Everyone is well aware by now of the critical role semiconductors play in our everyday lives. If that wasn’t brought home by the pandemic and our reliance on broadband internet and rapid advances in healthcare, it certainly was by the almost daily headlines of how chip shortages have impacted the automotive industry. Ford can’t make the F150!? That’s unacceptable! Even 60 Minutes ran a segment.
There are no quick solutions to the chip shortage, which was caused by sky-rocketing demand for chips of all kinds, poor planning by automobile manufacturers (who are reportedly rethinking their just in time practices), the cold snap and power outages in Texas, a fire at the Renesas fab in Japan, and a hoarding of chips by Chinese electronics manufacturers, among other things. Shortages are expected to last well into next year; building new fabs typically takes years.
It has also called attention to the out-sized role that Taiwan Semiconductor Manufacturing Co. (TSMC) in the semiconductor manufacturing world, and what might happen if the unthinkable happens: A war between the U.S. and China over Taiwan. “Were production at TSMC to stop, so would the global electronics industry, at incalculable cost,” notes The Economist’s May 1st cover story “The Most Dangerous Place on Earth.”
Last year, TSMC announced plans to build a $12 billion fab near Phoenix, Arizona, which is expected to come on-line in 2024. Fresh rumors are that it is considering a total of six fabs in that location, according to a May 4th Reuters story (based on three sources not authorized to talk to the media). TSMC has announced $100 billion in investment over the next three years.
TSMC Chairman Mark Liu told 60 Minutes Leslie Stahl: “I think the U.S. ought to pursue to run faster, to invest in R&D, to produce more Ph.D., master, bachelor students to get into this manufacturing field instead of trying to move the supply chain which is very costly and really non-productive. That will slow down innovation because [of] people trying to hold on their technology to their own and forsake the global collaboration.”
At a forum hosted by Economic Daily in Taipei in late April, TSMC’s founder Morris Chang spoke about separate efforts by China and the US to build up their own chip-making capabilities. According to an April 21 article in the Nikkei Asia, Chang said the U.S. has a competitive edge in terms of the physical resources and environment needed to build a semiconductor manufacturing industry, including land, water and electricity. “However, they lack dedicated talent — including dedicated and committed engineers, technicians and production-line workers — as well as the capability to mobilize manufacturing personnel on a large-scale,” he said.
He also said the unit cost of chipmaking in the U.S. is higher than in Taiwan, adding that subsidies from the federal and state governments “will not last forever” and are not enough to offset the long-term competitive weakness of making chips in the U.S.
Meanwhile, Intel has announced plans to spend $20 billion to build two fabs, also in Arizona, another $3.5B in New Mexico on packaging technology and capacity, $200M on a campus in Haifa, $400M for Mobileye in Israel and $10B to expand its 10nm fab in Kiryat Gat, Israel.
Biden announced $50 billion in U.S. government spending on the semiconductor industry as part of the $2 Trillion infrastructure plan. That’s a start but not nearly enough. According to a recent SIA study titled “Strengthening the Global Semiconductor Supply Chain in An Uncertain Era,” There are more than 50 points across the semiconductor value chain where one region holds more than 65% of the global market share. “These are potential single points of failure that could be disrupted by natural disasters, infrastructure shutdowns, or international conflicts, and may cause severe interruptions in the supply of essential chips,” the report notes. “About 75% of global semiconductor manufacturing capacity, for example, is concentrated in China and East Asia, a region significantly exposed to high seismic activity and geopolitical tensions. In addition, 100% of the world’s most advanced (below 10 nanometers) semiconductor manufacturing capacity is currently located in Taiwan (92%) and South Korea (8%). “
An extreme hypothetical scenario of complete disruption of Taiwanese foundries for one year could cause the global electronics supply chain to come to a halt; If such a disruption were to be become permanent, it could take a minimum of three years and a $350 billion investment to build enough capacity in the rest of the world to replace the Taiwanese foundries, the study finds. That would be a very big wake-up call the world could ill afford.