Contrary to US Commerce Secretary Gina Raimondo and other high-tech nationalists’ wishes, the semiconductor industry is not migrating back to America any time soon.
On the contrary, the globalization of production capacity and new technology development is accelerating away from the US. Ironically, Biden administration subsidies for establishing semi-conductor factories in the US and export restrictions on high-end chips and chip-making equipment are helping to drive the process – and not just in China.
Last February 23, Raimondo delivered an impassioned speech to students at Georgetown University’s School of Foreign Service, at which she said:
I want the United States to be the only country in the world where every company capable of producing leading-edge chips will have a significant R&D and high-volume manufacturing presence…. It is America’s obligation to lead. We must push like no time before.
That is an ambitious goal, to say the least, but the reality is Europe, Taiwan, South Korea and Japan want to keep their leading-edge technologies at home; China must develop its own, in the face of US sanctions; and, in some cases, establishing a manufacturing presence in the US just doesn’t make economic or commercial sense.
Logistically, why should Sony make image sensors in the US for cell phones that are assembled in Asia? Why should Samsung Electronics make memory chips in the US when it has the world’s greatest economies of scale in South Korea?
Samsung is building a new logic integrated circuit (IC) contract manufacturing facility in Taylor, Texas. The project is now about 50% over budget due to construction cost inflation, according to reports.
On July 7, the European Union and the government of Flanders announced a 1.5 billion euro (US$1.65 billion) investment in the Interuniversity Microelectronics Center (imec), headquartered in Belgium.
On June 28, imex and ASML announced joint plans “to intensify their collaboration in the next phase of developing a state-of-the-art high-numerical aperture (High-NA) extreme ultraviolet (EUV) lithography pilot line at imec.”
“This groundbreaking new high-NA technology is crucial for developing high-performance energy-efficient chips, such as next-generation AI systems… Significant investments are needed to secure industry-broad access to high-NA EUV lithography beyond 2025 and retain the related advanced node process R&D capabilities in Europe,” they said.
Imec is a world-leading R&D center for the semiconductor industry. ASML, headquartered in the Netherlands, dominates the global market for semiconductor lithography equipment and has a monopoly on leading-edge EUV lithography. It assembles its lithography systems in Veldhoven in the Netherlands using components sourced in Europe, the US and Taiwan.
It would probably not make logistical sense for ASML to replicate its exceedingly efficient assembly operations in the US, which accounted for only 15% of its lithography system sales in Q1 of 2023. But its two small competitors, Nikon and Canon, would arguably benefit if they merged their operations and created an ASML-like company in Japan.
Meanwhile, Intel, an enthusiastic recipient of the Biden administration’s CHIPS Act subsidies, has tellingly announced plans to invest more money outside the US than inside. Its new factory investments include:
- $20 billion in Arizona
- $2+ billion in Ohio
- More than 30 billion euros ($33+ billion) for new wafer processing facilities in Germany, plus up to $4.6 billion for assembly and test facilities in Poland
- $25 billion in Israel – more than the $17 billion Intel has invested there since 1974
TSMC is also building factories in Arizona, but it has established a joint venture with Sony and Denso in Japan as part of an advanced IC packaging development project in the Japanese science city of Tsukuba. TSMC is also likely to build a factory in Germany once the level of government subsidies is decided.
In Taiwan, TSMC is now preparing for trial production using 2nm process technology – the world’s most advanced in terms of miniaturization – with mass production likely to begin in 2025. In Arizona, TSMC plans to start mass production at 5nm in 2024 and at 3nm in 2025 or 2026, according to a EE Times industry report.
On June 8, TSMC announced the opening of its “Advanced Backend Fab 6, the company’s first all-in-one automated advanced packaging and testing fab to realize 3DFabric integration of front-end to back-end process and testing services.”
This Taiwan-based facility “enables TSMC to flexibly allocate capacity for … advanced packaging and silicon stacking technologies, such as SoIC, InFO [Integrated Fan-Out wafer level packaging], CoWoS [Chip-on-Wafer-on-Substrate wafer level system integration platform] and advanced testing, improving production yield and efficiency.”
In the meantime, South Korea’s Samsung is reportedly planning to build a test line for the development of new semiconductor packaging technology in Yokohama, Japan. Like TSMC, it will work with the world’s best packaging equipment companies, which are Japanese.
America’s Micron Technology, meanwhile, announced plans in June to invest more than $600 million in new packaging and test facilities at its factory in Xi’an, China, to “enhance the company’s flexibility in manufacturing a variety of product portfolios” for Chinese customers. Micron also intends to acquire the local packaging facilities of Taiwan’s Powerchip Semiconductor Manufacturing under a previous agreement.
This is the context in which we should consider Secretary Raimondo’s statement that the US “will develop multiple high-volume advanced packaging facilities, and become a global leader in packaging technologies.”
On July 5, Powerchip announced plans to build a 12-inch wafer fab and R&D center in Japan to serve auto and industrial machinery makers. SBI Holdings, a Japanese financial services company, will assist with fund raising, including application for government subsidies, and finding construction sites.
Following the example of TSMC, Powerchip seeks to take advantage of Japan’s desire to increase its own semiconductor production capacity and decrease its dependence on Taiwan.
Previously a DRAM maker, Powerchip has transformed itself into an IC foundry with both memory and logic manufacturing capabilities. It aims to supply its Japanese customers starting with 22/28-nm process technology, working with industry, academia and government institutions to become part of Japan’s supply chain and develop more advanced products.
Raimondo also tellingly said in her speech, “If we don’t invest in America’s manufacturing workforce, it doesn’t matter how much we spend. We will not succeed.”
That is probably correct given that China graduates several times more engineers than the US and that both East Asian and European schools are arguably more rigorous. Some studies conclude that American students are more knowledgeable but they are outnumbered many times over by students in other countries with high-tech ambitions.
This is a long-term problem for the US, but the impact of deindustrialization on education and training is already being felt.
In June, TSMC announced that it would be sending a large number of experienced workers to Arizona – more than 500, according to one report – to ensure its new factory is finished on time. American workers are paid more, but technicians and supervisors familiar with the semiconductor industry are in short supply.
Also according to Raimondo, “If we don’t act, the US will have an estimated shortfall of 90,000 skilled technicians by the year 2030.” But there is a shortfall right now.
She adds, that “colleges and universities need to partner with industry to align their programs with the needs of positions in fabs, and ensure graduates have the practical skills they need for success.” That’s a good idea, but Taiwan and Korea are doing the same thing.
That all said, the US has a large and competitive semiconductor industry that is less in need of government assistance than politicians would like to believe. New production capacity is being added and the level of technological sophistication is very high.
The bigger point, though, is that there is no way to turn back the clock to a time when there wasn’t much global competition and the US dominated the industry.
Like TSMC, Samsung plans to begin mass production at 2nm in 2025. Intel, hoping to leapfrog both of them and regain its industry leadership, aims to introduce its 18A (18 angstrom, or 1.8nm) process the same year.
Whether that will be possible or not, that means there are three companies from three different countries competing to lead the logic IC and foundry market. Globalization is alive and well in the chip industry.
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