Two years on from the US administration’s CHIPS Act and construction is underway on several new foundries in the United States designed to combat component shortages. The US isn’t alone, however, in wanting to stabilize the supply chain; the EU boasts its own Chips Act, while countries such as the UK, Japan and India are also introducing strategies to boost home-grown resources.
With so many players trying to address supply shortfalls, one has to wonder whether investment in semiconductor manufacturing could prompt problems of a different kind. Are we, in fact, on course for an oversupply crisis?
Re-shoring: the answer to supply chain instability?
Thanks to the pandemic, which highlighted a dependency on imported semiconductors, the US is currently pumping funds into domestic semiconductor production with the CHIPS and Science Act promising a total of $52 billion, of which $39 billion is earmarked for manufacturing incentives. These policies, the White House states, have spurred an historic recovery in manufacturing, adding 642,000 manufacturing jobs since 2021.
Against this backdrop of tax incentives, several semiconductor manufacturers are building new foundries in the US. GlobalFoundries, Intel, Samsung Foundry, TSMC, and Texas Instruments, for example, all have fabs confirmed – with completion dates from here to 2042.
It’s a welcome renaissance for the US semiconductor industry, which has greatly reduced its share of global semiconductor manufacturing over the years. According to the SIA, despite the fact that around 47% of chips sold worldwide are designed in the US, only 12% of manufacturing capacity is located here, while a whopping 75% is concentrated in East Asia.
This mismatch inevitably poses a threat to security, and it’s hoped that the current domestic policy will simultaneously strengthen supply chains, boost self-reliance, and counter China’s technological advancement.
A global race for self-sufficiency
Unsurprisingly, the US is not the only country with its own agenda to secure the supply of microchips. Taiwan is reluctant to let go of its strong position, while the UK, EU, Japan, and India are all introducing industrial policy to re-shore manufacturing or exert control.
The European Chips Act is a prime example. It provides a massive 43 billion Euro package of public and private investments designed to strengthen European supply chains, avert future component shortages and promote industry investment. It’s newly formed European Semiconductor Manufacturing Company (ESMC) – a joint venture between TSMC, Robert Bosch GmbH, Infineon Technologies AG, and NXP Semiconductors N.V. – officially broke ground on its first semiconductor fab in Dresden, Germany in August 2024.
India has also been clear about its plans to become a major player with several chip makers announcing investments in the wake of the government’s $10 billion incentive plan, launched last year.
In concert with programs to promote domestic manufacturing, there are also political efforts to shut down growth in China. The US, European Union and Japan’s latest export controls, for example, restrict the sale of several key semiconductor manufacturing machines to China; a move to reduce China’s advanced chip manufacturing capabilities.
And China, of course, has its own ideas. Way back in 2014, China set up funds to support indigenous semiconductor innovation. Total investment under the scheme already stands at around $50 billion. In addition to lower labor costs, these incentives have shaped the chip manufacturing industry in recent years, making it cheaper to build fabs in China and spearheading tech growth
It’s been a successful strategy, it seems, and now the rest of the world has decided to pay back in kind.
Are we headed for an oversupply crisis?
Inevitably, so much investment in semiconductor manufacturing can only lead to one thing – an increase in component availability. After all, that’s the idea, right?
Unfortunately, with so many countries jumping on the production bandwagon, there’s a risk we could be headed for overcapacity and excess supply, with subsidy programs ultimately producing a global glut.
Worse still, as different regional blocs aim for self-sufficiency, there may be costly duplication. Currently, each region has its unique strengths, whether that’s chip design in the US, advanced node manufacturing in Taiwan, or mature node production capacity in China. If each region tries to do it all, could we see a state of constant over capacity?
For instance, despite the fact that semiconductor giant, TSMC, is increasingly focused on advanced manufacturing, it still plans to allocate significant capital expenditure toward less advanced chips. Combine this with increased expenditure from Taiwan-based United Microelectronics in matured nodes in 2022, and it seems we could already be on track for a surplus of low end chips, while still experiencing shortages of advanced components.
Investment in advanced-node chip manufacture seems like the obvious solution, however, there are still questions to answer. What, for example is the best mix of fab versus foundry to support US-based fabless companies with strong design expertise? Conversely, how much advanced-node chip making capacity does Europe really need given that the European automotive industry relies more on trailing nodes?
It’s a complicated balance involving multiple global supply chain networks and whether US investment in domestic foundries will help the situation for buyers here is yet to be seen. Although expanding chip production in specific areas – notably advanced component types directly related to national security – could pay off, there’s also a possibility that extending US manufacturing capacity might cause unintended supply problems.
Ultimately, as governments across the globe struggle to exert control over the future of the semiconductor industry, they risk collectively distorting an already unstable and highly competitive market. It’s clearly a gamble, but will it pay off?
Thankfully, whatever the future throws up, whether that’s a constant component over supply or a continued shortage of parts, the team at www.AERI.com is here to help.
Get in touch to find out how.
