor factory in Arizona, with the Production is expected to start in 2024. At the start of the year, the Intel said it plans to build a $20 billion semiconductor factory in Ohio, with the groundbreaking ceremony for the new chip factory taking place last month. And this month, Micron announced that it would invest up to $100 billion over the next two decades in the construction of a huge semiconductor factory in upstate New York.

In a series of tweets earlier this month, President Joe Biden Prometheus: “America will be a leader in the manufacture of microchips.”

But the United States has a long way to go to catch up. US based chip factories currently represent only 12% of the world’s ability to manufacture modern semiconductors, according to data from the Semiconductor Industry Association. About 75% of the world’s modern chip manufacturing is now concentrated in East Asia – the majority in geopolitically vulnerable Taiwan. And even with these renewed efforts, the United States does not currently have the same production practice and capacity as some Asian markets capable of supporting a robust domestic industry.

A chip from Taiwan Semiconductor Manufacturing Company (TSMC) on display at the 2020 Global Semiconductor Conference in Nanjing, east China’s Jiangsu Province, Aug. 26, 2020. STR/AFP/Getty Images

To complicate matters, the surge in public and private investment comes at a controversial time as concerns about global chip shortages have eased. Pandemic-related supply chain bottlenecks are easing slightly and deteriorating economic prospects have hampered demand.

During an earnings call last week, CC Wei, chairman of TSMC, warned that he expects “the semiconductor industry to decline” in 2023. Shelter either,” Wei added, but said he expects to “be more resilient.” than the general semiconductor industry.

The promotion of semiconductor manufacturing in the United States can now lead to overcapacity and oversupply. And with demand falling, it’s not immediately clear whether government subsidies will be enough to overcome the other hurdles the country faces in developing a competitive semiconductor manufacturing hub.

Understanding American Problems

To understand the latest U.S. efforts, it’s important to get a sense of where the country stands — not just in the chip industry in general, but relative to specific value sectors.

“It is highly unlikely that the United States will increase its share of global production because even if the United States increases its manufacturing capacity, TSMC, Intel and others are announcing the opening of factories elsewhere and still building them. faster,” said Scott Kennedy, senior consultant at the Center for Strategic and International Studies.

“But I don’t think that’s necessarily a big deal,” he added. He further noted that assessing manufacturing capacity based on gross output, which aggregates low-end chips and high-end chips, is a more realistic and meaningful metric to assess chip manufacturing success. . “The United States needs to increase chip production at the level of a specific type of chip directly related to US national security,” he said.

Last Friday, the Biden administration imposed new export restrictions restricting China’s access to advanced semiconductors made with American equipment, as part of a move to manufacture advanced weapon systems.

Although only “about 10% to 14% of the chips sold [globalmente] come from American factories,” according to Dan Wang, a professor at Columbia Business School, the United States has other advantages. “In terms of design experience, a good chunk of it still resides in the United States.”

Technicians inspect equipment during a visit to Micron Technology’s automotive chip plant February 11, 2022 in Manassas, Virginia. Steve Helber/AP

Yet the shortcomings are palpable. “In terms of steel mills, responsible for manufacturing semiconductors, the United States has not played a leading role for many years,” Wang said. Whereas in the past, in the 1980s and 1990s, production began to migrate to Asia, Wang said. “One of the main reasons for this is that the labor cost is lower and it is much cheaper to produce large-scale ICs and chips in these parts of the world,” added Wang. Morris Chang, founder of TSMC, said chip manufacturing in the United States is 50% more expensive than in Taiwan.

The fact that they have factories already established to produce or increase the manufacture of chips gives Asian countries a big advantage. Wang thinks that may be why we see the United States “pouring so much money into companies building factories in the United States.” It’s not just to meet demand and become more self-sufficient, “but also because we have to get these factories up and running very, very quickly if we want to enter the race”.

What it takes to build a national chip industry

Building new chip factories is an expensive and time-consuming business. “A modern factory covers an area of ​​about 100,000 square meters,” said Gartner analyst Bob Johnson, and requires “monstrous clean rooms with incredible air-handling capacity.” He added that these huge buildings need “exceptionally strong foundations”. According to him, “there can be no vibration in the factory because it can destroy the production process”. Additionally, only one extreme ultraviolet lithography machine was needed to map the circuitry of the chip, costs about $150 millionand Reuters reports that “a modern chip factory needs 9 to 18 of these machines”.

Additionally, semiconductor manufacturing requires a variety of specialized raw materials, including pure chemicals such as fluorinated polyimide and write gases, chip write machines, and more. In places like Taiwan and Fukuoka, Japan, production lines have developed in areas where suppliers of these products are located near semiconductor factories. There are also one or two companies that produce key raw materials and have long been trusted suppliers for businesses in Asia. That’s not yet the case in places like Arizona and Ohio, where plans are already underway to build massive chip factories.

It also requires a workforce that is available and capable of doing the job.

In the United States, there is a shortage of young graduates and experienced workers with the technical and engineering skills needed to manufacture semiconductors. Many who can have adequate experience prefer to work in more popular industries, according to Kennedy.

“If we snapped our fingers and 10 new factories came up with the best chips in the world, we probably wouldn’t have enough people to run them,” Kennedy said. “It’s the greatest obstacle to increasing America’s productive capacity, not capital.”

Intel tried to establish a special relationship with Arizona State University to recruit engineers, but it’s not liquid that this company and others are building factories in America are able to hire sufficiently trained engineers and technicians. If they fail, the billions of dollars invested by the private and public sectors may not be enough to rehabilitate semiconductor manufacturing.

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