America’s Lack Of Chips Is More Than A Blip

Throughout my career, the United States has faced many competitiveness challenges, but few have alarmed me more than the ramifications of the recent semiconductor shortage. Our society is totally reliant on microelectronic technologies. They are fundamentally integrated into every industry, government, mode of transportation, energy supply and hospital, with bits of data and information constantly moving from one place to another. This exponential increase in their use is also causing a corresponding increase in the total energy consumption in microelectronics.

Unfortunately, with the current semiconductor shortage, 169 American industries are now impacted, according to estimates from Goldman Sachs — and this is just the tip of the iceberg. Our capabilities in microelectronics are eroding and under severe threat, due to both our national overdependence on manufacturing overseas, as well as our lack of policies and effort to make semiconductor production a competitive venture in the U.S. Without significant policy changes and increased investment into a rapidly growing sector of the global economy, the U.S. risks falling behind even further.

“Given the lead time necessary to create and scale new manufacturing infrastructure, the decisions we make now as a country will determine our leadership in the semiconductor industry, help us stay competitive and prosperous in an increasingly digital world,” said Trish Damkroger, vice president and general manager of high performance computing at Intel. “We must invest to ensure we attract and retain the top minds that will shape our nation’s future as a microelectronics leader.”

Why Isn’t the U.S. Leading in Semiconductor Manufacturing?

The share of global semiconductor manufacturing on U.S. soil has eroded sharply over the last 20 years, from 37% to 12% — and the Semiconductor Industry Association expects it will fall to 10% by 2030. The costs of manufacturing chips in the U.S. are rising too high to be globally competitive: The 10-year cost of a new fab, the factory where semiconductors are produced, on U.S. soil is 30% higher than building the same fab in Taiwan or South Korea, and up to 50% higher than in China. These top microelectronics-producing countries are subsidizing their fabs, causing the U.S. to become increasingly uncompetitive in this sector, which is why Asia’s share of global semiconductor manufacturing will amount to 83% by 2030.

China’s Rise in Manufacturing Microchips. That expansion is already well underway, especially in China. In 2019, four of the six new semiconductor fabs in the world were in China — with none in the U.S. — and government-financed fabs in China are estimated to grow from about 24 to 70 in just the next two years. China is implementing a major, state-led effort to develop a domestic semiconductor industry that leads across all segments of the supply chain by 2030, with the government planning to spend $100 billion to achieve that goal. They are poaching talent from around the world, luring industry experts with exorbitant salaries and acquiring foreign intellectual property, through both licit and illicit means, to advance the country’s capabilities.

Meanwhile, the U.S. relies on Taiwan and South Korea for leading-edge microchips used in computers, cell phones and revolutionary technologies such as 5G, the internet of things and artificial intelligence. In fact, only Taiwan’s TSMC and South Korea’s Samsung produce microchips at the 5nm node, the most advanced processing nodes that exist today.

Finding the Workers. The semiconductor industry also depends on a highly skilled workforce, which the U.S. is failing to cultivate domestically. Foreign students dominate U.S. semiconductor-related graduate programs, accounting for more than two-thirds of graduate degrees in electrical, electronics and communications engineering from American education institutions in 2019.

The Increasing Challenges of Technological Advancement. If these risks weren’t enough, the guiding principle that has allowed the semiconductor industry to flourish for a half-century — Moore’s law — appears to be leveling off. Moore’s law states that the number of transistors in an integrated circuit will double within two years, making semiconductors smaller, faster and cheaper; this increased power and decreased cost has revolutionized entire industries, becoming fundamental to human progress. As Ramamoorthy Ramesh, University of California professor of physics and materials science and engineering, confirms, “Major innovations built on new scientific understanding will likely be required to sustain the same relentless pace of advances in computing beyond these limits to ensure U.S. national security, energy security and global competitiveness in this field.” 

All of these factors add up to potentially big trouble for the U.S., creating a fragile ecosystem that puts every American industry, along with our economy, society and national security at risk. The global economy knows it must innovate with new microchip architectures, materials, packaging methods, algorithms and software, which will require more investment in R&D and engineering.

Solving the Microchip Manufacturing Challenge.

We are now facing an incredibly important question: How does the U.S. put itself in a strong position for semiconductor manufacturing to connect R&D to the economic benefits these new innovations could generate without depending on other nations who have interests that may conflict with ours?

“For the U.S. to maintain competitiveness today and tomorrow, we need to boost investment in R&D and engineering, alongside a stronger position in manufacturing, so that we can lead not only in making today’s chips but in driving the innovation roadmap as well,” said Om Nalamasu, chief technology officer for Applied Materials.

Through the passage last year of the CHIPS for America Act, which would significantly raise R&D and provide financial incentives to establish semiconductor research and manufacturing stateside, federal policymakers are indicating that they recognize the challenge; significant funding for the bill has already passed in the Senate and awaits a vote in the House. A recent bipartisan proposal for a 25% tax credit for domestic semiconductor manufacturing facilities and equipment would also help counterbalance the subsidies provided by other semiconductor-producing nations. More must be done though. We need a multi-pronged, whole-of-nation strategy to ensure domestic access to all segments of the supply chain, increase R&D investment and increase the talent pipeline of U.S. citizens in order to build our semiconductor ecosystem.

“In order to assert the strengths fundamental to assuring free societies endure and prosper, the U.S. must have a long-term strategy to win the future and invest at a scale appropriate to ensure that outcome,” said Andy Karsner, chairman and CEO of Manifest Energy, and former U.S. Assistant Secretary for Energy Efficiency and Renewable Energy.

As I’ve seen throughout my career, the U.S. often rises to the occasion of global competitiveness, and I’m confident we have the resources and ability to reemerge as a leader in semiconductors in the coming years. We must act quickly though: Otherwise, today’s temporary shortage could become a permanent decline.