New US Semiconductor Law Brings Welcome Relief

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The CHIPS and Science Act is smart, supports national security, and levels the competitive playing field. It complements European initiatives.

The United States invented the semiconductor industry and so far the government has not needed to intervene. But in recent years, the industry has become unbalanced. Asian governments, not only China but also South Korea, Taiwan and others, subsidize production. The West – both the United States and Europe – has become vulnerable. Intel and other American companies have stood alone and struggled.

The new law frees up $52 billion for chip manufacturing in the United States and billions more for research. It should rebalance global production, which has been concentrated in Taiwan, with a ramp-up in capacity in China. The subsidies will make the United States less vulnerable to hostile China and attract foreign investment from friendly countries. Already, Taiwan Semiconductor is building a multi-billion dollar foundry in Arizona. Although foreign-owned, this new Arizona smelter will create jobs, increase production, and strengthen America’s self-sufficiency. It’s positive.

It is understandable that chip designers are concerned. While Intel, Micron, and other manufacturers will get taxpayers’ money, fabless companies like AMD, NVidia, and Qualcomm that design but don’t manufacture chips are disappointed. The new bill focuses on manufacturing. AMD and Qualcomm will still benefit from access to US foundries. This development will put downward pressure on foundry supplier prices by enabling US-based competition and reducing the dependence of fabless companies on China and the rest of Asia.

Our goal shouldn’t be to stop China from producing cutting-edge chips. In recent weeks, reports surfaced that China Semiconductor Manufacturing International Corporation had built a seven-nanometer chip. It is predictable and inevitable. Instead, US and European authorities should focus on supporting their own semiconductor industries and preventing state-controlled Chinese companies from competing unfairly.

China will use the same strategy as for telecommunications. Huawei has been buying market share in telecommunications infrastructure, leveraging Chinese state subsidies to undermine Western rivals by doing business at a loss. Huawei wiped out British company Marconi because the then British government failed to notice it was unfair competition.

Today this trick will be difficult to repeat. The United States and others fear becoming dependent on China for key technologies, starting with semiconductors. Although Qualcomm, NVidia and other chip designers will always use Chinese foundries to supply the Chinese market, they won’t become too dependent on them.

Another concern is whether we are subsidizing chips just as the global semiconductor shortage is turning into a glut. The semiconductor industry is cyclical. In 2001, the big change in wafer size from 200mm to 300mm encouraged manufacturers to invest in massive new equipment. The resulting rush and scramble for production to recoup the high investment costs caused oversupply. Today, as we move to seven-millimeter chips, manufacturers are investing again, so some are predicting it will cause another glut again.

I think the shortages will persist. China’s zero Covid policy has shut down entire towns and factories, so it is producing below capacity. Although a surplus may emerge in standardized chips, Intel’s CEO believes the shortage of semiconductors in strategic industries, especially for cars and advanced weapons, will continue. I believe he is right.

Europe should welcome the decision of the United States. Until recently, the EU has mainly acted as a regulator of competition – ensuring, for example, that the Germans do not give Infineon an unfair advantage over France and Italy’s STM. It is difficult when companies outside the EU receive large subsidies. While Europe practiced laissez-faire, its share of global semiconductor production has fallen from 35% in 1990 to 9% this year. The EU recognized the problem and passed its own chip law, allocating 43 billion euros.

The EU Chips Act does not portend a subsidy war with the United States. It’s free. Intel and other US companies with facilities in Europe can receive money from both Europe and the United States. Together, the West can build strong supply chains that are not dependent on China. We should encourage transatlantic mergers as alternatives to Chinese acquisitions – a good example is the 2015 $40 billion merger between Netherlands NXP Semiconductors and US Freescale Semiconductors

Export controls pose a difficult question. Europe makes the world’s most advanced lithography machines (necessary for semiconductor manufacturing) and the United States is pressuring the Netherlands’ ASML to refrain from selling its most advanced machines. more advanced to China. The Dutch want to export and sell as much as possible. We need some kind of compromise: in exchange for its suspension of exports to China, ASML should obtain favors from the United States.

My own country, the United Kingdom, is unfortunately absent from this debate. We sold our largest semiconductor foundry to the Chinese last year. We have one big asset left: ARM, which designs chips. I hope the British government understands its value. The UK needs to come to its senses and realize that we need to work closely with Europe. It would be great if we participated in a future European chip law. We missed the boat on this one.

The bipartisan support behind the US Chips Act is encouraging. In technology, it shows that there are smart people on both sides of the political divide coming together to make the right decision.

Christopher Cytera is a Non-Resident Principal Investigator of the Center for European Policy Analysis’ Digital Innovation Initiative and a technology business executive with over 30 years of experience in semiconductors, electronics, communications, video and imaging.

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