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by Bill Pierson
Less than 100 days into U.S. President Joe Biden’s presidency, headlines made way to account for his $2 trillion plan to rebuild infrastructure and boost the economy. Of that $2 trillion, $50 billion is allocated for semiconductor research and manufacturing – in part to manage the global shortage of semiconductors and revitalize domestic manufacturing capacity. That shortage exposed a weakness in the supply-chain web, where a bottleneck in semiconductor supply creates a ripple effect in critical industries that include medical devices, computers, networking equipment, automotive and appliances. The resulting inability to meet demand has exposed the fragility of this ecosystem and the need to prepare for the future, largely the need to invest in the semiconductor infrastructure through private and public means.
There are many ways in which government support may be provided so in assessing if $50B will be enough to improve the U.S. semiconductor and manufacturing industry, we should look at how other countries have sought to stimulate this vital semiconductor market. The Japanese government announced that it will allocate a further $2.1 billion towards domestic manufacturing and supply chain improvements in Asia. Taiwan offers up to 50% subsidies for certain R&D initiatives. China’s National IC Plan announced $150 billion in government subsidies to become self-sustaining in this sector. Most significant of all, perhaps, is the recent announcement by South Korea that it will spend $450 billion to support the domestic semiconductor industry over the next decade, through a mixture of government support packages, tax incentives, and corporate investment pledges. So whether the $50B is enough to boost U.S.’ position in chip manufacturing will be highly dependent on how effective the government incentivizes smart manufacturing and promotes R&D innovation.
According to IC Insights, the top 5 countries with the highest market share in semiconductor manufacturing are China 12%, Taiwan 22.9%, Japan 16.3%, S. Korea 26.7%, and the U.S. at 12%. In the image below, it breaks out those countries and identifies a key commonality among these countries, except the U.S.
Source: CNBC Television, 4-3-2021, GlobalFoundries CEO Tom Caulfield on White House semiconductor summit, (https://youtu.be/j7x6qx5Toxs)
Government support is vitally important for incentivizing domestic production and innovation in order to stay competitive and decrease dependencies on imports. It offers companies long-term stability and promotes investment in jobs by offering subsidies and tax breaks. Therefore, the US government needs to be strategic in the process by creating local or regional hotspots for this growth, similar to that adopted in other countries in areas like science parks in Taiwan, for example.
Although the U.S. holds 12% market share in semiconductor manufacturing, it accounts for 50% of chip manufacturing equipment and 52% of intellectual property design. On a global scale, the world is dependent on the U.S.’ cutting-edge chip design and manufacturing tooling, so they should continue to play to their strengths by creating value through innovation.
Aside from the technology advancements in semiconductor design and processing, innovations using fast data for fast action, streaming analytics in areas like Smart Manufacturing are an example of market trends that are fueling a dependency on semiconductors. Production is now defined by high levels of adaptability and rapid design changes based on computer-integrated manufacturing and digital information technology, where both real-time and historical data analytics are required. They all depend on supporting electronics driven by semiconductors. In the automotive industry, it goes further where, with electric and semi-autonomous vehicles, the products themselves are laden with advanced technologies and systems underpinned by semiconductors.
In the late 80’s the U.S. created the SEMATECH consortium to conduct research on semiconductor technology challenges, mostly to address the competition from Japan. This was a widely successful program. The US should consider reusing the concept to promote innovation in R&D through Smart Manufacturing.
Promoting R&D innovation, especially in the areas of digital transformation and data processing for Smart Manufacturing, along with improving communication infrastructures with the deployment of 5G and enhanced cybersecurity measures could be a key differentiator for the U.S.. Focusing on real-time streaming analytics for Smart Manufacturing would help create productive and efficient new factories. Those investments would lay the foundation for the application of data science and machine learning techniques across areas like continuous intelligence decision-making, production efficiency and quality control that could transform the industry and society as a whole.
Beyond alleviating the semiconductor shortage, Biden’s infrastructure plan is forward-thinking and vital in determining how the U.S. market share will change in the next decade. The $50B allocation for semiconductor research and manufacturing is a start towards improving the U.S.’ position in chip manufacturing for the long term. Although the U.S. acknowledges that government incentives will be vital for long-term effectiveness, an actual change in policy needs to happen which is likely far greater than this one-time allocation. The U.S. needs to even the playing field with the other countries. As President Biden proposed, “we need to build the infrastructure of today, not repair the one of yesterday”. The question for the US is this enough to promote competitiveness in the digital era.
Bill Pierson is VP of Semiconductors and Manufacturing at KX, leading the growth of real-time streaming analytics for this vertical. He has extensive experience in the semiconductor industry including previous experience at Samsung, ASML and KLA. Bill specializes in applications, analytics, and control. He lives in Austin, Texas, and when not at work can be found on the rock climbing cliffs or at his son’s soccer matches.