Will the CHIPS Act really bring back semiconductor production and tech jobs?

Micron Technology is just the latest of a half dozen companies to announce new semiconductor fabrication plants in the US, part of a US government effort to bring chip manufacturing back to American shores. But a lack of tech talent and long-term funding questions could derail the mission.

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The US, where semiconductors were invented, was producing 37% of the world's supply of chips as recently as the 1990s. But only about 12% of all computer chips are produced domestically now. 

That decline in domestic chip production was exposed by the worldwide supply chain crisis, and that has led to calls for reshoring microprocessor manufacturing in the US. With the federal government spurring them on, the likes of IntelSamsung, and TSMC have unveiled plans for a flurry of new US fabrication plants. (Qualcomm, in partnership with GlobalFoundries, also said it would invest $4.2 billion to double chip production in its Malta, New York fabrication facility.)

Just last week, chipmaker Micron Technology announced it will spend $20 billion to build what it called the largest-ever US semiconductor factory ever, and may spend up to $100 billion over 20 years to expand it.

In announcing the new fabrication plant projects, the semiconductor manufacturers, at least in part, credited the CHIPS and Science Act of 2022 signed into law by President Joe Biden in August. The legislation provides $52.7 billion for manufacturing incentives to boost microchip production in the US. Chip manufacturers can begin seeking to use tax breaks and funds to offset construction and other costs beginning next year.

Essentially, the CHIPS Act is an attempt to increase the percentage of microprocessors produced in the US by closing the cost differential with other countries such as Taiwan, South Korea, and China. In those nations, the governments are already subsidizing semiconductor manufacturers.

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GlobalFoundaries' Malta, New York headquarters and foundry. The company announced this year it would be investing $4.2 billion to double its US chip production. 

The US legislation is also meant to produce high-tech jobs and loosen the supply-chain grip foreign chip manufacturers have on US OEMs.

“The bottom line is that without the CHIPS and Science legislation, Micron would have decided to build its mega-fab overseas,” Senate Majority Leader Chuck Schumer (D-NY) said in a statement.

Gaurav Gupta, Gartner’s vice president for Emerging Technologies and Trends, said the money, tax breaks, and other incentives in the CHIPS Act is pocket change for leading manufacturers. “If you look at the leading chipmakers, like TSMC, Samsung and Intel, they’re spending that much money in one year,” Gupta said.

What the incentives do, however, is demonstrate that the US government is serious about supporting the industry. But more is needed, according to Gupta, who cited the need for a CHIPS Act 2.0, 3.0, and beyond.

“This is the first time this money has been made available," he said. "And, as a result, you’re seeing a lot of chipmakers announcing new fabs and capacity expansions. Let’s see how well they execute. We’ll know by the 2023–2024 time frame when they’re building their fabs. But this has to be a more consistent policy from the US government through the next decade and beyond if they’re really serious about bringing back more chip manufacturing here in the US.”

The lion’s share of the funding in the bill — $39 billion — goes toward incentives to build new chip foundries. There’s also $2 billion for legacy chipmakers who make products critical to automotive and defense systems, $13.2 billion for research and workforce development, and $500 million for supply chain and networking security.

The question is whether that's enough. And once companies break ground on new manufacturing facilities, will they have access to enough tech talent to staff the facilities? Currently, the US is experiencing an unprecedented shortage of tech talent, especially in the semiconductor sector.

"It’s not like there’s a specific type of person or function missing. It’s across the board,” said Mark Granahan, co-founder and CEO of iDEAL Semiconductor, a five-year-old fabless chip start-up in Allentown, Pennsylvania.

Because iDEAL is a startup, Granahan needs workers to fill every function in the company, whether sales and marketing, applications and systems, or engineering. “All these things require some technical background to do. We need more two-year degrees, Master’s degrees, and PhDs. Focusing in one area is not a bad thing, but we need a broad brush of things,” he said.

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A semiconductor wafer produced in GlobalFoundaries' Malta plant.

Beyond the fact most jobs in the semiconductor industry are located overseas, chip design and manufacturing has the reputation of being a staid industry compared to software development, so students often shy away from those careers, according to Granahan. Chip development also requires coding and software development, Grahahan noted.

The skills gap is exacerbating a chip supply shortage that predated supply chain disruptions caused by the COVID-19 pandemic — but the pandemic made matters worse. Older semiconductor fabrication plants were already running at maximum capacity, according to Alan Priestley, a vice president analyst at Gartner Research. “COVID exacerbated the problem because all the demand forecasting for the industry was thrown into the air,” he said in an earlier interview.

Given the high costs and complexity of chip manufacturing, many US semiconductor firms transitioned to a “fabless” model, where the chips are designed here but fabricated abroad — mostly in East Asia. That region is now home to nearly 80% of global chip fabrication, according to the Center for Strategic & International Studies (CSIS).

“Some of America’s largest tech firms, including Google, Apple, and Amazon, rely on Taiwan’s TSMC alone for nearly 90% of their chip production,” Gregory Arcuri, a CSIS research assistant wrote in a January blog.

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Construction of TSMC's 5nm semiconductor plant in Phoenix, Arizona is currently under way and scheduled to begin making chips in 2024.

Support for reshoring chip manufacturing was driven in large part by import shortages during the pandemic and by the dramatic increases in freight costs and delivery times. Other factors included increased recognition of the total cost of offshoring and rising concern over US dependency on China, according to Gupta.

"Even for critical infrastructure in the US, like aerospace, communications, defense, and the military, you are relying on chips made outside the country," Gupta said.

The potential for a Taiwan-China conflict and the danger of China interfering in the global chip supply chain have brought new focus to those concerns, according to the Reshoring Initiative, a Sarasota, FL.-based manufacturing industry advocacy group.

"Destabilizing geopolitical and climate forces have brought to light our vulnerabilities and the need to address them," the Reshoring Initiative said in a report. "Subsequently, great opportunities have arisen for a continued meaningful rebound of US manufacturing. Continuing the current trajectory will reduce the deficit, add jobs, and make the US safer, more self-reliant and resilient."

Apple, Microsoft, Alphabet, Amazon, and others have been lobbying the US government to increase domestic chip production, citing problems overseas that have hampered hardware production. In fact, a US Commerce Department report released in January said the chip shortage is so bad that at one point in 2021 there was just a five-day supply worldwide — with no sign the situation would improve anytime soon.

In contrast to the US, the governments of Taiwan, South Korea, Japan, and China all subsidize semiconductor manufacturing and research facilities, according to the Semiconductors in America Coalition (SIAC). "As a result, it is 20%-40% more expensive to build and operate a fabrication facility in the US compared to overseas,” SIAC said in a letter to US Congressional leaders.

“The government’s investments to reshore chip production “will create hundreds of thousands of American jobs,” David Isaacs, vice president of Government Affairs for the Semiconductor Industry Association, said in a blog post. The efforts will also encourage hundreds of billions of dollars in chip company investments in the US and ensure more resilient chip supply chains for key manufacturing industries and for the national security community, Isaacs said.

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An rendition of one of two semiconductor fabrication plants Intel plans to build in Ohio. 

Recent initiatives to bring tech manufacturing back to America are working, according to the Reshoring Initiative. In its report, the group predicted 2022 will see a record 350,000 new jobs directly related to domestic companies bringing work back stateside and offshore companies committing foreign direct investment (FDI) to their US-based divisions and facilities. That's up from 260,000 new jobs in 2021.

If that jobs prediction holds true, 2022 will bring the total number of  jobs announced since 2010 to more than 1.6 million, the Reshoring Initiative report said. The group also noted that for the third year in a row, reshoring outpaced FDI.

The high rate of reshoring indicates that US-headquartered companies are starting to understand the same benefit to localized production that many foreign companies have understood for years, according to the Reshoring Initiative.

“With five million manufacturing jobs still offshore, [and] as measured by (the US) a $1.1 trillion-per-year goods trade deficit, there is potential for much more growth,” said Harry Moser, founder and president of the Reshoring Initiative.

Along with state incentives, Micron said it chose upstate New York for its new plant because it provides partnership opportunities with local K-12 education programs, community colleges and institutions for top engineering and technical talent.

“The state has a long history of semiconductor development and manufacturing, providing promising opportunities to collaborate on R&D initiatives with organizations such as the Albany NanoTech Complex and the US Air Force Research Laboratory,” Micron said in a statement.

The important point here is that over recent decades, the foundry model enabled companies that need semiconductors to design them in-house then ship the design to foundries that are increasingly overseas for manufacturing. 

Martin Schmidt, president of Rensselaer Polytechnic Institute in Troy, New York, said one consequence of the US lagging behind other nations in chip production has been how it affects student career choices.

“When students in the United States are considering career choices, the recognition that if you are interested in production of semiconductors, the ways in which they are manufactured and the advanced technologies to develop them those opportunities are largely offshore today,” said Schmidt. “And that means we are not producing a generation of innovators in this country that are advancing the leading edge of semiconductor production and design.” 

Copyright © 2022 IDG Communications, Inc.

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