Reshoring of Chip Manufacture to USA

T. Rao Coca, BS, MS, MA, PhD, JD

Admitted in NY, OH, VT, USPTO, CAFC and SCOTUS

The U.S. Chips and Science Act of 2022 — also known as the CHIPS Act is now law in the U.S. A major goal of the Chips Act is to bring semiconductor manufacturing back to the U.S. by allocating about $52 billion for chipmakers. About $39 billion is slated for building, expanding, and modernizing domestic chip-making facilities while the remainder will be allocated for research and development.

Semiconductor chips are pervasive. They are essential to build smartphones, personal computers, consumer electronics, automotive products, industrial electronics, wired and wireless infrastructure, data centers and storage. Electric vehicles typically require two thousand chips each. With the current push for the growth of the EVs, the demand for chips in the U.S. will grow astronomically.

The basic elements of the semiconductor chip were invented in the United States by IBM, Intel, and Texas Instruments.?According to the Semiconductor Industry Association the U.S. was home to 37% of the world's semiconductor manufacturing in 1990, but that number has shrunk to just 12% in today's much larger chips market.

American semiconductor powerhouses like IBM, Intel and Texas Instruments, AMD and Micron held dominance in chip fabrication. The key to a successful chip is miniaturization which leads to increased speed in processing data and controlling energy consumption by the chip. Currently the chips manufactured in America have a transistor size (meaning the line-width between transistors) in the range of 10-20 nanometers. The industry is craving for 2-5 nm size. ?

IBM, Intel and AMD were unable to excel in miniaturization below about 10 nm. They both exited the chip fabrication (fab) business and sold off their fabs to GlobalFoundries. Intel continues to lag in efficient miniaturization despite making costly efforts.??

The key to semiconductor processing is the availability of skilled engineers and semiconductor equipment vendors.?America now has a shortage of skilled workers versed in chip making.?According to VLSI Research Inc. the top semiconductor equipment vendors are Applied Materials, ASML, Tokyo Electron Limited and Lam Research.

Despite easy access to the semiconductor equipment vendors, the U.S. chip makers ceded their dominance in miniaturization to companies like Taiwan Semiconductor Manufacturing Company of Taiwan and Samsung Electronics of South Korea.

Taiwan is the gorilla in the chip-making space. TSMC is a contract manufacturer which developed the most advanced model in the semiconductor manufacturing industry. It makes sophisticated chips for many American device companies including Apple, Broadcom Ltd, Marvell, Nvidia, and Qualcomm. ?TSMC has proven to be resilient during the COVID slowdown and is efficient in competitive production of chips.

Samsung makes chips for its own devices like smartphones and TVs as well as serving as a contract manufacturer of chips for other companies including IBM’s most advanced Trim Power chips. ?

Intel which recently turned to contract manufacturing like Samsung has been unable to compete with TSMC and Samsung in advanced chip making despite costly efforts. ?

In addition to Taiwan and South Korea roughly 80% of the present global chip manufacturing capacity is in Asia. 100% of the world’s most advance logic chips were manufactured overseas in 2019.

The politics behind the Chips Act is interesting. Years before the Chips Act was being considered President Trump initiated calls for TSMC and Samsung to build new foundries on the U.S. soil. Trump wanted chips to be built locally to protect our national security. ?

States like Texas, Arizona and Ohio jumped on this call by offering tax breaks and other subsidies. TSMC, which already has a fab in Camas, Washington, decided to invest $12 B in a new manufacturing plant in Arizona. Samsung has chosen Taylor, Texas to build a modern fab by investing $17 B and creating two thousand jobs, after receiving tens of millions of state and local subsidies.

In anticipation of Chips Act, Intel planned to open a new fab in Cleveland, Ohio and possibly another in Upstate, New York after receiving promises of subsidies from the states as well as a huge aid guaranteed by the Chips Act.

Despite the fact that the U.S. is no longer self-sufficient and faced severe supply chain disruptions during the COVID pandemic in meeting its chip needs, China lobbied against the Chips Act. China so far was able to set up heavily subsidized fabs like SMIC for building basic chips and has not been a major player in the global chip industry.??China known for stealing technology from the U.S. and other companies has not been a significant influence in designing advanced chips and certainly does not have efficient fabs to make them.??

An issue with the Chips Act is that the allotted $52 B of tax payer’s money is not restricted to subsidize the U.S. fabs. Non-U.S. fabs can receive this aid to upgrade their existing fabs and build new ones on our soil. Nothing stops them from exporting chips made by using this aid. The saving grace is that the non-U.S. fabs will be located on our land which may meet our chip self-sufficiency and national security interests.

The reshoring of chip fabrication is essential in case of political or financial turmoil in Asia.?However, the jury is still out whether the American fabs will be able to compete with the lower cost of labor enjoyed by the fabs in Taiwan and South Korea which also have a leg up in efficiently producing sophisticated chips in their countries.?????