When President Joe Biden stood at a lectern with a microchip on Wednesday promising to support $ 37 billion in federal grants for American semiconductor manufacturing, it was a political breakthrough that accelerated much faster than industry insiders expected.
For years, chip industry executives and US government officials have been concerned about the slow relocation of expensive chip factories to Taiwan and Korea. While big American companies like Qualcomm and Nvidia dominate their fields, they rely on factories overseas to build the chips they design.
As tensions with China escalated last year, U.S. lawmakers approved manufacturing subsidies as part of an annual military spending bill, amid concerns about national security risks depending on foreign factories for advanced chips. However, the funding of the subsidies was not guaranteed.
Then came the auto chip crunch. Ford said a shortage of chips could cut a fifth of its production in the first quarter, and General Motors cut production across North America.
“It really gets the message across that the semiconductor is really a critical component in many of the end products that we take for granted,” said Mike Rosa, director of strategic and technical marketing for a group within the semiconductor tooling company that Materials Inc. sells tools to automotive chip factories.
Within weeks, automakers were joining chip companies demanding subsidies for chip factories, and Senate majority leader Chuck Schumer and President Biden both pledged to fight for funding.
Industry supporters now want to be part of a legislative package against China that Schumer intends to bring to the Senate in the spring. Even so, everyone agrees that it will do little to solve the immediate auto-chip problem.
The headlines about abandoned auto plants caught on with the public who had shaken abstract warnings in the past, said Jim Lewis, a senior fellow at the Center for Strategic and International Studies. The legislature, already concerned that a promised infrastructure bill would not materialize this year, decided to push for a quick solution.
“Nobody wants to be seen as meek towards China. Nobody wants to say to Ford workers in their district, ‘Sorry, I can’t help it,'” said Lewis. “It was one of those moments when everything aligned.”
The package contains appropriate funds for state and local subsidies for chip systems. This provision is likely to increase competition between states like Texas and Arizona to host large new chip facilities that can cost up to $ 20 billion.
The subsidies could go to a factory proposed by Taiwan Semiconductor Manufacturing Co in Arizona and a factory proposed by Samsung Electronics in Texas, although those factories would be geared towards high-end chips for smartphones and ltops rather than simpler car chips. And these factories would not go into operation until 2023 or 2024, according to plans by the companies, the world’s two largest chip manufacturers.
A number of US companies are poised to benefit in the long term. Any chip maker who builds factories will use many tools from American companies such as Plied, Lam Research, and KLA Corp. Respectively.
Intel, Micron Technology Inc and GlobalFoundries, which already have US factory networks, are also likely to benefit.
Smaller specialty chip factories could also benefit from this.
“The recent chip shortage in the automotive industry has highlighted the need to strengthen the microelectronics supply chain in the US,” said Thomas Sonderman, general manager of SkyWater Technology, a Minnesota-based chip maker that makes automotive and defense chips. “We believe that SkyWater is uniquely positioned because of our differentiated business model and status as a US and US-based pure-play semiconductor contract manufacturer.”
Even with subsidies, US companies will still have to compete with low-cost Asian suppliers in the long run, and the immediate auto-chip problems are likely to persist.
Surya Iyer, vice president of Polar Semiconductor, Minnesota, which makes chips for automakers, said his plant was congested and has started speeding up some orders and slowing others down to meet automaker demands as best it can.
“We expect this demand to continue for at least the next 12 months, maybe even longer,” he said.