The US is pouring money into chips, but even rising spending has limits

In September, chip giant Intel gathered employees on a piece of land near Columbus, Ohio, where pledged to invest at least $20 billion in two new semiconductor factories.

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

And in December, Taiwan Semiconductor Manufacturing Company hosted an exhibition in Phoenix, where it plans to tripled its investments to $40 billion and building a second new factory to create advanced chips.

The pledges are part of a huge surge in U.S. chip manufacturing plans over the past 18 months, the scale of which has been compared to Cold War Investments in the Space Race. The boom has implications for global technology leadership and geopolitics with the United States in order to prevent China from becoming an advanced force in chips, silicon wafers which led to the creation of innovative computing devices such as smartphones and virtual reality glasses.

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

Nationwide, more than 35 companies have pledged nearly $200 billion in chip-related manufacturing projects as of spring 2020, according to the Semiconductor Industry Association, a trade group. 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 supplying equipment and materials to the industry.

Pushing is one aspect of industrial policy initiative by the Biden administration, which has at least $76 billion in grants, tax credits and other subsidies to encourage domestic chip manufacturing. Along with providing extensive funding for infrastructure and clean energy, the effort represents the largest U.S. investment in manufacturing possibly since World War II, when the federal government unleashed spending on new ships, pipelines and factories to produce aluminum and rubber.

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

President Biden has staked a major part of his economic agenda on boosting U.S. chip manufacturing, but his reasons go beyond economic benefits. Many of the most advanced chips in the world today are like this made in Taiwan, the island over which China claims territorial rights. That 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 U.S. manufacturing efforts may correct some of those imbalances, industry executives said — but only to an extent.

The new chip factories will take years to build and may not be able to offer the industry’s most advanced manufacturing technology when they go live. Companies may also delay or cancel projects if they are not given sufficient subsidies by the White House. And severe skills shortages could undermine the boom, as complex factories need far more engineers than the number of students graduating from U.S. colleges and universities.

The U.S. chip money zone “will not try or 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 a recent book on the chip battles the industry.

White House officials say investment in chip manufacturing will sharply reduce the share of chips needed to be purchased from abroad, improving U.S. economic security. At the TSMC event in December, Mr. Biden also highlighted the potential impact on tech companies like Apple, which rely on TSMC for their chip-making needs. He said “this could be a game-changer” as more of these companies “bring more of their supply chain in-house.”

American companies led chip manufacturing for decades, beginning in the late 1950s. But the country’s share of global manufacturing capacity gradually fell to about 12 percent from about 37 percent in 1990 as countries in Asia provided incentives to move 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 should improve America’s position. A $50 billion government investment is likely to drive corporate spending that will push the U.S. share of global manufacturing to 14 percent by 2030, according to a 2020 Boston Consulting Group study commissioned by the Semiconductor Industry Association.

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

Still, the increase is unlikely to eliminate U.S. dependence on Taiwan for cutting-edge chips. Such chips are the most powerful because they contain the largest number of transistors on each slice of silicon and are often seen as a sign of a nation’s technological progress.

Intel 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 indicating the most advanced manufacturing technology. Then TSMC jumped ahead in recent years.

But at its Phoenix site, TSMC may not be importing its most advanced manufacturing technology. The company initially announced it would make 15-nanometer chips at the Phoenix factory before saying last month it would also produce 4-nanometer chips there by 2024 and build a second factory, set to open in 2026, for 3-nanometer chips. He stopped discussing further progress.

In contrast, TSMC’s factories in Taiwan at the end of 2022 began to produce three-nanometer technology. By 2025, factories in Taiwan are likely to start supplying Apple with two-nanometer chips, said Hendel Jones, chief executive of International Business Strategies.

TSMC and Apple declined to comment.

It’s unclear whether other chip companies will deploy more advanced cutting-edge chip technologies at their new facilities. Samsung Electronics plans to invested 17 billion dollars in a new factory in Texas, but has not disclosed its manufacturing technology. Intel makes chips at roughly seven nanometers, although it has said its U.S. factories will produce three-nanometer chips by 2024 and even more advanced products soon after.

The spending boom will also reduce, but not erase, US dependence on Asia for other types of chips. Local factories produce 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.

But there are still likely to be gaps in the wide variety of older, simpler chips that have been in such short supply over the past two years that American car manufacturers had to close factories and produce partially completed vehicles. TSMC is a major maker of some of these chips, but is focusing its new investments on more profitable fabs for advanced chips.

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

The chip manufacturing boom is expected to create a good 40,000 new jobs in fabs and the companies that supply them, according to the Semiconductor Industry Association. That would add about 277,000 jobs to the U.S. semiconductor industry.

But it will not be easy to fill so many qualified positions. Chip factories usually need factory machine control technicians and scientists in fields such as electrical and chemical engineering. The talent shortage is one of the industry’s toughest challenges, according to recent executive surveys.

The CHIPS Act contains funding for workforce development. The Commerce Department, which oversees the awarding of grants from CHIPS Act funds, also made it clear that organizations hoping to receive funding must prepare plans for training and education of workers.

Intel, in response to the problem, plans to invest $100 million to boost teaching 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 tapped chipmaker SkyWater Technology to build a $1.8 billion manufacturing plant near its Indiana campus.

Still, training can only go so far as chip companies compete with other industries in dire need of workers.

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

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

But Gina RaimondoCommerce Secretary, was blunt in a November speech at the Massachusetts Institute of Technology.

Attracting the world’s best scientific minds is “an advantage America could lose,” she said. “And we’re not going to let that happen.”

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