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The US is pouring money into tokens, but even skyrocketing spending has limits

The US is pouring money into tokens, but even skyrocketing spending has limits

The US is pouring money into tokens, but even skyrocketing spending has limits

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In September, chip giant Intel gathered officials at land near Columbus, Ohio, where it pledged to invest at least $20 billion in two new factories to make semiconductors.

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A month later, Micron Technology celebrated a new manufacturing site near Syracuse, NY, where the chip company planned to spend $20 billion by the end of the decade and possibly five times as much.

And in December, Taiwan Semiconductor Manufacturing Company held a party in Phoenix, where it plans to triple its investment to $40 billion and build a second new factory to create advanced chips.

The pledges are part of a huge ramp-up in U.S. chipmaking plans over the past 18 months, the scale of which has been compared to Cold War-era investments in the space race. . The boom has implications for global technology leadership and geopolitics, with the United States aiming to prevent China from becoming an advanced power in chips, the silicon wafers that have led to the creation of innovative computing devices like smartphones and virtual reality glasses.

Today, chips are an essential part of modern life, even beyond the creations of the tech industry, from military equipment and cars to kitchen appliances and toys.

Across the country, more than 35 companies have pledged nearly $200 billion for chip-related manufacturing projects since the spring of 2020, according to the Semiconductor Industry Association, a trade group. The money is expected to be spent in 16 states, including Texas, Arizona and New York, for 23 new chip factories, the expansion of nine factories and investment by companies supplying equipment and materials to the industry. .

The push is one facet of a Biden administration industrial policy initiative, which provides at least $76 billion in subsidies, tax credits and other subsidies to encourage domestic chip production. Along with providing massive funding for infrastructure and clean energy, these efforts are arguably the biggest U.S. investment in manufacturing since World War II, when the federal government unblocked spending on new ships, pipelines and factories to manufacture aluminum and rubber.

“I’ve never seen a tsunami like this,” said Daniel Armbrust, the former chief executive of Sematech, a now-defunct chip consortium formed in 1987 with the Department of Defense and funded by corporations. members.

President Biden has staked a significant part of his economic agenda on boosting U.S. chip production, but his reasons go beyond economic benefits. Today, much of the world’s cutting-edge chips are made in Taiwan, the island to which China claims territorial rights. This has raised fears that semiconductor supply chains could be disrupted in the event of a dispute – and that the United States would be at a technological disadvantage.

New U.S. production efforts could correct some of those imbalances, industry executives said, but only up to a point.

New chip factories would take years to build and might not be able to offer the most advanced manufacturing technology in the industry when they start operating. Companies could also delay or cancel projects if they don’t receive enough grants from the White House. And a severe skills shortage could undermine the boom, as complex factories need far more engineers than the number of students graduating from US colleges and universities.

The windfall of cash on U.S. chip production “isn’t going to try or succeed in achieving self-sufficiency,” said Chris Miller, associate professor of international history at India’s Fletcher School of Law and Diplomacy. Tufts University and author of a recent book on the battles of the chip industry.

White House officials have argued that investments in chip manufacturing would significantly reduce the proportion of chips that need to be purchased overseas, improving US economic security. At the TSMC event in December, Biden also highlighted the potential impact on tech companies like Apple that rely on TSMC for their chipmaking needs. He said “it could be a game-changer” as more of these companies are “bringing more of their supply chain home.”

American companies led chip production for decades beginning in the late 1950s. But the country’s share of global production capacity gradually fell from around 37% in 1990 to around 12%, with countries d Asia offering incentives to move manufacturing to these shores.

Today, Taiwan accounts for about 22% of total chip production and more than 90% of the most advanced chips manufactured, according to industry analysts and the Semiconductor Industry Association.

The new spending should improve America’s position. According to a 2020 Boston Consulting Group study commissioned by the Semiconductor Industry Association, a government investment of $50 billion is expected to drive business spending that would raise the United States’ share of global production to 14% by 2030. .

“This really puts us in the game for the first time in decades,” said John Neuffer, president of the association, who added that the estimate may be conservative because Congress has approved $76 billion in grants in a bill known as the CHIPS Act. .

Still, the surge is unlikely to eliminate US reliance on Taiwan for the most advanced chips. These chips are the most powerful because they contain the most transistors on each silicon wafer, and they are often seen as a sign of a nation’s technological progress.

Intel has long led the race to reduce the number of transistors on a chip, which is usually described in nanometers, or billionths of a meter, with smaller numbers indicating the most advanced production technology. Then, TSMC has taken the lead in recent years.

But at its Phoenix site, TSMC cannot import its most advanced manufacturing technology. The company initially said it would produce five-nanometer chips at the Phoenix factory, before saying last month that it would also manufacture four-nanometer chips there by 2024 and build a second factory, which will open in 2026, for three-nanometer chips. . He stopped short of discussing new advances.

In contrast, TSMC factories in Taiwan in late 2022 began producing the three-nanometer technology. By 2025, Taiwanese factories will likely start supplying Apple with two-nanometer chips, said Handel Jones, managing director of International Business Strategies.

TSMC and Apple declined to comment.

It’s unclear whether other chip companies will bring more advanced chip technology to their new locations. Samsung Electronics plans to invest $17 billion in a new factory in Texas but did not disclose its production technology. Intel makes chips around seven nanometers in size, although it said its US factories will produce three-nanometer chips by 2024 and even more advanced products soon after.

The spending boom should also reduce, but not erase, the United States’ reliance on Asia for other types of chips. Domestic factories produce only about 4% of the world’s memory chips – which are needed to store data in computers, smartphones and other consumer devices – and Micron’s planned investments could eventually increase that percentage.

But there are still likely gaps in a catch-all variety of older, simpler chips, which have been so scarce for the past two years that US automakers have had to close factories and crank out partially finished vehicles. TSMC is a major producer of some of these chips, but it is focusing its new investments on more profitable factories for advanced chips.

“We still have a dependency that’s not affected in any way,” said Michael Hurlston, chief executive of Synaptics, a Silicon Valley chip designer that relies heavily on TSMC’s former factories in Taiwan.

The chip manufacturing boom is expected to create a job bonanza of 40,000 new positions in factories and the companies that supply them, according to the Semiconductor Industry Association. That would add about 277,000 employees to the US semiconductor industry.

But it will not be easy to fill so many qualified positions. Chip factories typically need technicians to operate factory machinery and scientists in fields such as electrical and chemical engineering. The talent shortage is one of the toughest challenges in the industry, according to recent surveys of executives.

The CHIPS Act contains funds for workforce development. The Commerce Department, which oversees the distribution of grants from CHIPS Act funds, has also made it clear that organizations seeking funding should offer worker training and education plans.

Intel, responding to the problem, plans to invest $100 million to boost training and research in universities, community colleges and other technical educators. Purdue University, which built a new semiconductor lab, set a goal of educating 1,000 engineers each year and lured chipmaker SkyWater Technology to build a $1.8 billion fab. dollars near its Indiana campus.

Yet training can only go so far as chip companies compete with other industries that are in dire need of labor.

“We’re going to have to build a semiconductor economy that appeals to people when they have a lot of other choices,” Mitch Daniels, who was Purdue chairman at the time, said at an event in September.

Since training efforts can take years to bear fruit, industry leaders want to make it easier for highly skilled foreign workers to obtain visas to work in the United States or stay after graduation. . Officials in Washington are aware that comments encouraging more immigration could invite political fire.

But Gina Raimondo, the Commerce Secretary, was candid in a November speech at the Massachusetts Institute of Technology.

Attracting the best scientific minds in the world is “an advantage America must lose,” she said. “And we’re not going to let that happen.”

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