Long-awaited funding for the CHIPS Act is a win for a cabal of US chipmakers and foreign companies, but largely ignores the nation’s true semiconductor leaders who have been propping up the domestic sector for two decades.
Three-quarters of the $52 billion allocated to the industry by Congress was earmarked “to strengthen semiconductor advanced test, assembly, and packaging capability in the domestic ecosystem.” The rest of the funds will largely go to a technology center to be set up by the Commerce and Defense departments, and a new Manufacturing USA Institute that will mostly research new ways to make chips, according to the funding schedule outlined in Senate Amendment 5135. It passed the House Thursday.
The act was designed to help close the gap with Taiwan and South Korea in terms of manufacturing capacity and prowess, while ensuring the US stays ahead of China, which is also spending significant sums to boost its own chip sector. But the move will barely put a dent in American reliance on foreign manufacturing, and won’t boost resilience against supply shocks, either. Taiwan Semiconductor Manufacturing Co.’s factory in Arizona will end up accounting for a minuscule 1% of its global capacity. And even then, once those chips are manufactured, they’ll be popped straight onto a plane to be tested and packaged in Asia, before being assembled into a phone or PC in China.
Even after all this government money is spent, Taiwan and South Korea will retain a dominant share of capacity and continue to be technology leaders. That said, Intel Corp., which designs, manufactures and packages chips at factories in global locations including the US, Israel, China, Vietnam and Ireland, is set to be a big winner. Texas Instruments Inc. can also expect to benefit. Neither company is capable of making chips using the world’s leading manufacturing nodes. Yet foreign players, including TSMC, Samsung Electronics Co. and materials supplier GlobalWafers Co. have already put their hand up for subsidies and are likely to receive funds, too.
Missing out, though, will be the companies that have come to dominate the most-advanced semiconductor technologies on the planet including Nvidia Corp., Qualcomm Inc. and Broadcom Inc. That’s because these companies, each of which have a larger market capitalization than Intel and TI, are purely focused on the design and development of chips, without manufacturing them.
Driving the political rhetoric behind the promotion and drafting of the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act is the notion that making physical goods — manufacturing them — is more important and crucial to national security than designing them.
In fact Apple Inc., which also develops advanced chips, is proof that being a technology leader doesn’t mean being a manufacturer since the Cupertino giant doesn’t actually make most of its gadgets. And it’s the chips from the iPhone designer, as well as Nvidia — a world leader in artificial intelligence — and Qualcomm, the biggest name in wireless communications, that are filling up TSMC’s leading-edge facilities in Taiwan and Samsung’s in Korea. Intel fell so far behind that it needs TSMC’s factories to churn out some of its best products.
You wouldn’t have the world’s most powerful machine-learning tools, global cellphone communications, or the hottest-selling device on the planet without fabless chip designers.
Still, you won’t hear Nvidia, Apple and Qualcomm complain — at least, not publicly. Although they were passed over for Congressional candy, they’ll end up benefiting from the fact that this largess will help their suppliers of choice (TSMC and Samsung) set up facilities on US soil. Neither was particularly keen to shift focus away from their manufacturing hubs at home, but a change in the global political environment coupled with promises of tax breaks and other subsidies meant they couldn’t resist. Yet they’ve also made clear that the money better come through if the US wants such projects to continue.
A vast amount of its materials and equipment come from abroad, too. While Lam Research Corp., KLA Corp. and Applied Materials Inc. hail from the US, dozens more, such as ASML Holding NV of the Netherlands, BASF SE from Germany, and Tokyo-based Shin-Etsu Chemical Co., form part of an international network. Few of the hundreds of global suppliers will have the funds or personnel to shift any operations to the US, even with the incentives on offer.
Reality often doesn’t matter in politics. The long-awaited funding for the Chips Act is being hailed a victory for the White House and proof of bipartisan collegiality, but in reality it’s a victory for America’s semiconductor laggards and the foreign companies that dominate them.
Bloomberg
