Semiconductors, reshoring and Fed policy

Picture of John Denslinger
John Denslinger is a former executive VP Murata, president SyChip Wireless, and president/CEO ECIA, the industry’s trade association. His career spans 40 years in electronics

John Denslinger investigates reshoring for self-sufficiency as a national competitive advantage.

A merica was once the hub for semiconductor manufacturing but that leadership shifted to Asia at the turn of the century as many domestic companies embraced the fabless model. Today the Asia Pacific Big 4 (a term coined by Deloitte) consisting of South Korea, Taiwan, China and Japan dominate semiconductor manufacturing. In fact, by 2019 South Korea and Taiwan alone held a commanding 81 per cent share of the global foundry market substantially influencing design, supply and cost of nearly every technological product from automobiles to smart phones to everyday commodity items.

Semi capex spending continued during the two Covid years but perhaps underwhelming based on the current surging demand. When the automotive industry suddenly shutdown due to a lack of semiconductors just as vehicle demand escalated, it highlighted America’s supply chain risks. Reshoring semi manufacturing immediately became the media’s lead headline. That risk also caught the attention of Congress still deliberating a Department of Defense assessment of China’s emerging leadership in future technologies aided largely by advanced semiconductors. For Congress, the debate appeared less about reshoring and more about how fast the industry could make domestic production happen. To be realistic, building a major fab takes two to three years, not exactly a quick solution to securing America’s critical supply chain.

The Senate, not necessarily known for swift action, recently passed a bipartisan bill: Creating Helpful Incentives to Produce Semiconductors for America or better known as CHIPS Act. While important on its own, CHIPS was part of a larger 2021 National Defense Authorization Act. The linkage seeks to advance America’s R&D leadership in semiconductors and telecommunications. It also commits billions in funding for greater domestic production of semiconductors essential for military and the growth of key future technologies for a secure America.

For the electronics industry and the purchasing community at large, having the government recognize these supply chain challenges is bittersweet. With federal funding comes bureaucracy, never-ending accounting and the occasional over-reach. The infusion of funds is helpful but not an immediate solution to the current shortage or security concerns. It may take three to five years for the investment in semiconductor technology, research and US manufacturing to create the new markets and applications fulfilled by domestic capacity. It’s all positive of course, but down-the-road strategic gain. And yet, let’s not overlook America’s unique strengths: (1) an extraordinary, global IP edge and (2) major stateside semiconductor capital equipment vendors. Both compliment a US Policy of becoming more self-reliant ultimately reducing supply dependence on politically sensitive regions of the world.

The key then is self-sufficiency. The industry must lead and Fed Policy must sync. The industry needs Federal leadership addressing domestic mining of critical raw materials especially rare earth metals, solutions to long delays at ports and, where possible, warp speed approaches to regulatory hurdles. None are addressed with current legislation. The industry must progress with massive capex investment in US manufacturing which appears to have started. Intel committed $20B to build two new factories and plans to act as a foundry. Similarly, TSMC is building a factory in AZ at a cost of $12B with output slated for 2024. And that is just the beginning of need. Next generation technologies, such as AI, EV, robotics, 5G, space exploration, Industry 4.0, IOT and SMART everything will drive even greater investment in large-scale, domestic manufacturing capacity.

One final perspective: America is not the only country striving for more control of critical semiconductor supply lines. Reshoring for self-sufficiency is a national competitive advantage. It comes at a steep price with a commitment to the long-term.