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CHIPS Act moves the needle on US chip manufacturing

Not only does the CHIPS Act funnel billions into U.S. semiconductor chip manufacturing, it reflects a major change in how U.S. lawmakers view industrial policy, experts say.

Ideal Semiconductor CEO Mark Granahan and co-founder and executive chairman Mike Burns first approached Congress in 2018 about their struggle to find a U.S.-based facility to fabricate their chip designs.

Ideal Semiconductor, based in Bethlehem, Penn., is a fabless semiconductor facility, meaning that while the company designs energy-efficient semiconductor chips, it doesn't own a foundry -- a facility with which to manufacture the chips. Ideal Semiconductor partners with a foundry to produce their chips, which are purchased by companies like Dell to power devices such as laptops. 

Mark GranahanMark Granahan

Now, four years later, a global chip shortage is impacting millions of devices, cars and appliances. A majority of the world's semiconductors are produced in Asia, especially in Taiwan. Taiwan Semiconductor Manufacturing Company might be the world's largest semiconductor foundry.

The COVID-19 pandemic exacerbated an already existing problem, which is the lack of chip foundries in the U.S., Burns said.

"We showed up three years ago saying this is really difficult, there's a concentration of certain types of chips that are only made in certain parts of the world that are geopolitically unstable," Burns said.  "Through COVID, there was this realization that we have a serious issue."

Mike BurnsMike Burns

In 2021, The U.S. Senate proposed a competition bill with China that includes the $52 billion CHIPS Act, which would funnel money into building U.S.-based foundries. The CHIPS Act would also fund chip design and research and development. The U.S. House of Representatives proposed its own competition bill earlier this year and while it differs from the Senate bill, it includes the CHIPS Act funding.

As the House and Senate work to reconcile the two competition bills, chief executives from chipmakers Intel, Nvidia, Texas Instruments and Qualcomm, among others, flew to Washington, D.C., last week to push for the legislation. Earlier this year, Intel proposed an initial investment of $20 billion to build two chip factories in Ohio. The company said it could invest up to $100 billion into the site, but it's dependent on government funding.

Gaurav GuptaGaurav Gupta

The $52 billion CHIPS Act will kick-start U.S. semiconductor manufacturing if it advances, said Gartner analyst Gaurav Gupta. However, the federal government will need to take a long-term view of the issue and shift its mindset in terms of industrial policy -- which Burns and Granahan said is already happening with the CHIPS Act.

Much like governments in Taiwan, South Korea and China who have supported and promoted their chip industries for years, Gupta said investments will need to continue to be made to support the U.S. semiconductor industry beyond the initial $52 billion CHIPS Act.

"This has to be a consistent, long-term policy and the government will have to continue to invest and support the industry," Gupta said. "But it's a good kick-start."

The need for U.S.-based semiconductor manufacturing

The percentage of chip manufacturing currently done in the U.S. is about 11% to 12% of the global total, Gupta said. While 8% to 9% of chip manufacturing occurs in Europe, the rest takes place in Asia.

The chip manufacturing exodus began about 30 years ago, mostly due to the cost difference in setting up a fabrication facility in the U.S. and EU as compared to working with foundries in Asia. Due to the global chip shortage, growing tensions between the U.S. and China, and the recognition that Taiwan has become a "chokepoint for semiconductors," Gupta said there is a growing, strong sentiment in the U.S. and EU to develop their own semiconductor ecosystems.

This is motivation and support from the government for companies to set up chip manufacturing facilities in the U.S.
Gaurav GuptaAnalyst, Gartner

"This is motivation and support from the government for companies to set up chip manufacturing facilities in the U.S.," Gupta said of the CHIPS Act.

Granahan said one of the first issues Ideal Semiconductor faced while searching for a U.S.-based foundry is that a lot of the big chipmakers, including Intel and Texas Instruments, are what's considered integrated device manufacturers (IDMs). IDMs are companies that produce their own chips, but do not currently produce chips for third parties like Ideal Semiconductor.

Yet Intel's recent move to invest $20 billion in building semiconductor manufacturing facilities also comes in response to the need to provide those foundry services to other U.S. companies, Burns said. Indeed, Intel CEO Pat Gelsinger announced "IDM 2.0" in January, a new vision for Intel's IDM model to become a "major provider of foundry capacity in the U.S. and Europe to serve customers globally."

However, at the time for Ideal Semiconductor, finding a U.S.-based foundry was a difficult, costly endeavor, Burns said.

Burns, who also serves as managing director at investment firm Murray Hill Group, said Ideal Semiconductor also wanted a U.S.-based foundry due to concern about intellectual property theft should the company fabricate its chips in Asia.

Burns said his first semiconductor chip startup partnered with a foundry in Taiwan to fabricate their chips. Another startup he worked on with Granahan fabricated chips in Singapore. In both cases, Burns said the companies suffered intellectual property leakage.

"The issue is while the companies protect IP and they have good polices in place, you have a much higher likelihood that the employees at the company who have seen the technology will get heavily recruited to firms in mainland China where the IP laws are not as strict and where designs tend to be copied," Burns said.

Working with a U.S. foundry means the IP becomes less mobile to a competitor like China, Granahan said.

"We really view the CHIPS Act as a blueprint for bringing manufacturing back to the U.S. for economic security, as well as our general well-being as a nation," Granahan said.

Free markets and industrial policy

The difference between the U.S. and Asia when it comes to semiconductor manufacturing is industrial policy, Burns said.

The U.S. practices the tradition of free markets, which Burns said is "fantastic, except when your free market has players in it who practice heavy industrial policy."

Gartner's Gupta said with the $52 billion provided by the CHIPS Act, the federal government can start funding individual chip foundry projects from companies, which would help close the cost gap with Asia.

But companies will need to make greater investments on top of the federal funding to boost semiconductor manufacturing in the U.S., and the legislation provides the financial motivation to do that, he said. 

Makenzie Holland is a news writer covering big tech and federal regulation. Prior to joining TechTarget, she was a general reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.

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