The New York Times and other U.S. media reported this week that lawmakers in the U.S. took a bipartisan measure to support proposals for funding to the semiconductor industry. The U.S. (and the rest of the world) is mostly dependent on semiconductors manufactured in Taiwan and China, though chips are manufactured elsewhere as well. Companies like Apple design their microprocessors and products in California, but Apple’s chips are mass-produced in factories outside U.S. soil.
Given the current state of affairs in China and Taiwan and the on-going U.S.-China trade wars, continued dependence on those supply chains could be risky for American companies.
The United States has also imposed restrictions on imports of semiconductors from Chinese company Huawei Technologies and American companies are not permitted to use Huawei chips. This will also choke the supply of semiconductors to American telecom companies and other sectors that need semiconductors.
According to Select USA1, the U.S. semiconductor industry generated global sales of $166 billion out of a $335 billion total market in 2015. Over 82 percent of U.S. semiconductor industry sales occur overseas and the U.S. industry share of the global market was 50 percent in 2015.
So this is also important for the U.S. economy.
The global semiconductor industry is dominated by companies from the United States, Taiwan, South Korea, and the European Union. The industry’s annual semiconductor sales revenue has since grown to over $481 billion2, as of 2018.
China’s semiconductor investments
The U.S. can take cues from China, which invests billions of dollars in expanding its semiconductor manufacturing, to produce 5G chips, IoT sensors, and artificial intelligence-enabled chips.
The Wallstreet Journal3 reported that China has set up a new national semiconductor fund of 204.2 billion yuan ($28.9 billion), as it seeks to nurture its domestic chip industry and close the technology gap with the U.S.
It was widely reported in the media in May, that Shanghai-based chip maker Semiconductor Manufacturing International Corp (SMIC) announced that it secured an investment worth $2.2 billion dollars from Chinese state investors.
How other countries are investing in semiconductors
There is a demand for advanced chips that are made using 5-nanometer and 7-nanometer process technologies. These chips are used in high-end phones made by Apple and others. Only a few semiconductor manufacturing companies in the world have this capability, Taiwan Semiconductor Manufacturing Company (TSMC) being one example. Most of the manufacturing companies are still using 14-nanometer process technologies that were introduced last year.
Other countries like Israel and Germany have long set up their chip fabrication units. The world’s leading chipmakers, Intel and AMD, have invested in chip fabrication plants outside the U.S. — AMD’s is near Dresden, Germany, and Intel’s are in Ireland, Israel, and China. Apart from that, they have testing and assembly sites in other countries like Malaysia and Vietnam.
Even smaller countries like South Korea and Singapore are stepping up semi-conductor manufacturing.
A bullish future for the semiconductor industry
Semiconductors are used not just in consumer electronics, but in all industries ranging from manufacturing to entertainment. Increased digitalization across industries and new applications drive demand for semiconductor chips and other products like microcontrollers and sensors. Future demand for semiconductors looks promising. New apps like autonomous cars, drones, military and defense applications, communication satellites, industrial IoT, clean energy solutions, quantum computing, cryptocurrency mining, 5G mobile technologies, artificial intelligence, and robotics — all need advanced semiconductor chips.
Today’s processors and current chip manufacturing processes will not be suitable for all those power-hungry applications. For instance, cryptocurrency mining requires specialized processors called GPUs, which Nvidia is manufacturing. Nvidia is also building chipsets for autonomous vehicles; its Tega processor is used in Tesla cars.
That’s why the U.S. needs to start building chip manufacturing factories or fabrication units (fabs) — which could cost at much as $10 billion per factory. If it does not set up these fabs now, it will be left behind in the race for technological dominance. It will continue to be dependent on other nations for its supply of semiconductors. Exports of semiconductors is also important for the U.S. economy.
The way to accelerate manufacturing is to invite Asian semiconductor manufacturing companies to collaborate with U.S. semiconductor companies and set up manufacturing units on U.S. soil. For instance, Defense News4 reported that Intel and Taiwan Semiconductor are already holding talks with the Trump administration about building semiconductor plants in the U.S.
Nvidia, Qualcomm, Broadcom, Micron Technology, Texas Instruments, Motorola, and others can do likewise. South Korean companies like Samsung and S.K. Hynix can also throw their hat into the U.S. manufacturing arena. The E.U. is also has a formidable player and should not be ignored.
[1] https://www.selectusa.gov/semiconductors-industry-united-states
[3] https://www.wsj.com/articles/china-sets-up-new-29-billion-semiconductor-fund-11572034480
