News & Analysis

The US bid to shore up its semiconductors

17th January 2023
Kristian McCann
0

Following the invasion of Ukraine, nations were hit with a stark reality that previously unimaginable events happening in remote corners of the world can disrupt the global supply chains and commodities necessary for the functioning of their society. Although the disruptions arising from Ukraine have so far been sustained, the event has prompted the US to take out a contingency for another flash point that, if lit, could wreak equal or greater damage.  

 President Biden is going hard on semiconductors as he signals plans to up the US domestic manufacturing output. The CHIPS for America Act, passed in August 2022, allocated roughly $280bn in new funding to boost domestic research and manufacturing of its semiconductors and secure its supply.

As mentioned above, this is in part due to seeing the effects of a supply shortage following a fallout of war. But also given recent Chinese displays in the South China Sea, driven by a now more serious consideration that an invasion of Taiwan could potentially occur. A reality that reportedly half of foreign companies in Taiwan have now made contingency plans for.

Semiconductor superpowers

 The five countries that produce the most semiconductors are China, Taiwan, South Korea, Japan and the US. But not all semiconductors are created equal. In 2021, only three firms could manufacture the most advanced semiconductors: Taiwan’s Taiwan Semiconductor Manufacturing Company (TSMC), South Korea’s Samsung, and the US’s Intel; Japan and China specialise in production of simpler chips. The US currently does not manufacture any of the highest-performing chips, with 92% of these chips being produced by Taiwan.

Last November, Ford Motor Co.’s Chief Executive Jim Farley told chip executives in California that factory workers in North America had only worked a full week three times since the beginning of 2022 because of chip shortages. This supply chain was hampered by increased demand for consumer goods during lockdown outstripping supply and by the disrupting effects of not just the Covid virus but policies like zero-Covid adopted and continued by countries like Taiwan and China up until late last year. The concoction of issues resulted in global auto makers reportedly losing $210bn of sales last year. 

With TSMC roughly controlling 55% of the global market for contract chip fabrication, an industry valued at $555,9bn in 2021, any disruption to its production capabilities, like that seen over the past two years, can severely affect countries whose economies are reliant on them. But if a full-blown invasion were to occur, the US would likely see not only a bigger drop in semiconductor exports from Taiwan than it has ever seen before, but it would also likely cut off trade with China as repercussion for its action. Reducing, in-turn, the US’ import of both advanced and simple semiconductors. 

Will the US be able to ween off?

Where there’s a will is there always a way? The task the US has set itself in becoming self-sufficient is a huge one. To start with, the average export price per chip from the US is $2.16. For Taiwan its $0.32. This gap can be closed by increasing manufacturing capacity, as the US’ roughly $52bn included for research and development and investment in facilities in the CHIPS for America Act intends to do. 

However, TSMC founder and CEO Morris Chang, who although acknowledged the national security considerations to why the US want to procced up this path, labelled the move “a wasteful and expensive exercise in futility.’ He cited the performance his company has had in a smaller facility they have in Washington for the past 25 years compared to those they've manufactured in Taiwan. The chips produced in Washington cost 50% more than those it manufactures in Taiwan. And these sentiments are even echoed in TSMC’s recent plans to build a plant in the US. They complained to the US Commerce Department that the cost of their facility in Arizona would be much greater than its equivalent in Taiwan, due to factors like regulatory requirements, wage costs, productivity, construction delays and higher taxes.

Despite this criticism from the world’s biggest semiconductor company of the US’ push for parity, the fact is that there are billions in investment being offered with the CHIPS for America Act. Combine that with persuasion from Apple, TSMC's biggest buyer, the offerings have been taken up, not just by TMSC but Intel too, who broke ground on a $20bn semiconductor manufacturing facility project in Ohio soon after the act was approved. And with TSMC having upped their initial $12bn investment for their Arizona facility to $40bn, it would be a lot of money for it to waste if it thought this idea was already dead in the water.

Featured products

Product Spotlight

Upcoming Events

View all events
Newsletter
Latest global electronics news
© Copyright 2024 Electronic Specifier