Even as U.S.-based semiconductor companies are pleading for many billions of dollars in federal funding support for domestic manufacturing and research, the industry is seeing a strong uptick in global sales.
The urgency associated with the auto chip shortage, which has forced some temporary car assembly plant shutdowns, has ironically prompted the rapt attention of powerful policymakers in Congress and the White House. While chips are seeing upticks in demand, and sales, the longer-term scenario is still uncertain, although less so lately than in the past five years. The chip story is actually two tales: one of short-term growth and another of long-term hopes.
According to the latest stats, January worldwide sales of chips reached $40 billion, up by 13.2% over a year earlier when the total was $35.3 billion. Month-to-month, January’s total was 1% higher than December’s total of $39.6 billion.
Semiconductor Industry Association President John Neuffer took the growth as an opportunity to note that the production increase is helping meet increasing demand which will “ease the ongoing chip shortage affecting the auto sector and others.” He also noted that annual sales are projected to rise in 2021.
The regional impact in January affected all areas with a positive lift, including a 15% year-to-year sales increase in the Americas, a 16% increase in Asia Pacific and a 12.4% increase in China. Japan improved 9.6% and Europe was up by 6.4% over January 2020. SIA compiles its findings based on World Semiconductor Trade Statistics tallies of a three-month moving average.
Long term hopes
The positive January news comes as the semiconductor sector in the U.S. is making an exerted effort to secure federal funding for semiconductor research and expansion of domestic manufacturing. The Biden administration and bi-partisan leadership in Congress have signed on for long-term solutions for the sector in the face of competition with China, although none of the details are hammered out.
While the industry has long supported government assistance in the form of grants and tax exemptions as outlined in the authorization of the CHIPS for America Act, it took the auto chip shortage to light a fire under some policymakers in Washington. The CHIPS Act was authorized in the National Defense Authorization Act measure passed last fall, but Congress still needs to fund various forms of financial support in separate legislative steps.
Even though chip sales are good globally for now, that is only a small part of the big picture declines in U.S. production of chips over prior decades. SIA noted that the U.S. share of global semiconductor manufacturing capacity has decreased from 37% in 1990 to 12% in 2021. Chip design firms are still heavily based in the U.S. and earn about half of all global revenues.
The auto chip shortage has forced SIA and other trade groups to ramp up a public education effort. Falan Yinug, director of industry statistics and economic policy at SIA, wrote a recent blog noting that chipmakers are ramping up chip production to address shortages but said increasing the available semiconductor manufacturing capacity “is not as easy as flipping a switch” to increase output.
He noted the industry has steadily increased overall fab utilization over the past two years and is estimated to increase even more in 2021. However, there are up to 1,400 process steps in overall production of chip wafers and it takes up to 26 weeks to manufacture a finished chip with 12 weeks required for making the wafers as a first step.
“What this ultimately means is the semiconductor industry is currently doing all it possibly can in the short-term to increase utilization and meet increased demand both in the auto sector and more broadly for all customers,” Yinug noted. He also said attempts to force the industry to mandate who gets chips and who does not “will not overcome the time constant…to fabricate a semiconductor.”
In mid-February, SIA and a wide variety of businesses and associations signed a letter urging President Biden and Congress to invest boldly in domestic semiconductor manufacturing. The groups included SEMI, representing chip manufacturing equipment makers, and several other trade groups, as well as the U.S. Chamber of Commerce.
Last week, President Biden signed an executive order calling for a 100-day whole of government review to address the chip supply shortage and shortages in other critical supply chains. He also said Congress needs $37 billion in the short term to improve chip capacity, without offering any details.
AI tech overlaps into semi supply concerns
The president’s $37 billion short-term funding mention for improving the chip supply is just $5 billion more than the $32 billion recommended for non-defense federal research into AI made on Monday by the National Security Commission on Artificial Intelligence. If both funding streams are combined, the total is nearly $70 billion for research and production.
SIA cheered the NSCAI’s recommendation, noting that it calls for a total of $35 billion which includes support for chip research and manufacturing as well as creation of a refundable investment tax credit for building manufacturing facilities.
For microelectronics alone, NSCAI calls for $12 billion in chip research investments and a 40% refundable investment tax credit.
NSCAI noted that AI is all-encompassing technology that impacts software and hardware as well as engineering and manufacturing processes. “AI is not a single technology breakthrough, like a bat-wing stealth bomber,” the commission said in its final report. “The race for AI supremacy is not like the space race to the moon.”
The commission said Thomas Edison’s words about the field of electricity encapsulate the AI future: “It is a field of fields…it holds the secrets which will reorganize the life of the world.”