Both Senate and on A house have already passed Law of Chips and Scienceand today the White House said President Biden will sign the bill on Tuesday, August 9. The legislation contains more than $50 billion in funding designed to boost semiconductor manufacturing, research, development and more in the United States.
Semiconductors – computer chips – are essential to modern technology. If you’re curious about semiconductors and this new legislation, here’s what you need to know about how this new influx of money could affect the global chip landscape.
The rationale behind the funding
“The main motivation is that the world has become dependent on one company located in one country, which has a number of risks associated with that,” says David Yoffey, Professor of International Business Administration at Harvard Business School. (He’s also on the board of Ampere Computing, which designs processors, and was on the board of Intel for 29 years.) The company he’s talking about is Taiwan’s TSMC, which is in the news because House Speaker of Representatives Nancy Pelosi just visited him. Actually, Pelosi I met TSMC Chairman Mark Liu, according to New York Times and other commercial establishments.
Of course, TSMC isn’t the only semiconductor manufacturer. The other two big companies are Samsung and Intel. Currently, 12 percent of chips are made in the United States, according to a Summary of the Congress on the account.
“The basic philosophy of the CHIP Act is to provide some sort of balance — balancing risk, balancing national security, balancing the economy, and hopefully trying to produce a more sensible system for global e-business,” Yoffey says.
Will funding help move chip manufacturing to the United States?
Experts say it will probably help — to an extent. “It will lead to more investment in the U.S. than would otherwise happen,” Yoffey says. He cites developments from IntelSamsung and TSMC in Ohio, Texas, and Arizona, respectively. “In terms of margin, that will matter – we’re not going to go from 12 to 50 percent [of global chip production share].”
James Lewis, the director of the strategic technology program at CSIS, sees things unfolding much the same way. “One of the big effects will be to see more factories, more chip manufacturing capacity built in the US,” he notes. “This will strengthen the U.S. chip industrial base.”
Will it make a big or small difference?
Daniel Ives, managing director and senior equity analyst at Wedbush Securities, argues it’s the latter. “It’s a small step in what will be a marathon for the U.S. to even make a breakthrough,” he says. “Cost, logistics and technology ecosystem dynamics have cemented the chip food chain in and around Asia.”
But he notes that even seeing “5 to 7 percent of chip production moved outside of Asia would be a Herculean success for the US.”
It involves billions of dollars. That’s a lot, isn’t it?
Of course, a figure measured in billions of dollars is a huge amount of money, but in the field of chips, it doesn’t go very far, Yoffi says. “The money we’re talking about here is actually relatively small,” he adds. It costs about $10 to $20 billion to set up a “state-of-the-art” facility (called a fab) to produce semiconductor wafers.
Additionally, the equipment involved in the manufacturing process can come with a price tag of around $150 million for just one machine. If it all sounds complicated, that’s because it is. “It’s the most complex manufacturing product that exists in the world today,” Yoffi says. “There is nothing more complex than semiconductors.” (Quantum computing may give it a run for its money.)
CSIS’s Lewis says the investment was necessary. “We had to do this,” he says. “And about the chips, we should have done that probably a decade ago.”
There was a shortage of chips. What caused this and how is it now?
“The main reason was the pandemic,” says Yoffi, “which caused a shift between people consuming less services and more goods – so we saw a boom in demand for physical products, and a lot of those physical products required semiconductors, whether we’re talking about computers or for cars. In that sense, the chip shortage was a matter of a big spike in supply and demand that couldn’t satisfy it.
[Related: Understanding the global chip shortage, a big crisis involving tiny components]
Lewis says other factors have also affected the industry, such as fire at a chip factory in Japan that occurred in March last year. Plus the bad weather in Texas hurt Samsung. Another factor has to do with the vehicles and the chips required for them. “Some chip users, mainly the auto industry, miscalculated how the pandemic would work,” says Lewis. “People have miscalculated the recovery rate.”
“I think the crisis itself is going away naturally,” Lewis muses. He argued that funding from the legislation would not necessarily end the chip crash because “it was ending anyway.”
“It’s going to do two things – it’s going to build a bit more resilience into the supply chain,” Lewis says. “The second thing it does is it helps move some of the manufacturing back to the U.S., which is turning out to be, I think, a critical shift.”
Read more about the Chip and Science Act here.