As tragic as the pandemic has been, it has helped provoke structural changes in how much of the world views semiconductors. Not only have governments responded with massive funding of new fabs, there is evidence chip companies are adapting to how they manage their supply chains to protect against shortages over the long term.
The drive to digitize every kind of device started well before the pandemic, but shortages of some chips early in the pandemic helped policymakers and corporate leaders recognize the importance of autonomy and resilience, including the value of chips used in systems to protect national security. Especially in the US and Europe, there was a growing recognition of the need to develop advanced chips and depend less on Asian producers, especially Taiwan.
Under the heading of new funding for chip fabs, accounting firm EY tallied 120 different manufacturing initiatives valued at $500 billion in various countries, including the US.
“It’s global. You’ve never seen anything close to this in history,” said Ron Hofmeister, EY partner and global strategy and operations semiconductor leader, in a recent interview with Fierce Electronics.
Included in that tally is the $52 billion from the US CHIPS Act signed into law by President Biden in August. It calls for construction of domestic chip manufacturing facilities and calls for separate investments into chip design.
The US has joined European countries in recognizing too much vital chip production comes out of Taiwan and pointed at the need for access to chips for economic productivity as well as national security. Japan and countries in Europe have similar initiatives to the US, while Saudi Arabia, India and Mexico want to create entire ecosystems to obtain materials, then manufacture chips and also assemble them into components. Today, a large company like Apple employs hundreds of small companies to make components and chips and have them assembled into products like smartphones and tablets, often across multiple countries.
The US Commerce Department has not detailed the process for applying for CHIPS Act funds, but said it will do so by the end of February. On Feb. 17, the department announced 15 hires for CHIPS for America program office.
US chipmakers are expected to line up for a piece of the handout, and have anted up billions of dollars of their own investments for the construction. More than a dozen US fabs are being planned by both US and foreign companies, including $11 billion proposed by Texas Instruments in recent days for a 300mm wafer fab in Lehi, Utah, to being production in 2026.
Intel jumped on the CHIPS Act bandwagon early and has proposed $20 billion or more in Ohio for two fabs. Since the first version of the CHIPS Act passed in January 2021, Intel has announced more than $43.5 billion in chip-related investments in Arizona, New Mexico and Ohio.
“By investing in US-based fabs, America can help safeguard critical infrastructure against future crises and supply chain issues, helping to fulfill the promise of the CHIPS and Science Act,” an Intel spokesman said via email. “Fabs are the heart of the semiconductor supply chain, offering high-quality jobs, localized economic stimulus and economic security and should be a priority for funding opportunities.”
Shortly after the covid virus took hold and a global pandemic was declared in early 2020, normal work patterns changed drastically with far more work at home and even schooling at home. In short, demand for internet services and the servers behind such service, as well PCs and laptops, soared. Chipmakers fed chips into that demand for computers of all sizes, including servers, while carmakers saw sales of cars drop off.
In 2021, a dramatic shift occurred when car buyers sought out new vehicles but were told carmakers could not get the necessary chips. In some cases, it was because chipmakers were focused on making chips for PCs and servers and not the sort of chips needed for cars.
By early 2023, multiple US chipmakers have seen consumer demand lag dramatically for smartphones, PCs and laptops and even servers in some cases, which has meant the companies building computers had too much chip inventory. This inventory correction has, in turn, meant the global chip industry will decline by 3% to 5% in 2023, according EY and other experts.
To protect against ups and downs in supplies, some companies began hammering out long term agreements with big customers. In a recent example, GlobalFoundries said it has increased reliance on LTAs with big customers like GM by promising dedicated supplies and incremental revenue via prepayments to GF over the life of the contract.
Prior to the pandemic, large buyers of chips would often strike just in time agreements, assuming the product would be there when needed.
Chipmakers and their buyers using LTAs and governments proffering massive fab funding are, in effect, comparable to an economic vaccine, of sorts.
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