The US puts money into chips, but even increasing spending has limits

In September, chip giant Intel rounded up officials on a piece of land near Columbus, Ohio, where it pledged to invest at least $20 billion in two new semiconductor manufacturing plants.

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

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

The pledges come as part of a surge in US chip manufacturing plans over the past 18 months, the scale of which has been compared to Cold War-era space race investments. The boom has implications for global technological leadership and geopolitics, with the United States aiming to prevent China from becoming an advanced power in chips, the silicon wafers that have fueled the development of innovative computing devices like smartphones and virtual reality glasses .

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

According to the Semiconductor Industry Association, a trade group, as of spring 2020, more than 35 companies nationwide have committed nearly $200 billion to chip-related manufacturing projects. The money will be spent in 16 states, including Texas, Arizona and New York, on 23 new chip factories, the expansion of nine plants and investments by companies that supply equipment and materials to the industry.

The push is one facet of an industrial policy initiative by the Biden administration that will provide at least $76 billion in grants, tax credits and other subsidies to boost domestic chip production. Coupled with providing massive funding for infrastructure and clean energy, the effort represents arguably the largest U.S. investment in manufacturing since World War II, when the federal government freed up spending on new ships, pipelines and factories to make aluminum and rubber.

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

President Biden has put an important part of his economic agenda on stimulating U.S. chip production, but his reasons go beyond the economic benefits. Many of the world’s most advanced chips are now made in Taiwan, the island where China claims territorial rights. That has raised fears that semiconductor supply chains could be disrupted in the event of a conflict – and that the United States will be at a technological disadvantage.

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The new U.S. manufacturing effort could correct some of those imbalances, industry executives said — but only to a point.

The new chip fabs would take years to build and may not feature the industry’s most advanced manufacturing technology when they become operational. Companies could also delay or cancel the projects if they don’t get adequate subsidies from the White House. And a severe labor shortage could undermine the boom, as the complex factories require far more engineers than students graduating from US colleges and universities.

The U.S. chip production bonanza “will not attempt or succeed in achieving self-sufficiency,” said Chris Miller, associate professor of international history at the Fletcher School of Law and Diplomacy at Tufts University and author of a recent book on the battles the chip industry.

White House officials have argued that investing in chip manufacturing will greatly reduce the proportion of chips that have to be bought from abroad and improve US economic security. At the TSMC event in December, Mr. Biden also highlighted the potential impact on technology companies like Apple that rely on TSMC for their chip manufacturing needs. He said that “it could be a game changer” as more of these companies “bring more of their supply chain home.”

US companies led chip production for decades beginning in the late 1950s. But the country’s share of global manufacturing capacity gradually fell from about 37 percent in 1990 to about 12 percent as Asian countries offered incentives to move production to those shores.

According to industry analysts and the Semiconductor Industry Association, Taiwan now accounts for about 22 percent of all chip production and more than 90 percent of the most advanced chips manufactured.

The new editions aim to improve America’s position. According to a 2020 study by the Boston Consulting Group, commissioned by the Semiconductor Industry Association, a $50 billion government investment is likely to trigger corporate spending that will boost the U.S. share of global manufacturing by 2030 would bring to 14 percent.

“He really puts us back in the game for the first time in decades,” said John Neuffer, the association’s president, adding that the estimate may be conservative given that Congress has approved $76 billion in subsidies in a CHIPS Act known law has approved .

Still, the ramp-up is unlikely to eliminate US reliance on Taiwan for the most advanced chips. Such chips are the most powerful because they pack the most transistors on each silicon wafer, and they are often held up as a sign of a nation’s technological advancement.

Intel has long led the race to shrink transistor sizes to fit more on a chip. This pace of miniaturization is usually given in nanometers or billionths of a meter, with smaller numbers indicating the most advanced production technology. Then TSMC has come a long way in recent years.

But at its Phoenix location, TSMC may not be importing its most advanced manufacturing technology. The company first announced it would produce five-nanometer chips at the Phoenix fab, before saying last month it would also make four-nanometer chips there by 2024 and build a second fab for three-nanometer chips. which will open in 2026. She paused to discuss further progress.

In contrast, TSMC’s factories in Taiwan started producing three-nanometer technology in late 2022. By 2025, factories in Taiwan will likely start supplying Apple with two-nanometer chips, said Handel Jones, chief executive at International Business Strategies.

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TSMC and Apple declined to comment.

Whether other chip companies will bring more advanced technology for cutting-edge chips to their new locations is unclear. Samsung Electronics plans to invest $17 billion in a new factory in Texas, but hasn’t disclosed its production technology. Intel makes chips at about seven nanometers, although it has announced that its U.S. factories will make three-nanometer chips by 2024, and even more advanced products soon thereafter.

The spending boom will also reduce, though not eliminate, US reliance on Asia for other types of chips. Domestic factories produce only about 4 percent of the world’s memory chips — needed to store data in computers, smartphones, and other consumer devices — and Micron’s planned investments could eventually increase that percentage.

But there are likely still gaps in a variety of older, simpler chips that have been in such short supply over 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 facilities.

“We still have a dependency that isn’t being compromised in any way,” said Michael Hurlston, chief executive of Synaptics, a Silicon Valley-based chip designer that relies heavily on TSMC’s legacy fabs in Taiwan.

The chip-making boom is expected to create a bonanza of 40,000 new jobs at factories and companies that supply them, according to the Semiconductor Industry Association. That would be in addition to about 277,000 jobs in the US semiconductor industry.

But it won’t be easy to fill so many qualified positions. Chip factories usually need technicians to run factory machines and scientists in fields like electrical and chemical engineering. Talent shortages are one of the industry’s biggest challenges, according to recent executive surveys.

The CHIPS law contains funds for personnel development. The Department of Commerce, which oversees the allocation of grant money from the CHIPS Act funds, has also made it clear that organizations hoping to receive funding should come up with plans for training and upskilling workers.

Intel is responding to the problem and plans to invest $100 million to boost education 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 led chipmaker SkyWater Technology to open a $1.8 billion manufacturing facility near its Indiana campus to build.

However, the education may only go so far as chip companies compete with other industries that are in dire need of workers.

“We need to build a semiconductor economy that will attract people when they have many other opportunities,” Mitch Daniels, who was then President of Purdue, said at an event in September.

Because training efforts can take years to bear fruit, industry leaders want to make it easier for highly qualified foreign workers to obtain visas to work in the United States or to remain after graduation. Officials in Washington are aware that comments encouraging more immigration could spark political fire.

But Gina Raimondo, the Secretary of Commerce, was candid in a November speech at the Massachusetts Institute of Technology.

Attracting the best scientific minds in the world is “an advantage America can lose,” she said. “And we will not allow that.”