Chip Makers Moving Towards Self Sufficiency

Chip Makers Moving Towards Self Sufficiency

Issue 18

05.11.20 - The White House and semiconductor companies are looking to jump-start the development of new chip factories in the U.S. as concern grows about reliance on Asia as a source of critical technology.

A new crop of cutting-edge chip factories in the U.S. would reshape the industry and mark a reversal after decades of expansion into Asia by many American companies eager to reap investment incentives and take part in a robust regional supply chain.

This pandemic underscored longstanding concern by U.S. officials and executives about protecting global supply chains from disruption. Administration officials say they are particularly concerned about reliance on Taiwan, the self-governing island China claims as its own, and the home of Taiwan Semiconductor Manufacturing, the world’s largest contract chip manufacturer and one of only three companies capable of making the fastest, most-cutting-edge chips.

Trump administration officials are in talks with Intel the largest American chip maker, and with TSMC, to build factories in the U.S., according to correspondence viewed by The Wall Street Journal and people familiar with the discussions.

“We’re very serious about this,” said Greg Slater, Intel’s vice president of policy and technical affairs. Mr. Slater said Intel’s plan would be to operate a plant that could provide advanced chips securely for both the government and other customers.

TSMC has been talking to officials at the Commerce and Defense departments as well as to Apple one of its largest customers, about building a chip factory in the U.S., said people familiar with the conversations.

In a statement, TSMC said it is open to building an overseas plant. “We are actively evaluating all the suitable locations, including in the U.S., but there is no concrete plan yet,” the company said.

Some U.S. officials are also interested in trying to help South Korea’s Samsung, which already operates a chip factory in Austin, Texas, to expand its contract-manufacturing operations in the U.S. to produce more advanced chips, according to a person familiar with the matter.

“The administration is committed to ensuring continued U.S. technological leadership,” a senior official said in a statement. “The U.S. government continues to coordinate with state, local and private-sector partners as well as our allies and partners abroad, to collaborate on research and development, manufacturing, supply-chain management, and workforce development opportunities.”

Bob Swan, Intel’s chief executive, in an April 28 letter to Defense Department officials expressing his company’s readiness to build a commercial foundry—an industry term typically referring to a chip factory that can make products on contract for other companies—in partnership with the Pentagon.

Strengthening U.S. domestic production, national security, and ensuring technological leadership is “more important than ever, given the uncertainty created by the current geopolitical environment,” Mr. Swan wrote in the letter, viewed by the Journal.

“We currently think it is in the best interest of the United States and of Intel to explore how Intel could operate a commercial U.S. foundry to supply a broad range of microelectronics,” the letter said.

A Defense Department official sent Intel’s letter to Senate Armed Services Committee staffers the next day, according to an email viewed by the Journal, calling the proposal an “interesting and intriguing option” for a U.S. company to lead an “on-shore, commercial, state of the art” chip foundry.

Talks over chip-factory development plans have been underway for some time but have gained momentum recently as concern mounted about the fragility of the Asian supply chain and the defense industry’s access to domestically sourced advanced chips.

Taiwan, China, and South Korea “represent a triad of dependency for the entire U.S. digital economy,” said an influential 2019 Pentagon report on national-security considerations regarding the supply chain for microelectronics.

“Taiwan, in particular, represents a single point-of-failure for most of the United States’ largest, most important technology companies,” said the report, written by Rick Switzer, who served as a senior foreign-policy adviser to an Air Force unit. He concluded that the U.S. needs to strengthen its industrial policies to address the situation.

Chipmakers also sense an opportunity to bring in funding for an industry increasingly seen as a national security priority in the midst of stimulus efforts tied to the COVID-19 pandemic, according to people familiar with their strategy.

While U.S. government leaders and technology executives broadly agree the U.S. needs to improve its capability to make chips domestically, the current landscape is complex and decision-makers don’t share a unified view of how precisely to move forward.

The U.S. already has dozens of semiconductor factories, but only Intel’s are capable of making the fastest and most-power-efficient chips, those branded as having transistors 10 nanometers or smaller. Intel, however, mostly makes silicon for its own products.

Source: Wall Street Journal