While the COVID-19 pandemic and international trade disputes put pressure on the industry’s supply of semiconductors, as well as value chains, the competition between the United States (US) and Asia, particularly China, for technological dominance is now taking a new turn.
China’s current chip manufacturing capabilities have raised eyebrows in the US. According to recent reports, it is believed that Chinese Semiconductor Manufacturing International Corporation (SMIC) may have been able to enhance chipmaking technology by two generations.
Tech Insights’ latest analysis report has highlighted that according to the investigation of a MinerVa Bitcoin mining chip, SMIC has built a 7-nanometer chip utilising a manufacturing technique that was a reasonable replica of a comparable method employed by Taiwan Semiconductor Manufacturing Company (TSMC).
“It also has key implications for Chinese chip companies, as it helps reduce China’s reliance on Western technologies during this time of restricted access,” the analysis added.
Considering how China is moving forward with its homegrown semiconductor sector, the US authorities have advanced discussions on financing a historically huge package of subsidies for the American semiconductor industry.
The US Senate has voted to advance the debate on the country’s CHIPS Act. It is a bill that includes $52 billion in incentives for chipmakers to build plants on American soil.
This move could be seen as a critical step to bolster American supply chains and the US’s ability to compete with China in the global tech arms race.
The question is whether this will be enough to become a semiconductor powerhouse? Maybe not.
Despite such a huge investment to establish more chip-making plants in the US, it may not help to reduce the dependency on the Asian market.
What the US would probably need is hundreds of billions more in spending and several years to accomplish its catch up with Asian chipmakers.
The US has slipped behind Asian chipmakers in advanced chip technology. Intel and others rely significantly on TSMC for 5-nanometer chips. According to Capital Economics, the Taiwanese company accounts for 92% of the globe’s supply.
But Intel has stated that to catch up, it is spending $44 billion on new fab factories in Europe, Israel and the US. But again, according to experts, this race to become a semiconductor leader needs billions in investment, not once or twice but every year.
Once again, here comes the role of the CHIPS Act. It is believed that the act will support chipmakers like Intel while providing little confidence that the efforts by these manufacturers will significantly increase chip supply in the US.
Chipmakers, including Intel, Micron, and GlobalWafers, have told the Congress that if the CHIPS Act is not passed, they will relocate their fabrication facilities to other nations and that is not good news for the US.
As per reports, since the US Congress hasn’t yet enacted the bill, Intel recently postponed the ceremony for its $20-billion new Ohio facility. On the other hand, a total of $7.3 billion of the EU’s $46 billion European Chip Act was used this February to subsidise Intel’s new manufacturing facility in Germany.
However, experts also believe that the US’s lack of manufacturing capacity is putting pressure on Asian chipmakers to set up facilities in the country.
Fortune reported that the employment that could be produced by CHIPS Act over the next decade will likewise be dependent on foreign countries because the US lacks the skilled personnel to fill these positions.
According to an estimate from Eightfold.AI, the US would need to double its current workforce by 50% in order to fill the roles, if it built 20 new factories and created 70,000-90,000 new employees.
Asian Dominance
In terms of the latest revelation regarding China’s advanced chipmaking technology, David P. Goldman, an American economist stated on Twitter that though according to Tech Insights’ analysis “SMIC’s 7nm chip is a ‘low-volume production’ item that ‘may be the stepping stone for a true 7nm process”, it is “still a breakthrough”.
Meanwhile, Yole Développement, a French semiconductor consulting agency, released a report this year on the global silicon carbide (SiC) and highlighted that the SiC device market will reach $6.3 billion in 2027. In mainland China specifically, there are more than 50 semiconductor firms active in the SiC market which includes SMIC, SICC, TankeBlue Semiconductor Co., Ltd and others.
However, last year according to a local media report, former vice-president of R and D at TSMC, Lin Benjian said that with current technology, SMIC can mass produce 5-nm semiconductors without using EUV lithography, which is used to pattern the finest details on the most advanced microchips.
The US has been pushing the Netherlands to stop selling this chip-making equipment to China, which has been buying EUV lithography from ASML Holdings. But goes by Lin’s statement, the restriction won’t affect China.
According to the report, Lin claimed that SMIC’s success in 5-nm chips depends on if the technology research and development skills are in place.
Pankaj Garg, CEO and Founder of DailyObjects told News18: “For many decades, the US has been a leader in the chips industry by controlling the majority of the market and the recent developments with SMIC’s 7nm technology node have triggered the US to tighten chips export controls with stricter licensing policies aimed at Chinese entities.”
According to Garg: “Post Covid, as the industries and markets are recovering and the demand for chips is skyrocketing, such sanctions and international trade disputes are straining the industry’s supply of chips, critical for growth in numerous sectors. This shortage of chips has started affecting India as well.”
“Many manufacturing units and factories have slowed down production at their facilities. As new technologies such as electric vehicles become more accessible to buyers, the demand for chips is bound to increase and hiccups like these in the supply chain will only lead to a slump in growth,” he added.
However, keeping China’s SMIC’s new advancements aside, it is important to know why this competition will be challenging for the US which is up against the Asian market.
At present, Taiwan, China, and South Korea produce a majority of the world’s chips due to their 25-40% lower manufacturing costs, while the US’s share of semiconductor manufacturing has dropped from 40% to 12% in three decades.
The largest contract chip manufacturer in the world and a significant supplier to tech giant Apple is TSMC, which also holds a revenue majority in the worldwide semiconductor foundry market.
However, while TSM produces around 90% of the advanced chips produced globally, Intel generates more income.
While it was reported that mass manufacturing of TSMC’s 3-nm process will start in the second half of 2022 and the Taiwanese chipmaker is also expected to have 2 nm chips soon, the South Korean giant Samsung has already begun making 3nm semiconductors in June this year.
Additionally, TSMC has released details of its much-anticipated 2nm production process node, which will feature a nanosheet transistor architecture and will be available in 2025, as well as upgrades to its 3nm technology.
TSMC also intends to invest $100 billion over the next three years in order to preserve its worldwide leadership.
Meanwhile, it is noteworthy that India is also preparing to get into this semiconductor race.
The Indian government has introduced the Semiconductor Mission under the banner of ‘AtmaNirbharta in electronics and semiconductors’ and has already approved the Semicon India programme with a total outlay of Rs 76,000 crore for the development of the semiconductor and display manufacturing ecosystem in the country.
Though this mission is at its early stage, it is believed that this initiative will pave the road for India’s increased participation in global electronics value chains, highlighting the country as another competitor from Asia.
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