Luke LeSaffre, Chief Revenue Office, Fusion Worldwide
One year after passing the CHIPs Act, and there are still questions about whether its influence will be positive or negative. The bill and its counterparts’ funding are a vital source of support for the electronic component supply chain following the disruptions caused by COVID-19 and geopolitical events. However, the latest threats to potential supply chain stability are the sanctions and limitations leveled by both sides of the tech war, adding a layer of complexity that the CHIPs Act may not be able to buffer against.
The bill also poses the concern of removing neutrality in the electronic component industry—a pillar the industry was built on to prevent a singular country from monopolizing manufacturing and distribution. In this regard, government-backed expansion has its place, and it should strengthen the global supply chain, not weaken it.
The shifting landscape of the electronic component industry
In short, the CHIPs Act was passed in 2022 in response to the industry’s structural supply shortfalls, increased pricing, and extended lead times for the electronic components that power today’s technology. It was essentially heralded as a groundbreaking initiative to establish a more resilient supply chain for electronic components and further semiconductor innovation.
The result of this proactive measure includes substantial funding that is expanding the footprint of the electronic component industry as countries increase their domestic manufacturing. Taiwan Semiconductor Manufacturing Company (TSMC) has invested $40 billion in the U.S. and has completed one fab in Arizona, with another underway. Samsung Electronics plans to spend $200 billion on expanding its footprint in Texas, opening possibly 11 new semiconductor production lines.
Intel has also entered the conversation, submitting $30 billion for U.S.-based plants and a landmark expansion plan in Germany to the tune of $33 billion. The European Council and the European Parliament are working to attract $43.7 billion with their version of the U.S. bill.
While these are positives, disconnecting the semiconductor industry and the supply chain from its original model has downsides. Since the U.S.’s sanctions, China’s access to advanced chips and the equipment necessary to make them is now limited or severed altogether. China’s government has tried to find ways to counteract the restrictions, but thus far, diplomacy has struggled to prevail.
How China has responded
China was already working towards self-sufficiency in semiconductor manufacturing via the “Made in China 2025” plan, but the CHIPs Act and the sanctions have necessitated a strategic pivot. After trying, and failing, to stop the sanctions altogether, China initiated countermoves to solidify its stake in the semiconductor market.
Following a security probe into U.S. memory giant Micron Technology, China banned the company’s memory products from use in specific projects. The impact of China’s ban has been slow to materialize, primarily due to previously low demand. Nonetheless, Micron does stand to lose its market share to local companies that are offering an alternative for buyers. Furthermore, the consumer may feel the brunt of the change as prices could rise for Samsung and SK Hynix if demand consequently increases for them.
The ban may be China’s first offensive play, but it is not the country’s primary response to the deglobalization trend that is steadily changing the supply chain. China is now dedicating itself to mature-node manufacturing for integrated circuits.
Mature nodes are older, but they are often used for larger-scale production runs and can offer cost savings thanks to lower development and manufacturing costs. In the semiconductor industry, cost savings are a key differentiator. In addition, the chips that use these kinds of nodes are used in everything from power management ICs (PMICs) to microcontrollers (MCUs) to power MOSFETs and are found in cars, computers, smartphones, and industrial equipment. So, while the technology may not be as advanced as newer options, they are in no way obsolete.
Where China’s other plans have faltered, this could become a profitable niche market for the country to find success.
Manufacturers caught in the middle
The President and CEO of Imec, a Belgium-based semiconductor research facility, said it best when he stated that international cooperation and partnership were part of the foundation that propelled the semiconductor industry’s success. As political powers attempt to draw lines in the sand, manufacturers are trying to blur that line by pushing back against the rules.
While the U.S. and its allies’ initiatives should encourage advancement, manufacturers are signaling that they are trapped in the middle, and innovation may be a casualty. A clause in the CHIPs Act specifically states that beneficiaries of the Act cannot expand advanced or leading-edge capabilities in China, Russia, Iran and North Korea for 10 years, effectively limiting manufacturer’s ability to expand the supply chain.
Nvidia found itself in the crosshairs of the U.S. sanctions because of its critical role in the AI industry. To comply with the guidelines set by the U.S. government, Nvidia stopped selling advanced chips to China. Instead, the company released reduced interconnect variants for AI applications. These products successfully avoided the rules of the sanctions and threw a lifeline to China’s AI industry. Creatively, they also found another way to get advanced chips to China via a rental agreement that allowed China to lease Nvidia’s DGX AI supercomputing system. The AI industry previously used these computers to build ChatGPT-like tech.
Samsung and SK Hynix, whose production sites in China were affected by the export controls, are petitioning for a permanent waiver on selling products like DRAM below 18nm, NAND flash above 128 layers, and logic chips below 14nm to China. Despite being the casualty of China’s rebuttal, Micron is doubling down in China. Micron announced it would invest $602M to expand its Xi’an business. This included acquiring the packaging facilities of Powertech Xi’an, and building a new facility for manufacturing mobile DRAM, NAND, and SSD products.
Innovation cannot happen without cooperation
The market already saw the results of putting all your eggs in one basket during the bottlenecks that hit virtually every industry during the pandemic era shortages. As the CHIPs Act continues to spur immediate buzz, it may still take years for it to drive results.
Only time will tell if we can apply the lessons learned during that time and drive the industry to a more connected and innovative future.
About the author: Luke LeSaffre joined Fusion Worldwide in 2011 as a Sales Representative and assumed the role of Sales Manager in 2018 after several consecutive years of steady sales growth. In 2021, he was named the Vice President of Sales of the Americas region and has since been promoted to Chief Revenue Officer. He holds a bachelor’s degree from Georgetown University and a law degree from Loyola University Chicago.
