Given the ‘make your semiconductors at home’ mania that is currently rippling across the world in the wake of China’s belligerence vis a vis Taiwan, this article in The Economist has been extensively discussed. Mr Nenni’s point of view in this article is that even with massive subsidies from the American Government (the CHIPS Act gives $50bn of subsidies and tax breaks), making chips in America is fundamentally unviable. The reproduced article on the Semiwiki website (a trade blog for the semiconductor profession) contains a stream of comments on Mr Nenni’s article which underscores his scepticism regarding the whole craze for paying massive subsidies to attract chip manufacturers.
Superficially at least the CHIPS Act is resulting in semiconductor manufacturers like TSMC, Samsung and Intel announcing new factories (or fabs) in USA. The problem Mr Nenni says is that these factories are potentially never going to make money: “Leading-edge fabs being built in America are slower to erect, costlier to run and smaller than those in Asia. Complicating matters further, the chipmakers’ American investment binge comes at a time when demand for their wares appears to be cooling, at least in the short term. That could have consequences for the industry’s long-term profitability.
The Centre for Security and Emerging Technology, a think-tank, estimates that in China and Taiwan, companies put up a new plant in about 650 days. In America, manufacturers must navigate a thicket of federal, state and local-government regulations, stretching average construction time to 900 days. Construction, which makes up around half the capital spending on a new fab, can cost 40% more in America than it does in Asia. Some of that extra cost can be defrayed by the CHIPS Act’s handouts. But that still leaves annual operating expenses, which are 30% higher in America than in Asia, in part owing to higher wages for American workers. If those workers can be found at all: in July TSMC delayed the launch of its first fab in Arizona by one year to 2025 because it could not find enough workers with semiconductor industry experience.
The planned American projects’ smallish size further undermines the economics. The more chips a fab makes, the lower the unit cost. In Arizona, TSMC plans to make 50,000 wafers a month—equivalent to two “mega-fabs”, as the company calls them. Back home in Taiwan, TSMC operates four “giga-fabs”, each producing at least 100,000 wafers a month (in addition to numerous mega-fabs). Morris Chang, TSMC’s founder, has warned that chips made in America will be more expensive.”
Secondly, even if these new chip factories in America fire into life, 2/3rds of America’s chips are in any case still going to be imported. All the cutting edge chips for iPhones and AI will have to come from Taiwan.
Thirdly, the CHIPS Act is having a perverse effect of making China focus on trailing edge chips which sit inside most of the gadgets that we use on a daily basis: “According to SEMI, an industry research group, in 2019 China made about a fifth of “trailing-edge” chips, which go into everything from washing machines to cars and aircraft. By 2025 it will produce more than a third. In July NXP Semiconductor, a Dutch maker of trailing-edge chips, warned that excessive supply from Chinese firms is putting downward pressure on prices. In the long run, this could hurt higher-cost Western producers—or even drive some of them out of business. In July Gina Raimondo, America’s commerce secretary, acknowledged that China’s focus on the trailing edge “is a problem that we need to be thinking about”.”
Hopefully, India’s policymakers will read Mr Nenni’s article before they announce the next set of tax breaks and incentives to chip manufacturers.
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