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Tuesday, January 31, 2023

USA’s Huge Investment into Chip Manufacturing, may be a White Elephant

In September, chip giant Intel gathered officials at a site near Columbus, Ohio, where it pledged to invest at least $20 billion in two new semiconductor factories.

A month later, Micron Technology celebrated a new manufacturing facility near Syracuse, N.Y., where the chip company expected to spend $20 billion by the end of the decade and possibly five times that amount eventually.

And in December, Taiwan Semiconductor Manufacturing Company held a shindig in Phoenix where it plans to triple its investment to $40 billion and build a second new factory to make advanced chips.

The pledges are part of a huge surge in U.S. chip-making plans over the past 18 months, the scale of which has been compared to Cold War-era investment in the space race. The boom has implications for global technology leadership and geopolitics, with the United States aiming to prevent China from becoming an advanced power in chips, the wafers of silicon that have led to innovative computing devices such as smartphones and virtual reality glasses.

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Today, chips are an essential part of modern life beyond the creations of the tech industry, from military equipment and automobiles to kitchen appliances and toys.

More than 35 companies across the country have pledged nearly $200 billion in chip-related manufacturing projects as of spring 2020, according to the Semiconductor Industry Association trade group. The money is to be spent in 16 states, including Texas, Arizona and New York, on 23 new chip factories, nine plant expansions and investments by companies supplying equipment and materials to the industry.

The push is one aspect of the Biden administration’s industrial policy initiative, which is dangling at least $76 billion in grants, tax breaks and other subsidies to support domestic chip manufacturing. Along with providing large-scale funding for infrastructure and clean energy, the effort represents the largest U.S. manufacturing investment since World War II, when the federal government freed up spending on new ships, pipelines and aluminum and rubber factories.

“I’ve never seen a tsunami like this,” said Daniel Armbrust, former CEO of Sematech, a now-defunct chip consortium formed in 1987 with the Department of Defense and funding from member companies.

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President Biden has staked a significant part of his economic agenda on stimulating U.S. chip manufacturing, but his reasons go beyond economic benefits. Most of the world’s current high-end chips are made in Taiwan, an island to which China claims territorial rights. This raised concerns that semiconductor supply chains could be disrupted in the event of a conflict – and that the United States would be at a technological disadvantage.

New manufacturing efforts in the United States may redress some of those imbalances, industry executives said — but only to a point.

New chip factories would take years to build and may not be able to offer the most advanced manufacturing technology in the industry when they start operating. Companies could also delay or cancel projects if the White House doesn’t grant them enough subsidies. And a severe skills shortage could derail the boom, as complex factories need far more engineers than the number of students graduating from American colleges and universities.

The U.S. chip-making money bonanza “will neither try nor succeed in achieving self-sufficiency,” said Chris Miller, associate professor of international history at Tufts University’s Fletcher School of Law and Diplomacy and author of the book. a recent book on chip industry battles.

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White House officials have argued that investment in chip manufacturing will sharply reduce the share of chips that must be purchased from abroad, improving U.S. economic security. At a TSMC event in December, Mr. Biden also highlighted the potential impact on technology companies like Apple that rely on TSMC to make chips. He said it “could be a game changer” as more of these companies “bring more of their supply chain home”.

American companies have led chip production for decades since the late 1950s. However, the country’s share of global manufacturing capacity has gradually declined to about 12 percent from about 37 percent in 1990 as countries in Asia provided incentives to shift production to those shores.

Today, Taiwan accounts for about 22 percent of total chip production and more than 90 percent of the most advanced chips produced, according to industry analysts and the Semiconductor Industry Association.

The new spending is meant to improve America’s position. The $50 billion in government investment is likely to spur corporate spending that would boost the U.S. share of global output to as much as 14 percent by 2030, according to a 2020 Boston Consulting Group study commissioned by the Semiconductor Industry Association.

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“It really put us in the game for the first time in decades,” said John Neuffer, the association’s president, who added that the estimate may be conservative because Congress approved $76 billion in subsidies in legislation known as the CHIPS Act. .

Still, this increase is unlikely to eliminate US dependence on Taiwan for the most advanced chips. Such chips are the most powerful because they contain the highest number of transistors on each silicon wafer and are often considered a sign of a country’s technological progress.

Intel has long led the race to reduce the number of transistors on a chip, which is usually described in nanometers or billionths of a meter, with smaller numbers denoting the most advanced manufacturing technology. After that, TSMC has risen sharply in recent years.

But at its Phoenix headquarters, TSMC doesn’t have to import its most advanced manufacturing technology. The company initially announced it would make 5-nanometer chips at the Phoenix factory before saying last month it would also make 4-nanometer chips there by 2024 and build a second 3-nanometer chip factory to open in 2026. . It stopped short of discussing further progress.

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In contrast, TSMC’s factories in Taiwan began manufacturing 3-nanometer technology at the end of 2022. By 2025, factories in Taiwan are likely to start supplying Apple with 2-nanometer chips, said Handel Jones, CEO of International Business Strategies.

TSMC and Apple declined to comment.

It’s unclear whether other chip companies will bring more advanced high-end chip technology to their new operations. Samsung Electronics plans to invest $17 billion in a new factory in Texas, but has not disclosed its manufacturing technology. Intel makes chips at about seven nanometers, though it has said its U.S. factories will produce three-nanometer chips by 2024, and even more advanced products soon after.

The spending boom is also meant to reduce, though not erase, the US’s reliance on Asia for other kinds of tokens. Domestic factories make only about 4 percent of the world’s memory chips — which are needed to store data in computers, smartphones and other consumer devices — and Micron’s planned investment could eventually increase that percentage.

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But there are still likely to be gaps in a range of older, simpler chips that have been in such short supply for the past two years that US automakers have had to close factories and produce semi-finished vehicles. TSMC is a major maker of some of these chips, but is focusing its new investments on more profitable advanced chip plants.

“We still have a dependency that is not affected in any way, shape or form,” said Michael Hurlston, chief executive of Synaptics, a Silicon Valley chip designer that relies heavily on TSMC’s older factories in Taiwan.

The chip-making boom is expected to create a job bonanza of 40,000 new roles in fabs and the companies that supply them, according to the Semiconductor Industry Association. That would add about 277,000 employees to the U.S. semiconductor industry.

But filling so many qualified positions will not be easy. Chip factories typically need technicians to operate factory machinery and scientists in fields such as electrical and chemical engineering. According to recent surveys of executives, the talent shortage is one of the industry’s toughest challenges.

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The CHIPS Act includes funding for workforce development. The Commerce Department, which oversees the distribution of grant money from CHIPS Act funds, also made clear that organizations hoping to receive funding should come up with plans to train and educate workers.

In response to the problem, Intel plans to invest $100 million to support training and research at universities, community colleges and other technical educators. Purdue University, which has built a new semiconductor lab, has set a goal of graduating 1,000 engineers each year and has lured chip maker SkyWater Technology to build a $1.8 billion manufacturing facility near its Indiana campus.

But training can only go so far as chip companies compete with other industries that are desperate for workers.

“We’re going to have to build a semiconductor economy that attracts people when they have a lot of other options,” Mitch Daniels, who was Purdue’s president at the time, said at an event in September.

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Because training efforts can take years to bear fruit, industry executives want to make it easier for highly educated foreign workers to obtain visas to work in the United States or stay after earning a degree. Washington officials are aware that comments calling for more immigration could spark a political firestorm.

But Gina Raimondo, the commerce secretary, was blunt in a speech in November at the Massachusetts Institute of Technology.

Attracting the world’s best scientific minds is “an advantage America has to lose,” she said. “And we will not allow that.”

This article was originally published by The New York Times

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