Chips made of semiconductors are the brain in every electronic device and machine from smartphones, computers, cars, fighter jets, home appliance. It is so crucial and most people don’t know how much we are dependent on these chips
We are so dependent on semiconductor chips that the US government decided to pay tens of billions in subsidies to move semiconductors manufacturing back to its country. More than 2 thirds of the market share is concentrated in east Asia and all cutting edge models are produced by 2 companies in east Asia while nothing from advanced chips is produced in US.
What is happening in this semiconductors field? Who control this market share? And can US be number 1 again like it used to be?
Why now? What is the reason behind it
US invented the semiconductors and used to have 30% market share back in the 90s but now US have only 10% market share and does not produce any of the most advanced chips. Also when we talk about the most advanced chips 90% are produced in Taiwan, and these chips are essential for US military and economy.
Another reason is that during pandemic, the demand for PC and gaming consoles chipsets increased. However there were a huge shortage of chips at that time. The world found itself stuck, no one can increase the supply at that moment, so they had to wait in line to get the chips.
If you remember what happened to PlayStation 5, the supply were so limited. I did not buy during pandemic but I know that we had to wait months until PS5 gets to the store, and one day and all are sold out, wait again for a few months to see them in store.
For US, car manufacturers had lots of cars, fully made but missing only one thing, yes you guessed it right, chips.
There is also a national security thing which US is considering as well. All these reasons made US reconsider moving the manufacturing back to its soil and become less dependent on east Asia.
How US lost its lead on semiconductor
First we have to understand that there are companies who design chips and other companies who fabricate chips. Nowadays, tech companies design chips, send the design to fabs then fabs fabricate the chips and send them to costumers. Even apple for example they have this M series processors which are designed by apple and manufactured by TSMC in Taiwan.
US used to be top producer of semiconductor chips of market share of 30%. But as technology advances, more investment was required to make new fab. We are talking around billions of dollars to make one factory and around 2 years. That is why in the 80s tech companies started to see that as a huge overhead.
At that time companies like TSMC saw an opportunity and started a business saying that they just fabricate chips and don’t design. These foundries started to attract customers like apple and car manufacturers where these tech companies became fabless and offloaded fabrication to foundries.
With time east Asia heavily invested in foundries while other saw it as an economical overhead. Yes tech companies who switched to fabless made more profit margin than those who did not. We see Intel as an example who still manufacture their own chipsets but make less profit margin than its competitors.
What is CHIPS & science act
The CHIPS act was announced back in 2022, which is $52.7 billion. This include This includes $39 billion in manufacturing incentives, including $2 billion for the legacy chips used in automobiles and defense systems, $13.2 billion in R&D and workforce development, and $500 million to provide for international information communications technology security and semiconductor supply chain activities.
The US intends to bring back semiconductors manufacturing back to its soil, that’s why it is requiring to strengthen the working community, train them and to use the subsidies only to build factories inside US and so on, in order to get subsidies.
Will the plan work
TSMC is building a new factory in Arizona, Samsun in Texas, Micron in New York and even Intel is expanding in Ohio. Looks like the plan is taking effect. However some say that it is not a one time fix, you need to keep investing billions every few years in order to make new fabs and produce the next generation of chipsets.
Now these companies are motivated to get the subsidies, but are they going to invest billions of dollars in the future? And that will get us back to the reason why US tech companies abandoned the fabrication in the first place, it is a huge overhead and low margin.
On the other hand when these fabs are built and operational, it will make since to expand it rather than build new factory somewhere else which makes CHIPS and science act a more sustainable solution than we think.
Do you think US can succeed with its plan? Are east Asia going to just let that happen? Can east Asia do anything to stop US ambition?
Lastly, our beloved kingdom announced a fund of 1 billion SAR for semiconductors. What are your thoughts of this announcement?
