Ideal Semiconductor CEO Mark Granahan and co-founder and chairman Mike Burns first approached Congress in 2018 about difficulties finding a U.S. facility to manufacture their chip designs.
Ideal Semiconductor, based in Bethlehem, Pennsylvania, is a fabless semiconductor factory. This means that while the company develops energy-efficient semiconductor chips, it does not own a foundry – a facility where the chips are manufactured. Ideal Semiconductor works with a foundry to make its chips, which are purchased by companies like Dell to power devices like laptops.
Mark Granahan
Now, four years later, a global chip shortage is impacting millions of devices, cars and home appliances. A majority of the world’s semiconductors are produced in Asia, particularly in Taiwan. The Taiwan Semiconductor Manufacturing Company is perhaps the world’s largest semiconductor foundry.
The COVID-19 pandemic exacerbated a pre-existing problem, namely the lack of chip foundries in the U.S., Burns said.
“We showed up three years ago and said this is really difficult because there is a concentration of certain types of chips that are only made in certain parts of the world that are geopolitically unstable,” Burns said. “COVID brought about the realization that we have a serious problem.”
Mike Burns
In 2021, the US Senate proposed a competition bill with China, including the $52 billion CHIPS Act, which would funnel money into building US-based foundries. The CHIPS Act would also fund chip design and research and development. The U.S. House of Representatives introduced its own competition bill earlier this year, which is different from the Senate bill but includes funding from the CHIPS Act.
As the House and Senate work to reconcile the two antitrust laws, CEOs of chipmakers Intel, Nvidia, Texas Instruments and Qualcomm, among others, flew to Washington, D.C. last week to push for the legislation. Earlier this year, Intel proposed an initial investment of $20 billion to build two chip factories in Ohio. The company said it could invest up to $100 billion in the site but would rely on government funding.
Gaurav Gupta
The $52 billion CHIPS law will boost U.S. semiconductor production if it moves forward, said Gartner analyst Gaurav Gupta. However, the federal government needs to take a long-term view of the problem and change its thinking about industrial policy – which Burns and Granahan say is already happening with the CHIPS Act.
Similar to the governments in Taiwan, South Korea and China, which have supported and promoted their chip industries for years, Gupta said continued investments must be made to grow the U.S. semiconductor industry beyond the original $52 billion CHIPS Act to support.
“This must be a consistent, long-term policy and the government must continue to invest and support the industry,” Gupta said. “But it’s a good kickstart.”
The need for semiconductor manufacturing in the USA
The share of chip manufacturing currently occurring in the U.S. is about 11% to 12% of the global total, Gupta said. While 8 to 9% of chip manufacturing takes place in Europe, the rest takes place in Asia.
The chip manufacturing exodus began about 30 years ago, largely due to the cost differences of setting up a manufacturing facility in the US and EU compared to working with foundries in Asia. Due to the global chip shortage, growing tensions between the US and China, and the realization that Taiwan has become a “semiconductor bottleneck,” Gupta said there is a growing and strong sentiment in the US and EU to develop their own semiconductor ecosystems .
This is the government’s motivation and support for companies to set up chip manufacturing facilities in the USA
Gaurav GuptaAnalyst, Gartner
“This is government motivation and support for companies to set up chip manufacturing facilities in the U.S.,” Gupta said of the CHIPS Act.
Granahan said one of the first problems Ideal Semiconductor faced in finding a U.S.-based manufacturer was that many of the major chipmakers, including Intel and Texas Instruments, are so-called integrated device manufacturers (IDMs). . IDMs are companies that make their own chips but do not currently produce chips for third parties such as Ideal Semiconductor.
But Intel’s recent move to invest $20 billion to build semiconductor manufacturing facilities is also a response to the need to offer these foundry services to other U.S. companies, Burns said. In fact, Intel CEO Pat Gelsinger announced “IDM 2.0” in January, a new vision for Intel’s IDM model to become a “major provider of foundry capacity in the US and Europe to serve customers worldwide.”
However, finding a U.S.-based foundry was a difficult and costly endeavor for Ideal Semiconductor at the time, Burns said.
said Burns, who also serves as managing director of investment firm Murray Hill Group Ideal semiconductor also wanted a U.S.-based foundry manufacturer because of concerns about intellectual property theft if the company made its chips in Asia.
Burns said his first semiconductor chip startup worked with a foundry in Taiwan to make its chips. Another startup he worked on with Granahan made chips in Singapore. In both cases, the companies suffered a loss of intellectual property, according to Burns.
“The problem is that while companies protect intellectual property and have good policies in place, the company’s employees who have learned the technology are much more likely to be recruited on a large scale by mainland Chinese firms, where intellectual property laws are not as strict and designs tend to be copied,” said Burns.
Working with a U.S. foundry company means the intellectual property is less mobile for a competitor like China, Granahan said.
“We really view the CHIPS Act as a blueprint for bringing manufacturing back to the United States for reasons of economic security as well as our overall well-being as a nation,” Granahan said.
Free markets and industrial policy
The difference between the U.S. and Asia in semiconductor manufacturing is industrial policy, Burns said.
The U.S. practices the free market tradition, which Burns says is “fantastic unless your free market has players that have strong industrial policies.”
Gartner’s Gupta said with the $52 billion provided by the CHIPS Act, the federal government could begin funding individual companies’ chip foundry projects, which would help close the cost gap with Asia.
But companies need to make major investments in addition to federal funding to boost U.S. semiconductor production, and the legislation provides the financial motivation to do so, he said.
Makenzie Holland is a news journalist covering Big Tech and federal regulation. Before joining TechTarget, she was a general reporter for Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.
Mike Burns
Gaurav Gupta