The global semiconductor industry has experienced a significant change over the past few years, driven by disruptions caused by the pandemic, changes in consumption behaviour, and rising geopolitical tensions. As the world increasingly relies on state-of-the-art technologies, securing a stable chip supply has taken centre stage.
The onset of the COVID-19 pandemic five years ago turned the global semiconductor industry upside down. Unlike past economic disruptions, this crisis simultaneously hit both supply and demand. Factories in key hubs like China shut down, leading to chaos amongst chip makers.
The crisis highlighted the risks of overreliance on geographically concentrated supply chains and pushed companies to diversify and localise production. Notably, the US has emerged as a key player by using government incentives and private investments to alter the global landscape of semiconductors.
America’s Chip Comeback
Recognising the need to secure its semiconductor supply, the US government introduced substantial incentives to encourage domestic semiconductor manufacturing in 2022. This was an attempt to lower costs, create more localised jobs, strengthen the supply chain in the US and counter China’s advancements in chip production.
The CHIPS and Science Act, passed in 2022, allocated $52.7 billion to boost US semiconductor research, manufacturing, and workforce development.
America invented semiconductors.
But when President Biden took office, the U.S. produced only 10% of the world’s supply.
Thanks to his CHIPS and Science Act, we’ve catalyzed hundreds of billions of dollars in private sector investment and are finally bringing U.S. semiconductor… pic.twitter.com/Tx9GFdok22— The White House (@WhiteHouse) December 28, 2024
The Act also allocated $1.5 billion to advance wireless technologies, support emerging fields like AI and biotech through new National Science Foundation (NSF) initiatives, and fund regional innovation hubs to boost local economies.
Following the Act, companies announced nearly $50 billion in additional investments in American semiconductor manufacturing, which included a $40 billion investment by Micron in memory chip manufacturing and $4.2 billion through a partnership between Qualcomm and GlobalFoundries.
In April last year, the US finalised a $6.6 billion subsidy for Taiwan Semiconductor Manufacturing Company (TSMC)’s production facility in Phoenix, Arizona.
Impressive. Chips Act funding got basically every major chipmaker to build in the US.
“That means the US will become the only country in the world with facilities run by all of the top manufacturers.” pic.twitter.com/yMSqfTzg5c— Kyle Chan (@kyleichan) April 25, 2024
Moreover, as part of the CHIPS and Science Act, Samsung Electronics was awarded up to $6.4 billion from the US government to build its new complex in Taylor.
Why Favour America?
Several factors make the US a sought-after hub for semiconductor manufacturing. The country offers a secure environment compared to regions with geopolitical tensions for a steady and dependable supply of these essential components.
Several AI chip companies, including TSMC and Samsung, have been shifting their focus to building manufacturing facilities in the US. TSMC’s Arizona facility has achieved a 4% better yield than the semiconductor giant’s manufacturing sites in Taiwan.
Notably, states like Arizona and Texas provide ideal climate conditions for chip manufacturing facilities. Access to advanced research institutions, skilled labour, and strong infrastructure supports high-tech manufacturing.
Locating production facilities closer to major clients facilitates better collaboration and reduces logistical complexities. For example, TSMC’s Arizona plant is expected to serve clients such as NVIDIA, Apple and AMD, enhancing operational efficiency.
Chipping In to Power the AI Revolution
During the COVID-19 pandemic, the demand for semiconductors used in cars, phones, and gadgets fell sharply as people tightened their budgets. At the same time, chips for cloud computing and home internet equipment saw a surge in demand, driven by the rise of remote work and online activities.
The AI revolution has ushered in a new wave of demand for advanced semiconductors. At the core of AI are processors like GPUs, CPUs, and accelerators from NVIDIA, AMD, and Intel, powering models like generative AI.
Data centres, transformed by companies like Dell and HPE, provide the infrastructure for AI to scale. Meanwhile, while innovators like ASML and TSMC create smaller, faster, and more efficient chips, Qualcomm and ARM’s custom designs extend AI into devices and industries.
Chip production shines with innovators like ASML and TSMC, which create smaller, faster, and more efficient chips. Qualcomm and ARM’s custom designs extend AI into devices and industries. Meanwhile, companies like Micron and Western Digital provide robust data storage solutions, and design tools from Synopsys and Cadence speed up innovation.
These advancements have enabled AI to move from theory to real-world applications. Michael Hurlston, CEO at Synaptics Inc., recently claimed to make the chip design even more efficient and cost-effective by shrinking AI models and optimising software to fit within a minimal memory footprint.
Innovating for a Smarter Future
As per reports, the new fabrication unit in Arizona, which produces 3nm and 4nm chips, will develop Apple A16 chips in the US. Additionally, AMD plans to manufacture its AI high-performance chips (HPC) at this facility in Arizona.
China has also rapidly closed the gap with the US in AI capabilities. As reported recently, it was only six to nine months behind the US. “We were six or seven years behind,” 01.AI chief Kai-Fu Lee had said. Now, however, China seems to have surpassed the US.
In retrospect, while the government’s benefits may have helped attract the attention of these giants, they could also have adversely affected their supply chains. With the rise in regulations surrounding the export of AI chips to China, Washington plans to also limit semiconductor shipments to some countries accused of supplying to Beijing in order to Close China’s Backdoor Access.
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