Suddenly, everyone wants fabs

I doubt that Ohio was the top of the list of possible locations for an advanced semiconductor fab for many people. In the end, after a lengthy beauty contest that doubtless involved many incentives, Intel picked the midwestern as the site for its next US-homed fab and a long way from existing fabs in the country that almost all lie west of the Rockies in Oregon and Arizona. 

The outlier in Intel’s current canon is a small R&D facility in Massachusetts. The planned fab near Columbus will be far larger and, along with TSMC’s construction of a somewhat smaller facility the other side of Phoenix from Intel’s existing plants there, represents an apparent change in the geopolitics of chipmaking – in an industry that has long had a relationship with geopolitics it never wanted. 

In the past, those geopolitics were realised mainly through export controls on leading-edge technology and where it could not be sent. Traditionally, these were the Iron Curtain countries or those considered enemies of western powers, such as Iran. During its period of economic expansion started by 1980s party leader Deng Xiaoping, China had been inching up the ladder and obtaining access to newer technologies. Since it became more bellicose, that trend has gone into sharp reverse, with the result that there are plenty of extreme ultraviolet (EUV) lithographic scanners 700km across the Taiwan Strait from Hong Kong but none 1400km north in Shanghai.

Given that China does not recognise Taiwan as an independent state and gets irritated if anyone else considers the island as independent, there is understandable nervousness around the idea that President Xi Jinping might simply decide it’s time to declare those more advanced fabs owned by TSMC as now belonging to the mainland.

The fragility of the situation became evident in the wake of the restart of manufacturing after the first Covid-19 lockdowns. When you can’t get the part you ordered you have little chance of finding an alternative if it needs to be made on an advanced process. And if a world power decides to hold a chunk of the supply hostage should it decide the gambit is worth it to win control of an island it already thinks it should own, the options are even more limited.

Against this backdrop, it comes as no surprise that the US and to a lesser extent the European Union now see the trend of offshoring such advanced production as something of a strategic mistake. Companies like Intel and TSMC are the beneficiaries: able to obtain incentives that would have been dismissed as profligate only five years ago in a world that was, apparently, rapidly globalising.

The rush to incentivise local production is probably not going to solve the problem either, at least not any time soon. That realisation seems to have had an effect on the lobbying being performed by groups such as SEMI, representing the companies who make the equipment that goes into semiconductor fabs. For its members, incentives to boost overall capacity are good for business. However, the encouragement being given to the EU to do more in chipmaking shows there are limits to how far disengagement with China might be taken. 

SEMI’s European wing has produced a fairly short set of recommendations for the EU in a bid to see the European Chips Act tweaked. Announced in the autumn, this Chips Act has broadly similar aims to the one that has just passed in the US. “The race for the most advanced chips is a race about technological and industrial leadership,” the EU said, adding it’s a matter of tech sovereignty.

The EU has been here before with an ”Airbus of chips” plan that came at a time when no-one was that bothered about using production around China. You might expect SEMI Europe to get behind the idea of Europe rejoining the race to construct leading-edge fabs in order to maintain some level of “tech sovereignty”. That isn’t exactly happening. There is quite a gap between SEMI’s broad pitch and the specific proposals the group makes to the European industry. On the one hand the advice says, “SEMI Europe strongly supports the set-up of a specific ‘strategic autonomy’ programme within the European Semiconductor Fund to support innovation and development of essential assets for manufacturing of critical electronic components”.  

However, the report then places the focus of this autonomy on specific subsets of chipmaking technology, namely “low-power technology, sensor systems, power management…, manufacturing equipment for advanced nodes [and] new semiconductor materials for power technology”. Conveniently, and I am sure entirely coincidentally, these are the very same things that European companies and research institutes have been doing for a while. What a stroke of luck.

The upshot is: “…future fabs established in Europe should support manufacturing of a diverse set of semiconductor technologies. Such an approach would not only help Europe to achieve the target of 20 per cent of global production capacities more efficiently, but secure leadership in emerging markets early on and attract additional investment for further industrialisation”.

The trouble with the SEMI Europe plan if you follow it is that such "diverse" technologies do not support the full system. If you are a carmaker looking to build advanced driver assistance system (ADAS) technology into the vehicle, you will most likely continue to need to source the core processors and AI parts from a company that has them made in a Far Eastern plant for a good long time yet. The US situation is a little different: Intel Ohio is likely to supply a global market. But it's not that different. The TSMC fab in Arizona is comparatively small and seems geared largely to satisfying a need in the US defence industry for parts that never leave the shores of the country at any part in their production. The changes are not going to reshape the globalised supply chain in a meaningful way, assuming that it's a desirable shift in the first place.

The industry seems convinced that the semiconductor market will remain globalised. The question is whether anyone has told governments that this remains the future the industry lobbying them for money and attention sees.