Home News The Evolution of the U.S. Semiconductor Industry

The Evolution of the U.S. Semiconductor Industry

2024-07-09

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In the past three years, I have made many reports on global semiconductor policies and mentioned that "the global semiconductor supply chain is facing new challenges" - unlike the "global division of labor and cooperation" model that pursued a more economical model in the past, now everyone pays more attention to the construction of the local semiconductor industry chain in order to maintain the security of their own supply chain.

By 2024, the global political game continues to deepen and the world situation is treacherous. From the emergence of signs of "anti-globalization" a few years ago to the new stage of semiconductor industry chain construction in various regions, supply chain "decoupling" has become a topic that some people talk about with fear. Whether everyone is willing to see this happen or not, it is difficult to reverse the fact that the global supply chain system is heading towards division.

In this wave of vigorous industrial chain construction movement, the importance of semiconductor manufacturing has been raised to a new height. With the continuous evolution of semiconductor technology, the status of semiconductor manufacturing has become increasingly prominent. In order to improve its own semiconductor industry chain, the United States has made a lot of investments in the manufacturing link.


01 From industrial policy to science policy and then to industrial policy

As the birthplace of integrated circuits and transistors, the United States has gathered a group of world-class semiconductor companies, and the country occupies an important position in the global semiconductor field. However, the semiconductor manufacturing in the United States has experienced the path of "origin-prosperity-decline". In recent years, the country has tried to "revive" its semiconductor manufacturing.

The semiconductor industry in the United States has two main strategies - industrial policy and scientific policy. The former focuses on the overall development of the semiconductor industry, requires the construction of infrastructure, and is an asset-heavy strategy; the latter focuses on the research and development and innovation of semiconductor technology, involving the funding of scientific research institutions and higher education institutions, and is an asset-light strategy.

At the beginning of the birth of semiconductors in the United States, participants mainly adopted the IDM (vertically integrated manufacturing) model, which has a high technical threshold, high investment and high risk. In this model, all links of the chip from design, manufacturing, packaging and testing to sales are completed independently by one company, and its representative companies include Intel, Texas Instruments, etc.

In the 1970s and 1980s, the light-asset scientific policy emerged in the United States. As the chip manufacturing process becomes more and more complex, the corresponding factory construction cost is also greater. In order to improve capacity utilization, some companies with wafer fabs have also begun to do foundry for other companies. In this context, in the 1980s, fabless companies emerged in the United States. These semiconductor companies did not have wafer fabs, and their chips were mainly manufactured by companies with wafer fabs. Compared with the model of building their own wafer fabs, this model has relatively less capital investment. Representative companies include Qualcomm and Nvidia.

Until the establishment of TSMC in 1987, the model of pure semiconductor foundry (Foundry) was widely recognized. Foundry initially existed as a supplement to the industry, mainly accepting orders from IDM factories that exceeded their own production capacity, but Foundry also greatly improved the certainty of the fabless model. Since then, the chips of fabless manufacturers have been mainly outsourced to foundry factories.

It was also in the 1980s that the global semiconductor industry ushered in its first major migration, first from the United States to Japan; then, from Japan to South Korea and Taiwan in the late 1990s and early 21st century; after 2001, it moved from South Korea and Taiwan to mainland China. Now, semiconductor industry insiders generally believe that the global semiconductor industry is experiencing its fourth restructuring, which is led by the United States, and the core force of the supply chain restructuring is mainland China.

From the birth and development of semiconductors in the United States, to the relocation of capital-intensive manufacturing links in the United States, to the realization that every link is indispensable, the country's semiconductor policy has gone through a cycle - from focusing on industrial policy to focusing on scientific policy, and now back to focusing on industrial policy.


Against the backdrop of a new round of heavy industrial policies, the United States has introduced a series of policies and bills and made multiple investments in semiconductor projects. I have previously made many introductions to this content, so I will not repeat them in this article.


02 Huge subsidies for semiconductor companies building new factories in the United States

In the third decade of this century, under the influence of factors such as the COVID-19 pandemic and the Russia-Ukraine conflict, the United States reviewed its semiconductor supply chain and began to build an independent and controllable semiconductor industry chain. Although the foundation of the US semiconductor industry is strong, the prevalence of the asset-light strategy has led to a weak foundation in the semiconductor manufacturing link, especially in advanced processes.


Therefore, strengthening the strength of the semiconductor manufacturing link has become an important issue after Biden took office. In order to achieve this goal, the Biden administration has strengthened technology research and development, promoted advanced semiconductor companies to build factories in the United States, and built a semiconductor industry chain alliance to make up for the shortcomings of manufacturing capabilities and control cutting-edge chip technology.

Many preferential policies and government grants in the United States are not only for domestic companies. For example, the United States has also cooperated with Japan, South Korea and other countries in the semiconductor industry. Its $52.7 billion semiconductor subsidy plan also subsidizes semiconductor companies in South Korea, Japan, and Taiwan, China that have built factories in the United States. Of the $52.7 billion in subsidies, $39 billion is subsidized to semiconductor manufacturers in the form of direct funds.

At present, TSMC, Intel, Samsung and other companies have plans to build factories in the United States, but due to many factors, the mass production time of these new factories has been delayed:

TSMC 

TSMC plans to build three new factories in Arizona, the United States. The first factory will produce 4-nanometer process chips, and its mass production time has been postponed to 2025. The second factory plans to produce 3-nanometer + 2-nanometer process chips, but the mass production time has been postponed to 2028; the third factory is expected to be mass-produced from 2029 to 2030, and will produce 2-nanometer or more advanced process chips;

Samsung Electronics 

Samsung plans to build two wafer fabs, a research and development center and an advanced packaging facility in the United States. Two of the wafer fabs are located in Tyler, Texas. The first wafer fab was originally planned to be mass-produced in the second half of this year, but the mass production time was subsequently postponed. The specific time has not been determined yet. The second wafer fab will be put into operation in 2030;

Intel 

Intel plans to invest $20 billion to build two chip factories in Ohio, but the production time of these two new factories has been delayed to 2027-2028.


Why do people postpone the mass production time? There are various reasons for the postponement of mass production shown in various reports, but all of them mentioned the problem of "slow subsidy issuance in the United States". Semiconductor giants building factories in the United States have been waiting for subsidies, resulting in slow construction progress of new factories and ultimately affecting the mass production time.

It is worth noting that since December 2023, the US government has further confirmed the subsidy for each company. As of early July 2024, at least 7 companies have received subsidies.

Among them, Micron received $6.14 billion in direct funds. At the same time, the company is eligible for investment tax credits from the US Treasury Department (estimated to be 25% creditable). In addition, the New York State government will also provide Micron with incentives worth $5.5 billion; Samsung received $6.4 billion in direct funds, and the company also plans to apply for investment tax credits from the US Treasury Department; TSMC received $6.6 billion in direct funds and provided $5 billion in low-interest government loans; Intel received $8.5 billion in direct funds and $11 billion in federal loan guarantees.

In addition to subsidies of more than $5 billion, some companies received subsidies of billions or hundreds of millions of dollars. These companies are: Global Foundries received $1.5 billion in direct funds and $1.6 billion in loans to support the construction of a new plant in Malta, New York, and to expand production in Malta, New York and Burlington, Vermont; Microchip Technology received $162 million in government subsidies to expand its Colorado and Oregon plants respectively.

Although the US government's efficiency is not high, from the release of the semiconductor subsidy policy in 2022 to the determination of the subsidy amount for enterprises in December 2023, at least it can be seen that the country has indeed made efforts for the semiconductor industry. What effects will these subsidies bring to the country's semiconductor industry? It remains to be further observed, and the author will continue to pay attention to it in the future.


03 Veteran IDMs turn to Fablite or Fabless

In addition to some policy changes, the business models of many old American IDMs are also changing.

In the 21st century, as semiconductor manufacturing processes continue to evolve, foundries are becoming increasingly important in the supply chain. In addition, with the increasing difficulty index of chip manufacturing, IDMs need to face greater pressure to maintain product updates and iterations. Due to cost and product layout considerations, IDMs around the world have stopped production of wafer production lines with outdated equipment, and old American IDMs have also begun to transform - some of them sell old wafer fabs, retain advanced wafer fabs, and outsource some manufacturing businesses, retaining only a small number of products for self-production, and some even sell all wafer fabs and transform into fabless.

In recent years, companies such as Intel, Onsemi, and Texas Instruments (TI) have been selling old wafer fabs and increasing orders for outsourcing of non-critical production links.

For example, Intel completed the sale of its flash memory and SSD businesses at the end of 2021, and announced the sale of a 49% stake in Fab 34 on June 4 this year. In order to promote the expansion of its chip manufacturing business, it plans to build new factories in Ireland, Germany, and Malaysia, and emphasizes further utilization of third-party foundry capacity in its IDM 2.0 strategy.

In 2021, ON Semiconductor officially announced that it would transform into Fab-Liter, shift its focus to 300mm (12-inch) wafer production capacity, and exit undersized wafer fabs. The company has successively sold its 6-inch wafer fab in Oudenaarde, Belgium, 8-inch wafer fab in South Portland, Maine, USA, and 8-inch wafer fab in Niigata, Japan. In addition, ON Semiconductor also acquired GlobalFoundries' 12-inch wafer fab in New York, USA.

Texas Instruments' development strategy in recent years has mainly focused on continued investment and capacity expansion, technological innovation and product development, market and business expansion, environmental sustainability, and optimization of capital expenditures and operational efficiency. The implementation of these strategies will help TI consolidate its leading position in the global analog chip market and continue to drive the company's growth and development.

In terms of investment, in 2021, TI acquired Micron Technology's 12-inch wafer fab in Lehi, Utah, for $900 million. After the acquisition, TI transformed the fab so that it could produce analog chips and embedded processing products through 65nm and 45nm processes.

There is another giant worth paying attention to - AMD, which was founded in 1969 as an integrated device manufacturer (IDM). By 2025, the company chose to exit the IDM model and divested its chip manufacturing sector (i.e. GlobalFoundries). After the divestiture was completed, AMD's development was generally positive, with new growth in its stock price and market share. In addition, AMD has established partnerships with several wafer foundries. TSMC is AMD's main foundry, and AMD and GlobalFoundries are still continuing to cooperate.

Whether it is to continue to adhere to the IDM model, take advantage of its vertical integration, and fully control product quality and cost from design to manufacturing; or choose to switch to a more flexible fab-light (Fablite) model, and reduce capital investment pressure and accelerate product launch cycle by cooperating with some wafer foundries; or completely transform into a Fabless, focus on chip design and R&D, outsource the production process, and focus on technological innovation and market expansion with a lighter asset attitude. Each choice carries the company's strategic foresight and future vision. The key lies in accurately judging the market environment, technological trends and its own core competitiveness to develop the most suitable path for its own development.


Summary:

The latest data from SIA shows that the global semiconductor industry will show a steady growth trend in 2024, with a market size of US$137.7 billion, a year-on-year increase of 15.2%. As countries pay more and more attention to the semiconductor industry, investment plans and development goals have been introduced one after another. I believe that these forces will accelerate the development of semiconductors.

At the same time, the development of artificial intelligence is also greatly promoting the innovation of semiconductor technology, bringing huge growth space to the industry. All countries in the world, including the United States, will focus on artificial intelligence, and the semiconductor opportunities brought by this technology will also push the entire industry to a higher level.



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