Sino US relations have an important impact on the semiconductor structure
As trade tensions between China and the U.S. intensify, the U.S. semiconductor industry is worried that the relationship between the two sides of the technology may damage the global supply chain. Now, companies on both sides of the Pacific are trying to develop risk reduction strategies - whether it's hoarding supplies or considering relocating production facilities.
The trump administration announced last week that it was considering imposing export restrictions on China's largest semiconductor manufacturer. This is the latest move by Washington to impose restrictions on Chinese technology companies, such as Huawei, that prevent them from acquiring chips that are not specifically licensed.
The issue prompted industry group semi to draft a letter to commerce minister Wilbur Ross, according to Reuters. In the letter, they explained that blacklisting Chinese Fabs could hurt the U.S. technology industry. They pointed out that we urge the U.S. Department of Commerce to carefully consider the short-term and long-term adverse effects that the addition of Chinese fabs to the entity list may have on U.S. industry, economy and national security.
Although some U.S. companies, such as Intel and MgO, can still produce chips in the United States, the industry's focus has shifted to Asia. TSMC has more than half of the total market contract manufacturing chip orders, and they have greater control over advanced chips. Companies including iPhone makers apple, Qualcomm and NVIDIA rely on TSMC and other Asian factories to make chips.
Industry experts agree that disrupting the global supply chain is not feasible in this interconnected industry, at least in the foreseeable future. Syed alam, head of Accenture's global semiconductor business, explained that a chip assembly may need to span more than 25000 miles before it can be completed, and can span more than 70 times to deliver the final product to the end customer.
US government promotes local manufacturing
Industry sources believe that the best way to solve the problem is to restore more domestic manufacturing, develop a strong industry ecosystem, invest more in R & D, and maintain the U.S. leading edge in advanced product design. The amendment to the defense authorization act shows that Washington recognizes that improving the level of domestic manufacturing and R & D is essential for national security and global competitiveness. Over the past 20 years, the US share of global semiconductor manufacturing capacity has halved, to 12%, and is expected to drop to 10% by 2023.
The amendment is a compromise version of two bills supported by both parties. The chips act of the United States represents "incentives to create beneficial semiconductors." they will provide a 40% investment tax credit for semiconductor equipment, a $10 billion fund to match any state level incentive plan for chip manufacturing, and $12 billion in R & D funds to be allocated to these companies over the next five to 10 years.
In addition, it provides semiconductor based research funding to US universities or private companies directly or through agencies such as the Defense Advanced Research Projects Agency (DARPA).
It also called for the establishment of the National Semiconductor Technology Center, which could serve as a clearing house and organizational control point for chip manufacturing in the United States, as well as an important new R & D facility.
The other is the American foundries act, which empowers the U.S. Department of Commerce to provide $15 billion in grants to States to assist in the construction, expansion or modernization of microelectronics manufacturing, assembly, testing, advanced packaging or advanced R & D facilities.. It will also provide $5 billion in federal investment to promote semiconductor research in the Department of defense, the National Science Foundation, the Department of energy and the National Institute of standards and technology. The bill also requires the White House Office of science and technology, in coordination with federal research agencies and the private sector, to develop a plan to guide funding for the development of the next generation of semiconductors.
"We believe these grants and incentives are critical to the U.S. semiconductor industry, especially for the most advanced technology," said Jeff Rittner, Intel's chief government affairs office. "We need the help of the US government to create a level playing field." As he explained over time, the manufacturing nation of the United States has been shrinking, putting the country at risk because the United States will rely on a brain running modern technology to obtain foreign resources.
High threshold of the industry
Given that the cost of building a chip factory could be as high as $15 billion, most of which is expensive tools, these incentives are crucial. China and many other countries have spent billions of dollars to boost their domestic chip manufacturing industry and provide tax and fiscal incentives to attract foreign manufacturers. In China's plan, China plans to provide huge funds to support domestic semiconductor manufacturing, with the goal of producing 70% of all chips needed for local consumption.
According to the latest report from the semiconductor industry association in collaboration with Boston Consulting Group, strong federal incentives worth $50 billion will create up to 19 major semiconductor manufacturing facilities and 70000 high paying jobs in the United States over the next 10 years. Strengthening U.S. chip manufacturing will help ensure that the U.S. surpasses the world in strategic technologies (artificial intelligence, 5g, quantum computing) in the future, which will determine global economic and military leadership in the coming decades.
"Countries that are leading in the field of advanced chip research, design and manufacturing will have a lot to do in the global competition to deploy new game changing technologies (such as 5g, artificial intelligence and Quantum Computing)," said John, CEO of the semiconductor industry association "Leaders in Washington should seize this opportunity to attract chip production in a global competitive environment and invest boldly in domestic manufacturing incentives and research programs to enhance the U.S. technology leadership in the coming decades," Neuffer said He further pointed out that".
The U.S. has always been a leader in innovation leadership and intellectual property in the semiconductor industry, but now China poses a real threat because they are subsidizing a lot of R & D," said Bob O'Donnell, President and chief analyst at technalysis research. The Chinese government is currently heavily subsidizing the construction of more than 60 semiconductor manufacturing plants (commonly referred to as "foundry plants" or "factories," or "manufacturing plants").
And some U.S. companies are considering how to expand their operations in the United States. Intel is investing to expand its U.S. operations. Intel has hired 3000 new employees and is ready to open a new microprocessor plant in Chandler, Arizona.
"Intel has also had a dialogue with the U.S. government on the development of a foundry for advanced semiconductors, but there are no specific plans," rittener said.
Other industry giants have taken action. In May, TSMC, a major supplier to apple and Huawei, announced it would invest $12 billion to build a second U.S. manufacturing plant in Arizona. The plant will focus on the production of so-called 5-nanometer chips, the latest semiconductor technology being manufactured today. Construction will begin next year; it is expected to be operational in 2024.
For Huawei, the world's largest smartphone maker, the trade war has caused heavy losses. Last year, the company purchased chips worth 20 billion 800 million US dollars, which has been hoarding chip supply and sanctioned the gradual transfer of design and chip production to mainland China due to US sanctions.
The United States accused Huawei of building backdoors in its network infrastructure, but Huawei denied it. Despite these denials, the trump administration added Huawei and its 114 branches to the entity list in May 2019, which means that US companies cannot sell technology to the company without the explicit approval of the US government. Since then, the list of entities has grown to include 150 companies. In May this year, the U.S. Department of Commerce issued a revised export regulation, forbidding the export of semiconductors to China, "strategically targeting Huawei's acquisition of semiconductors, a direct product of American software and technology."
The rule prevents foreign semiconductor manufacturers that use U.S. software and technology in their operations from shipping their products to Huawei unless they first obtain a license from the United States. TSMC, the world's largest semiconductor manufacturer, suspended orders from Huawei's Hisense semiconductor unit in May after new U.S. regulations were issued, it was reported.
Now industry observers are worried about restrictions from China. Sebastian Hou of CLSA said Apple, Huawei's competitor in the smartphone market, and Qualcomm would be potential targets.
Other industry giants continue to diversify in other parts of the world. Last week, NVIDIA announced its $40 billion acquisition of arm holdings from Softbank. Arm designs the architecture of mobile chips used in almost all mobile devices in the world, from the Apple iPhone to almost every Android device. For Nvidia, whose chips are widely used to support graphics and AI applications, including autopilot, this transaction will help to promote the development of its data center business.
Smaller players feel stressed
Large manufacturers can solve supply chain disruption through financial and industrial linkages, while many small and medium-sized technology manufacturers in the United States do not.
One of them is social mobile, a Miami based consulting firm and OEM that makes customized Android enterprise devices for Fortune 500 companies. The company also has operations in San Francisco, Hong Kong and Shenzhen, China. The company has been disturbed by suppliers since February and the situation is deteriorating.
"The industry has changed dramatically," said Robert morco, the company's chief executive "Purchasing semiconductors has a longer delivery time and higher prices. In some cases, the time to get supplies is doubled. Some suppliers only provide it to key customers. This forces many companies into the grey market to look for chips. "
According to morcos, "big companies can solve this problem, but it is more difficult for small and medium-sized enterprises. We feel the impact of this trend most. We are suffering from a lack of transparency, price measurement and inadequate supply of products. "
In response to the crisis, morcos said social mobile requires customers to place orders early due to delays. Looking ahead, the company is considering building a plant with some support from the U.S. government. "There's a lot of local, state and federal interest in outsourcing semiconductor manufacturing right now, so we think we're in the right place at the right time," morcos said.
O'Donnell points out that many of his customers are focusing on Sino US trade and geopolitical tensions, which are making semiconductor companies nervous. "There are many disturbing situations between Mainland China and Taiwan," he said.
"This has caused technology companies in many industries to rethink their semiconductor roadmaps," Alam said. As he explained, the United States just doesn't need to build more chip factories. It needs to build a complete semiconductor ecosystem and attract the talents it needs to maintain its competitive edge in the industry.
"Bring more manufacturing plants home," said gene Sheridan, chief executive of Navitas semiconductor in El Segundo, California. The company produces next-generation Gan power chips for Lenovo and other companies in Taiwan and the Philippines
"Trade tensions and pandemics remind us of the risks inherent in most of our manufacturing abroad." He added.