The semiconductor shortage of 2020 threw a massive wrench into many industries, leaving them scrambling to find the chips they needed to keep up with demand. In response, politicians drew up the CHIPS and Science Act of 2022. How will the CHIPS Act impact semiconductor manufacturers moving forward?
A history of advancement
Semiconductors are an integral part of almost every industry. The US semiconductor industry took off in 1987 with the establishment of SEMATECH, a nonprofit consortium for R&D to advance chip manufacturing. SEMATECH included 14 of the country’s leading semiconductor manufacturers and with the addition of more than $100 million in government funding, helped put the U.S. on the map as a world leader in semiconductor R&D and chip assembly.
The year 1988 saw the rise of chip shortages due to new manufacturing techniques that were not yet perfected. By 1994, the introduction of clean rooms improved the technology and helped maintain quality across the industry. The industry has weathered other minor shortages throughout the 2000s and 2010s. In addition to a global pandemic, 2020 brought the world’s worst chip shortage. In the beginning, the US represented upwards of 40% of the semiconductor market. Today, that number is barely 12%.
Explaining the CHIPS and Science Act of 2022
What does the CHIPS and Science Act of 2022 include for the semiconductor industry?
The final version of the act, signed into law on August 9th, 2022, by President Biden, sets aside $52.7 billion for research and development and domestic manufacturing of semiconductors. Of that, $2 billion is relegated to existing or legacy chips in the automotive industry and defense contracts and $13.2 billion is earmarked for developing the semiconductor workforce alongside some additional R&D funding.
The CHIPS and Science Act doesn’t just support the semiconductor industry, though that is one of its primary focuses. The Science section of the act also supports various sciences and science-related programs, but the details of that section are a little hazier. “You look at all the rest of the bill — all the energy stuff and the NSF [National Science Foundation] research — all of that is ‘authorized’ money, which means it’s not real yet: we gotta get it through the appropriations process,” said Russell Harrison, the acting managing director of the Institute of Electrical and Electronics Engineers (IEEE-USA) in an interview with Scientific American. “So the NASA section, there’s no actual dollar numbers in there. But it does [mention] Artemis, the moon and beyond missions; it does some bureaucratic shuffling to create the structures needed for NASA to survive and thrive in this new space environment that we’re in.”
Semiconductor research for NASA is going to become integral as NASA works to send astronauts back to the moon and beyond. The high-tech capsules are a far cry from the analog controls and simplistic computer systems that carried the Apollo astronauts to the lunar surface. They’ll need to come equipped with semiconductors capable of withstanding the harsh environments found during a space voyage.
One of the most exciting things about the Act is the focus on domestic manufacturing. The United States used to be one of the world’s leaders in semiconductor manufacturing, but industry shortages and outsourcing to other countries have whittled away at that title. Recipients of CHIPS act funding are prohibited from expanding overseas manufacturing in China or other countries that may provide a threat to national security as defined by US law. The goal is to bring semiconductor-related jobs back into the US market, but it could be detrimental to companies that already operate in those overseas markets.
There is also a growing geopolitical risk. Taiwan is one of the world’s biggest semiconductor manufacturers, dominating more than 60% of the market in 2021. If the conflict between China and Taiwan escalates, with the former invading the latter, it could compromise the global semiconductor market. Depending on the stance of the politicians currently in office, it even has the potential to lead to war between China and the United States if the latter decides to act.
Moving in the wrong direction?
Creating domestic semiconductor fabrication factories or fabs is one of the primary goals of the CHIPS and Science Act. Still, it’s essential to take a closer look at why the companies behind these fabs outsourced in the first place. The U.S. market is still one of the world’s leaders in innovation, but operating in the States stopped being cost-effective.
“The reason American companies moved offshore last time is because we were not price competitive. So without sustained government investment and subsidies to keep the industry price-competitive internationally, 10 years from now, when we’ve built all the fabs, we’re going to have the same problems if it’s too costly to do this stuff in the United States,” said John Nichols. He works as a senior fellow at the Potomac Institute for Policy Studies.
How Will the CHIPS Act impact U.S. semiconductor manufacturers?
On paper, the CHIPS Act looks like a great way to fuel innovation and domestic manufacturing in the coming years, but how will it impact US semiconductor manufacturers as it goes into effect?
Existing companies will need to rethink their global strategy if it includes overseas manufacturing. While the act does not ban outsourcing manufacturing outright, companies that do won’t be eligible for CHIPS funds, leaving them at a distinct disadvantage. The growing geopolitical tensions — such as between China and Taiwan — and outright acts of aggression — such as the war in Ukraine — can all impact global markets. Uncertainty is not good for any market, but it becomes terrifying for something as integral as semiconductors and chip manufacturing.
In the long term, the CHIPS act has the potential to bring thousands of skilled jobs back to the United States, making the country a contender in the global market as it once was. It could also help to prevent chip shortages like the nearly catastrophic one in 2020 from interfering with other industries like automotive manufacturing.
Looking toward the future
Beyond what’s outlined in the Act itself, it’s a bit early to make definitive predictions about how the CHIPS and Science Act will impact the semiconductor industry. On paper, it’s an excellent tool for bringing the industry back to the domestic market, creating jobs and making the U.S. a self-sufficient superpower in the semiconductor sector again. Only time will tell if the act fulfills all of its promises and supports the rebirth and renewal of semiconductor and chip manufacturing in the United States moving forward.
Emily Newton is a technical writer and Editor-in-Chief of Revolutionized. She researches and writes about how technology is changing the industrial sector.