Is the future of the microchip industry going to be Made in America?

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With all eyes on Taiwan and worries mounting around semiconductor supply, the U.S. CHIPS Act is particularly timely. But it is not unique: Other countries similarly aspire to reduce their reliance on imported chips. Let’s explore.Anna

From cheap as chips to billion-dollar incentives

U.S. president Joe Biden signed the CHIPS and Science Act of 2022 into law earlier this week after the bill received broad bipartisan support in the House and Senate.

The H and I in CHIPS stand for “Helpful Incentives,” hinting at the main component of the initiative: $52.7 billion in public subsidies.

Biden described the new bill on Twitter as “a once-in-a-generation law that invests in America by supercharging our efforts to make semiconductors here at home.”

Headlines often focus on the $52.7 billion subsidy tally, but it is also interesting to look at how the dollar amount will be broken down:

“The final version of the act sets aside $52.7 billion for the research, development and domestic manufacturing of semiconductors; $39 billion of that goes toward incentivizing manufacturers, with $2 billion being used to create existing/legacy chips for automotive and defense — a shortage of the former has hamstrung carmakers unable to move unfinished vehicles. Another $13.2 billion will be invested in R&D and workforce development.” — Brian Heater

Potentially easing the chip shortage played a key role in building support for the bill, as addressing this issue could also help fight inflation. But it also reflects a broader change: that semiconductors went from being perceived as a commodity to falling under the umbrella of “sovereign tech.”

Big Fund, bigger fail?

The COVID-19 pandemic put into evidence that it was hazardous to rely solely on international supply for essential goods, including chips, which find a home in everything from cars and consumer gadgets to defense tech to, well, just about everything.

But the ability to control semiconductor manufacturing took a new level of urgency in light of the current geopolitical climate. Revived tensions around Taiwan, which accounts for a crucial share of semiconductor manufacturing, made the issue even more blatant this summer: The U.S. doesn’t want its chip supply to be at China’s whim. Reciprocally, Beijing has been conducting massive efforts over the last decade to champion its domestic chip industry and reduce its dependency on Washington and its allies.

China’s semiconductor plan, however, has “largely failed to deliver,” the Washington Post argued this week. In part because of corruption, but also due to wider inefficiencies that are said to have caused anger among political leaders and will now go under review.

“Xi Jinping’s government,” Bloomberg wrote, “had allocated more than $100 billion to build up a domestic semiconductor sector so the country could break its dependence on the West. A key area of scrutiny is the National Integrated Circuit Industry Investment Fund — known within the industry as Big Fund — which had become Beijing’s primary vehicle for doling out capital to the country’s chipmakers.”

Will the European Union succeed where China failed? Only time will tell. But the EU Chips Act is similarly driven by a wish for sovereignty.

European fabs

Initially proposed by the European Commission in February, the EU Chips Act has the ambition to “confront semiconductor shortages and strengthen Europe’s technological leadership.” And just like its U.S. equivalent, it implies a certain amount of subsidies as part of the “43 billion euros of public and private investments” (approximately $44.4 billion) that it hopes to deploy.

“The proposal also includes a loosening of strict EU state aid rules that will allow Member States to provide financial support to novel ‘first of a kind’ chip fabs,” TechCrunch reported. (“Fabs” is the name by which chip manufacturers are usually referred.)

The ability to offer incentives is already paying off for Germany and France, which managed to attract two projects worth $17.55 billion and $5.88 billion, respectively, that European commissioner Thierry Breton mentioned on LinkedIn.

“A few weeks after Intel picked Germany’s Magdeburg for building a €17 billion semiconductor ‘mega factory,’ it is now STMicroelectronics’ and GlobalFoundries’ turn to announce another massive investment of €5.7 billion to develop a chips factory venture in the French tech hub of Crolles, near Grenoble,” Breton wrote.

It is unclear how much money for the new plant comes from public pockets, but the CEO of STMicroelectronics said it was a significant amount, and French president Emmanuel Macron visited the site in person while announcing broader plans for the country’s microelectronics sector. Meanwhile, Germany is also set to welcome additional investments from Bosch.

Boosting production capacity is a must if the EU wants to achieve its goal of doubling its current market share of the global semiconductor market to 20% in 2030. This might be more difficult for certain types of chips than others: “For more advanced chips, the figure is closer to 90% of the market coming from Taiwan alone,” TechCrunch’s Brian Heater reported. This is where innovation will have a key role to play.

From lab to fab

One of the three pillars of the EU Chips Act will focus on improving the transition “from lab to fab.” As for Biden, he also hinted at innovation when he predicted that “the future of the microchip industry is going to be Made in America.”

Better chips are definitely a promising perspective, and worth investigating. For instance, a team of researchers at MIT, the University of Houston, and other institutions has found a material, cubic boron arsenide, that has better semiconductor properties than silicon. But there’s still work to do to find out how to apply this to actual chipmaking.

Startups might find a more direct way to bring innovation to the semiconductor sector. Some have already raised funding to do so, and the U.S. CHIPS Act brings hope that others will follow.

With U.S. and European fabs being located in emerging hubs, it will be particularly interesting to see if there’s a halo effect for startups. We had already been keeping an eye on the U.S. Midwest, and we will now be paying even closer attention to Intel’s chosen site: Columbus, Ohio.