Why Intel wants to bring chip production back to the USA

The US has ceded much of its semiconductor manufacturing to makers in Asia, a fact of growing concern as China becomes a near-equal rival and global chip shortages continue.

The chip industry was invented in the United States by Silicon Valley companies like Intel. In 1990, nearly 40% of the world’s semiconductors were made in the United States. Today, 80% of chip production takes place in Asia; only 12% are made in the US, half of which is from Intel. China’s grip on chip-producing countries in Asia could give it an edge over the US in the race for global technology leadership. Worse, Congress fears that the Pentagon and US defense contractors could lose easy access to chips needed for high-tech weapons systems.

For this reason, Congress is trying hard to pass legislation that will provide money to kick-start domestic semiconductor production. The Senate Committee on Commerce, Science and Transportation held a hearing on the issue Wednesday, in which it questioned the CEOs of two of the remaining US chipmakers, Intel’s Pat Gelsinger and Micron’s Sanjay Mehrotra.

Congress has grown increasingly nervous about access to vital chips as China has become America’s main geopolitical rival. The problem has been further exacerbated by the global chip shortage, which has extended waiting times for consumer goods such as cars, PCs and smartphones from weeks to months. A Deloitte study says the chip shortage will likely last through 2022, making it a two-year ordeal that will cost the US$500 billion.

Vanishing Fabs

The concentration of chip production in Asia has been a problem for years. In the 1990s, many chip makers designed and manufactured their semiconductors. However, making chips is an expensive, infrastructure-intensive, and laborious process, so many chipmakers began outsourcing their designs to specialized manufacturers in Asia. Experts also think it makes sense for semiconductor manufacturing to be located where other parts of large supply chains are located. Meanwhile, Asian countries began heavily subsidizing chip design and manufacture, a trend that has continued.

Today, Taiwanese manufacturer TSMC accounts for 56% of all global manufacturing work TrendForce data, while Samsung’s foundry in South Korea accounts for 18%. Importantly, these two companies make an even larger proportion of high-end chips used for things like AI.

Kick start of US production

The US government’s move to reduce dependence on Asia for chips officially began in January 2o21 when Congress approved the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act as part of the 2021 National Defense Authorization Act (NDAA ) said goodbye. CHIPs approved a number of programs to encourage domestic chip manufacturing, but did not actually fund the programs.

Last summer, the Senate passed the US Innovation and Competition Act (USICA), which, among other things, officially provides $52 billion to fund the semiconductor research, design and manufacturing provisions of the CHIPS Act. In February 2022 the house passed a similar law called America COMPETES Act, which also provides $52 billion for CHIPS Act programs. Now, “USICA” and “COMPETES” legislation must be reconciled, then passed by both houses, and then sent to the President’s desk.

Congress is also debating an additional law, called the FABS Act that would constitute a tax credit for semiconductor investments.

President Biden has already signaled his intention to sign a chips bill. He did this at a Event on January 21st in New Albany, Ohio, where Intel broke ground on the new $20 billion foundry. The company is building an additional $20 billion for two new plants at its long-established facility in Chandler, Arizona. Intel’s New Mexico site will get a new $3.5 billion chip packaging factory.

Throughout 2021, both House Majority Leader Nancy Pelosi and Senate Majority Leader Chuck Schumer viewed a Chinese competitiveness bill as a “must”. Republicans opposed it an early version of the House of Representatives Competitiveness Act (EAGLE Act) because it contained environmental and conservation provisions. The biggest sticking point, however, was a bipartisan one: House and Senate leaders have different ideas about what should be in a competitiveness bill. For example, the inclusion of foreign policy and diplomatic elements is discussed. However, provisions providing financial incentives for domestic chip production enjoy broad bipartisan support.

“This is our industry”

Gelsinger says his company is doing its part, and then some. “I’m putting as much pressure on our profitability and our balance sheet as I can,” committee members said Wednesday. “I’m doing this amidst the great howl of Wall Street as we see our stocks cut.”

“But even though I’m making these sizeable investments, it’s not enough to restore American leadership in this technology,” he said.

While there is bipartisan support for passing stimulus legislation for US chipmakers, Congress may have a limited window to implement it. As the midterms approach, passed anything is becoming more and more demanding.

Gelsinger said his company’s plans to build new manufacturing facilities in the US will go ahead regardless of financial incentives from Congress. “We’re going to slow down and get smaller without the funding; We’re going to get bigger and faster with funding,” he said.

The CEO stressed several times during the hearing that Intel is one of the few legacy US tech companies that has historically focused its own investments in the US and Europe. He said it’s crucial that the US retains some control over the semiconductor industry, which makes the chips that “will underpin every industry in the digital future.”

“This industry was born in the United States,” he said. “This is our industry.” Why Intel wants to bring chip production back to the USA


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