To manufacture highly integrated circuits in the United States is no longer just a nice-if-we-can idea. It is building momentum.
The U.S. economy is tanking, America is recording more than 1,000 coronavirus deaths daily, millions file for unemployment benefits each week. Amid the crises, chips are taking center stage in what looks like a new, pandemic-driven industrial policy .
Manufacturing advanced and secure circuits domestically is no longer just a talking point. Momentum is building, observers note.
The Creating Helpful Incentives for Producing Semiconductors in America Act is wending its way through the congressional budget process. Politicians, bureaucrats and semiconductor companies – including Intel – increasingly back efforts to beef up chip production on US soil.
With “real money” likely available by the fall, the domestic chip industry industry is scurrying for a piece of the action.
A key question remains: Whether the bill offers substantive funds, or is just “another paper tiger”? says Dan Hutcheson, CEO of VLSI Research. More important, will the U.S. government stick to this new industrial policy for the long term?
With Congress in its August recess, EE Times offers the primer – who, what and how of the CHIPS Act. We also examine why both the US government and semiconductor industry are in the midst of a 180-degree reversal of the globalization drumbeat they have followed for decades.
We spoke with James Lewis of the Center for Strategic and International Studies and VLSI Research’s CEO Hutcheson.
Are we living in the post-globalization era?
When Hutcheson said during the recent SIA webinar, “We live in the post-globalization era,” everyone’s ears perked up.
A post-globalization era almost sounds like the “post-truth era” hailed by Kellyanne Conway, counselor to U.S. president Donald Trump early in 2016.
But what does “post-globalization” really mean?
Hutcheson believes an era has begun in which “all countries are beginning to wall themselves off.” Attention has shifted from the global economy to national security concerns. Hutcheson said, “We haven’t seen anything like this since the mid-eighties.”
Can you build semiconductors without having anything come across the borders?
No, you can’t. “It’s impossible,” says Hutcheson.
The chip industry has been globalizing for the last 50 years, largely because different regions in the world have shown different areas of excellence. Hutcheson explained that Japan, for example, excelled in lithography and resist processing. “You had materials coming out of Japan that are just the best in the world.” Europeans spent heavily to compete, and built their own vertical silos in the 1980s, explained Hutcheson. ASML was born, today among the few vendors offering advanced EUV tools.
Then, what makes the idea of “post-globalization” even remotely attractive?
First is the technology cold war between China and the United States, which is the new reality. Second, as Chinese wages keep rising, China has lost its cost competitiveness.
The U.S. appetite and China’s loss of cost advantages are reinforcing the perception that it’s time for the US government and chip industry to reassert themselves.
Ultimately, Hutcheson forecasts the potential for “high-end manufacturing starting to pop back in the United States.”
What’s in the CHIPS For America Act?
Section 1091: Incentive grants not to exceed $3 billion for any chip manufacturing project. Grants would be dispersed by the Commerce Department for projects focused on chip assembly, testing, packaging, fabrication and R&D.
Section 1092: Defense Department industrial partnerships to advanced secure microelectronics for use by the U.S. government and to build secure supply chains. The provision requires DoD planners to report progress to Congress on both fronts.
Section 1093: Requires a Commerce Department study on the status of microelectronics technology and the defense industrial base. A relatively short timeframe of 120 days is specified to submit the status report.
Section 1094: Funding to develop “measurably” secure microelectronics, including a multilateral secure microelectronics fund to allow the U.S. to work with allies and partners to forge a standard approach to secure microelectronics.
Section 1095: Funds advanced semiconductor R&D overseen by the National Science and Technology Council. Also directs the Secretary of Commerce to work with the Manufacturing Institute to conduct research and promote workforce training.
“The only caveat is the companies that use this money have to make sure the intellectual property remains controlled by the U.S.,” said James Lewis of the Center for Strategic and International Studies (CSIS). “We’ll see what survives [the House-Senate] conference, but I think most of these will make it through.”
What’s in it for domestic chip makers?
Given the recent U.S. courting of Taiwan Semiconductor Manufacturing Co. (TSMC) by state and federal officials, Lewis says domestic chip makers are looking for equal treatment when it comes to tax breaks and other incentives. Loss of access to the Chinese market via strict new export controls, a potential blow to North American IC equipment vendors, will reduce their ability to invest in R&D. Hence, the argument goes, equipment and EDA vendors will require tax incentives to prop up capex spending.
As U.S. export controls begin to bite, compensating IC vendors via CHIPS Act provisions could soften the blow, Lewis says. “This bill uses both incentives, subsidies, tax breaks, but also tax credits. Think of it as next-generation [U.S.] industrial policy.”
Where does Intel fit in?
Despite recent setbacks, Intel remains the leader of the chip pack, dominating key markets like servers. Few rivals can match its R&D and capex spending. Still, Intel would not be where it is today without substantial U.S. military and aerospace funding in the 1950s and 1960s. We are in a similar situation today, and the world’s largest chip maker understands the stakes.
Will Intel emerge as a “national champion” in a technological cold war with China? Probably not, since fabs are dispersed around the world. Hence, it’s unlikely Intel becomes America’s answer to TSMC.
Others wait in the wings, including GlobalFoundries and agile U.S.-owned partner SkyWater. Those capabilities offer the possibility of ramping up chip manufacturing skills in areas like packaging, test and assembly. After four decades of outsourcing, those capabilities are seen as the best way for western chip makers to move up the production learning curve.
Ultimately, those manufacturing skills could prove as strategic as 7nm, 5nm and finer chip geometries. “The focus here is not on making any one American company the champion,” Lewis of CSIS says, “but in making sure TSMC isn’t selling to a potential enemy.”
Meanwhile, Beijing is investing heavily in Shanghai-based SMIC, Semiconductor Manufacturing International Corp., as its national champion. SMIC represents Beijing’s hedge should it be cut off from access to TSMC’s leading-edge manufacturing technology. Lewis suggests the U.S. strategy includes a combination of huge investments, export controls and other sanctions to maintain and extend western chip dominance.
Will Intel go for becoming a ‘trusted fab’?
Just like Lewis, Hutcheson agrees that Intel will not likely try to become the next TSMC. The custom foundry business requires a very different culture and manufacturing base to serve its customers.
However, he pointed out that Intel could carve off some of its fab capacity for making defense products. Intel today, however, is not designated as a “trusted fab” by the DoD.
While defense doesn’t require a lot of capacity, it would be a mistake to think any smallish fab could do the job. Contrary to the conventional wisdom, Hutcheson said that defense customers demand that fabs have “on-going volume manufacturing” capability to make products at the extreme edge.
Defense-qualified fabs “need to roll a lot of wafers to actually get high-quality parts,” said Hutcheson, “like stuff used in things like iPhones.”
Consider the VHSIC (Very High-Speed Integrated Circuits) launched by the US Department of Defense in 1980. This government program met challenges, and hard lessons were learned, according to Hutcheson.
The VHSIC’s goal was to lead advances in IC materials, lithography, packaging, testing and algorithms. Initially, this was planned as a small-scale fab to advance defense manufacturing, budgeted with $20 million. Hutcheson said, “I kept pointing out then, no, you need billions of dollars, not millions.” The VHSIC program ended up spending more than $1 billion for silicon integrated circuit technology development.
Today, the good news is the availability of leading fabs in the United States, including GlobalFoundries and SkyWater. TSMC (if it keeps a promise to come to Arizona) and Intel, once designated as a trusted fab, could join the parade.
What lit the fire under Congress?
Beijing laid down the gauntlet with its aspirational technology roadmap, Made in China 2025, that seeks to move slowly by steadily up the semiconductor food chain over the next half decade. Dominating the global chip industry is among several high-tech goals, and China is pouring billions into its chip strategy. Whether it can deliver remains to be seen. Either way, U.S. policy makers are looking over their shoulders, waiting to see if Chinese chip makers can duplicate early successes in AI and aerospace.
One thing is certain: Beijing is committing billions to silicon R&D, underscoring the strategic importance of electronics in a technology cold war centered on semiconductors. “There’s a sense that the American leadership is threatened by these huge Chinese investments accompanied by predatory pricing and espionage and the usual bag of tricks,” according to Lewis.
The current legislative push is likely to be followed by other substantive measures, he predicts. “There’s been a huge shift in how [lawmakers] make policy, and the U.S. is now willing to spend a lot more money than it was willing to spend before.”
Has the U.S. chip industry reached its “Sputnik moment”?
Probably. For decades, industrial policy—derisively referred to as “picking winners and losers”—has been politically “radioactive.” China’s growing technology prowess and deep pockets changed all that—while also providing an external threat that politicians often find useful.
“Everyone now realizes that semiconductors are a strategic industry,” Lewis notes.
Hence, according to chief Senate Democratic sponsor Mark Warner of Virginia, the CHIPS Act contains “real money.” Warner, a former cell phone industry entrepreneur and vice-chair of the Senate Select Committee on Intelligence, is perhaps best situated to gauge the threat posed by China.
Hence, funding will be spread among key government agencies like the Defense Advanced Research Projects Agency, DoD’s industrial base office, Commerce Department and the National Science Foundation.
Along with rebuilding the U.S. chip industry after decades of outsourcing, lawmakers also want to begin the process of “re-shoring” chip manufacturing capacity and rebuilding fab capabilities. Given the industry’s global nature, Lewis is not sold on re-shoring as a U.S. industrial policy objective.
“It’s better to think of this as moving fabs out of China, ending our [supply chain] dependency on China.”
The vulnerabilities exposed by the pandemic account in large measure for this seismic shift in U.S. industrial policy, undoubtedly a lasting legacy of our present scourge.
Is manufacturing coming back?
No, the US won’t be assembling iPhones in America.
But for high-end manufacturing such as semiconductors, it’s “quite possible,” Hutcheson noted.
Accelerating such a move are rising geopolitical concerns. Think military threats by China, highlighted by its claims in and around the South China Sea.
During the last century, the US government kept the machine tool industry alive as a hedge for weapons manufacturing. The same principle might well apply to the semiconductor industry, the backbone of modern society and technology warfare.