Fein-Lines: Who Will Maintain Control of Global Chip Manufacturing?


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Will the U.S. gain back significant share of global chip manufacturing or continue to decline and become less relevant in this critical area?

Back in 1990, the U.S. dominated the world in its use of chips, with about 40% of the total global production made in the United States. That number was down from its peak, but it was still significant.

Much has changed in 30 years. Today the U.S. supplies approximately 12% of the global chip market, even though U.S.-based companies use a much higher percentage of the chips.

And even though total U.S. chip production has been steadily growing, America’s share of the rapidly-growing market is still declining as countries such as Taiwan and Korea outpace the U.S.

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Figure 1: The U.S. is no longer dominating the global chip market.

Also concerning, is the growing number of facilities outside the United States which are capable of producing the most advanced devices. This concern is particularly connected to the supply chain and the somewhat “iffy” relationship between China and the United States, as well as apprehension regarding China looming over Taiwan. Many American companies, government leaders, and citizens are aware of China’s eye on Taiwan and the possibility of a takeover.

Not being able to supply key components locally (for technology initially developed in the United States) has both economic and security impacts and has raised significant concerns. There is a growing consensus that this decline in capability and needed local capacity must stop, be reversed, and that the U.S. must do so rapidly.

There are indications that this reversal may already be in the works but does the U.S. government bring the necessary support? Let’s look at a few recent examples.

Intel, a leading U.S.-based chip supplier, had lost market share for computer CPUs over the past few years and seemed to be on a downhill path. However, earlier this year Intel announced that its board of directors had appointed 40-year technology industry leader Pat Gelsinger as its new chief executive officer, and shortly thereafter announced its plans to spend $20 billion to build new chipmaking factories in the United States.

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Figure 2: New Intel chip plant in Chandler, Arizona.

In addition, Intel has recently released a new CPU line led by the flagship Core i9-12900K CPU. The 12 Gen Alder Lake chips, as they are known, are getting rave reviews and the pricing on the newer Intel chips seems to be more competitive than a few years ago. I’ll be writing about this in greater detail in an upcoming column.

Intel may be at the beginning of a turnaround, and these moves seem to show that the company, and the U.S., are serious about regaining global leadership in this crucial technology. But it also indicates how far Intel and the U.S. had fallen behind.

As part of its plan, Intel said it would open its factories more widely to make chips for other companies, highlighting its manufacturing expertise and renewed ambition. But at the same time, Intel said it would outsource production of some of its most advanced chips to Taiwan Semiconductor Manufacturing Company (TSMC), one of the world’s largest and most advanced chip manufacturing companies. This company recently announced significant expansion plans, much of it outside of Taiwan.

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Figure 3: STATISCA chart showing Intel and AMD market share over time.

TSMC's overseas expansion plans come amid concerns over the concentration of chipmaking capability in Taiwan. And as I explained, Taiwan sits uncomfortably close to China, which has not ruled out the use of force to bring the democratic island under its control.

However, TSMC leads Intel in using extreme ultraviolet lithography (EUV) to put more compute power on a chip by squeezing transistors closer together. As one of the world's largest contract chipmakers, TSMC recently announced it is reviewing a plan to set up a specialty technology wafer fab in Japan.

As TSMC’s revenue grows, the company has indicated it will expand production capacity in China but that does not rule out the possibility of a "second phase" expansion at its $12 billion factory in Arizona. So, while TSMC may not be American-owned, made in Arizona is still made in America.

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Figure 4: TSMC may expand on its factory in Arizona.

There are other major chip companies considering to manufacture at least some of their chips in the United States; some already are. These include NVIDIA, Samsung (the world’s largest), SK Hynix, Micron Technology, Qualcomm, and others.

These companies, and others, have been considering building new plants to meet the growing demand and to help reduce the supply chain chip shortage, with some of that production coming to the United States. This would put significant manufacturing back on U.S. soil, strengthening both our economic and national security.1

Chip makers, dealing with this year’s continuing semiconductor shortage, are planning to diversify their supply chains to avoid future supply chain problems, especially as the demand for advanced electronics in many sectors continues to grow. TSMC and Samsung are two of the leading possibilities, but along with Intel and others, have many have suggested that they may pull the plug on making chips in the United States unless government assistance is on the table. Company executives are hinting that if they don’t get tax breaks and other incentives, they’ll build their semiconductor factories elsewhere.

If our lawmakers do not listen and just continue to plan to raise taxes, they will effectively end American ambitions to return chip manufacturing to its shores. The need for more global chip fabrication is now and is globally recognized.

The cost is large and the time to build these facilities is long. The opportunity is real, and the timing is now.

We can expect to hear more on this topic over the coming months. Will the United States gain back significant chip manufacturing share or will the decline in capability continue? I expect there will be some updates and announcements soon and you can be sure we will follow this topic and report back to you regarding the status.

References

  1. “Semiconductors: Key to Economic and National Security,” Senate RPC, April 29, 2021.

Dan Feinberg is an I-Connect007 technical editor and founder of Fein-Line Associates.

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