By Amy Shen (Research Lead) , Arjun Tholakapalli and Veena Raigaonkar
The semiconductor industry has a rich history in the US, dating back to the invention of computers. Since the 1990s, the US has led in the advancement and growth of the industry, with the federal government becoming invested in the industry as computers were invented and began to grow. The industry is booming, while expected average annual growth of 6-8% through 2030 and yearly revenues are forecasted to reach $1 trillion (McKinsey, 2023). Currently, global semiconductor sales have topped the charts at $618 billion, an increase of more than 30% in just 2 years. The global market is said to be valued at $429.5 billion and is predicted to grow by 8.8% in the coming years. The Asia-Pacific region leads the semiconductor industry, holding the greatest market share. More than 1 trillion semiconductors were sold globally last year, though the industry has been grappling with significant shortage, including prolonged waiting times and quality assurance issues (IDC, 2023). To keep pace with future demand, the industry will need to double semiconductor production, prompting many companies to announce plans for new fabrication facilities, with some already under construction. The value of US semiconductor projects that are under way totals $223 billion to over $260 billion through 2030 (Harrison Pensa, 2024), and the current outlook is prompting several companies to slow their deployment.
This research aims to explore the historical significance of the semiconductor industry in the US, and the importance of new semiconductor plants currently under construction or expansion (shown in the U.S. Semiconductor Ecosystem Map). The objectives include understanding the evolution of the semiconductor industry, analyzing the impact of the new plants on the industry and economy, along with predicting future trends. The research will also investigate the role of government policies and incentives in promoting domestic semiconductor manufacturing, while the goal is to provide insights that can guide future strategies and policies regarding the semiconductor industry.
The US plans to combat this rise in outsourced semiconductors by utilizing the CHIPS Act, signed by President Biden in 2022, which is intended to catapult the return of American semiconductor manufacturing through federal funding of $52 billion. A large part of this funding ($39 billion) is designated for incentives to build new chip foundries, with additional funds for legacy chipmakers, research, workforce development, and supply chain security (The White House). Though these figures may fall short of industry forecasts, there is still much optimism for keeping chip manufacturing in US borders and boosting the American economy.
Overall great, just need to look over grammar and spelling. The major add here is to add more about current presence of semi-conductors globally and also fix the order of how u introduce CHIIP Act and understand how important it is too the articles development should put this way before in the article, refer to the previous comments and suggestions and find proper placement.
U.S. Semiconductor Ecosystem Map
Source: SIA
Historical Context of Semiconductor Manufacturing
The semiconductor industry in the United States has seen significant changes in recent years. Back in 1999, there were over 200,000 employees in semiconductor plants across the country, but by 2018, that number had dropped to 105,000 (NBER-CES). Similarly, the value of shipments has decreased by about a third compared to previous years. In the Employment by Year graph, the decline can be seen. Though it started to rise again in 2014, it is hard to say whether the semiconductor industry in the US will ever get back to where it was in 1998. This decline is part of a larger trend where the US global market share in semiconductors has gone from 37% to 12% over three decades (Mearian, L., 2022). While there's excitement about new plant developments, it's important to note that just a few new plants won't bring employment or shipment levels back to what they used to be. This highlights the need for broader strategies to address challenges and opportunities in the industry.
Employment by Year (in thousands)
(Source: NBER-CES)
Current Developments in Semiconductor Manufacturing
The U.S. share of global semiconductor manufacturing capacity has decreased by from 37% to 12% from 1990 to 2021, a 25% decline (Mearian, L, 2022). However, 5 major chipmakers (GlobalFoundries, Intel, Samsung, TSMC, and Texas Instruments) are building new semiconductor production facilities in the US, bolstering a new wave of funding provided by the CHIPS act.
For some context, the CHIPS act is a federal US statute enacted by Congress and Joe Biden on August 9, 2022, which authorizes roughly $280 billion in new funding to boost research and manufacturing of semiconductors in the US. It provides nearly $52.7 billion for American semiconductor research, development, and manufacturing, and aims to strengthen supply chain and national security. Along with this, it aims to invest in R&D, and wants to keep chip manufacturing inside of US borders, instead of relying on outsourcing. The act also provides semiconductor manufacturing companies with a 25% tax credit for investments, and so far have lead to a boom in over $166 billion in semiconductor manufacturing. Finally, the Department of Commerce has recently launched the first funding opportunity for the $39 billion in semiconductor manufacturing in 6 months after the launch of CHIPS, leading to instantaneous and long-term gains for the US in the future. This act has been well-received, and seen as one that increases jobs, accelerates industries of the future, and ensures that the US will be the leader of nanotechnology, clean energy, quantum computing, and artificial intelligence (The White House, 2022).
To bridge the gap in semiconductor manufacturing, the biggest thrust is expected to come from Asia, where China is working on 20 mature technologies for building chips. The rest of Asia will see 29 new chip-making plants, 14 of which will be in Taiwan, 6 in Japan/Southeast Asia, and 3 in South Korea. In April 2023, the EU announced a similar plan to the CHIPS Act, where they plan to invest $43 billion Euros ($47 billion dollars) for building up the semiconductor industry in 27 states, aiming to double their market share by 2030, from 10 to 20% (CNBC, 2023)
Companies plan to invest about $1 trillion into semiconductor fabrication internationally through 2030, where global semiconductor spends in 2022 was $181.7 billion, a 19% increase from previous years (McKinsey, 2024) Most of the investment is concentrated in Asia and the US, but funding for Europe is quickly growing. Since 2022, the US, Europe, and China have all pledged upwards of $40 billion towards semiconductor technology and development. Equity funding to semiconductor companies increased by 68% in each quarter, resulting in $5.2 billion in Q3 in 2023, leaving an impact as the highest quarterly funding level since Q4 in 2021, where it topped the charts at $7.8 billion (Semi, 2023).
The semiconductor industry is very cyclical, with 2023 marking a downturn since 1990. The industry is expected to bounce back, however, with global sales predicted to reach $588 billion, a 13% increase from 2023, and 2.5% higher than 2022’s record of $574 billion. The memory chip market, which ended up dropping 31% in 2023, is expected to recover all the cost in the 2024 fiscal year. A $50 billion federal investment program to incentivize domestic manufacturing in the U.S. is estimated to add nearly $24.6 billion annually to the US economy and create an average of 185,000 jobs in a 5-year span after 2021. The combined market capitalization of the top 10 global chip companies was $3.4 trillion as of mid-December in 2023, an increase of 74% from $1.9 trillion in November 2022 (Deloitte, 2024). The industry aggregate annual growth can average from 6-8% a year in 2030, and it is expected to venture into new geographics, bolstering cybersecurity, and helping combat cyber threats (Markets and Markets, 2023). Geopolitics and export control advanced manufacturing equipment and technologies, along with generative AI semiconductor chips, all of which play a significant role in technological development and innovation.
Taiwan Semiconductor Manufacturing Company (TSMC)
TSMC opened its first semiconductor production plant in Kumamoto, Japan in February 2024, and the plant is operated by Japan Advanced Semiconductor Manufacturing (JASM), a subsidiary of TSMC. The plant is set to produce chips ranging from 12 to 28 nanometers and was one of first planned semiconductor manufacturing investments by TSMC in Japan. They announced plans in May 2020 to invest in a $12 billion plant for advanced semiconductor fabrication. In December of 2022, the company announced that the total investment is up to $40 billion, and the first fabrication is expected to make 4 nanometer chips in 2025, with the second fabrication becoming operational in 2026. The second plant in Arizona will start operations between 2027 and 2028, later than TSMC guidance of 2026. This delay is due to a shortage of technical workers with critical expertise in the US, leading to outsourcing issues. TSMC has confirmed that it will be utilizing more Taiwanese workers in the US to ensure a steady increase of its $40 billion Arizona fabrication plant (CNBC, 2022).
Samsung Chip Advancements in Taylor Texas
Samsung’s total investment in the Taylor fabrication plant is expected to hit $17 billion, including buildings, property improvements, machinery, and equipment. This investment is part of a $47 billion that the company has invested in the US since 1978, creating 2000 jobs at the Taylor plant (Samsung, 2022) Samsung has worked closely with local governments, including the city of Taylor, Taylor school district, and Williamson County. The company is set to receive property tax breaks from these, totaling almost $954 million over the life of the agreement. The Taylor site is expected to serve as a key location for Samsung’s global semiconductor manufacturing capacity, helping make products based on advanced process technologies, such as mobile, 5G, High Performance Computing, and Artificial Intelligence. The construction began in 2022 and will be completed in 2024 (Tech Xplore, 2021).
Global Comparison and Implications
Though the semiconductor manufacturing industry began in the United States, its global representation has gone from 100% to the capacity of 8% in 2023 (CSIS). The US requires a significant amount of money to begin rebuilding its position as a top semiconductor manufacturer. For example, the cost of a fabrication plant in 1983 was approximately $50 million; in 2023, the price is between $20-$30 billion. Taiwan’s TSMC, presently representing 80-90% of global advanced semiconductor manufacturing, alone spends nearly $40 billion on capital equipment and research and development every year. The federal funding provided through the CHIPS Act falls short as it intends to represent the entirety of the USA and its multiple corporations.
The necessity for revitalizing USA's position in technological leadership was highlighted by the world-wide supply chain crisis of the 2020 pandemic. American reliance on microchip production and semiconductor manufacturing of competing countries from a customer perspective was made extraordinarily obvious through the halted operations, shortages, and driven-up prices that directly impacted American consumers. The success of key competitors has showcased their control and domination over the supply chain, displaying a direct relationship between the two variables. American measures to advance in technological leadership will establish supply chain security, which will imply a more secure and reliable infrastructure of providing goods to the American consumer base.
The USA’s technological leadership was lost in the first place due to pursuit of short-term profits, which resulted in its exit the customer base of semiconductor-based electronic products. The nation is now faced with the difficulty of finding investors for an industry with a lacking international customer base. Because global manufacturing leaders have already established their customers at a local and international level, the necessity for American-made semiconductors is not present outside of the USA.
Financial Analysis and Profitability Trends
Analysis of value-added (VADD), material costs, labor costs, and profitability reveals a nuanced picture of the industry's evolution. This graph depicting profit per shipment using the ratio of value added relative to value of shipments can show the dramatic decline observed over time. The graph shows an increase until 1998, a big drop at year 2000, increasing at 2002, and then steadily dropping thereafter, with 2018 being at a 36% profit per shipment, down from a high of 69% in 1997 (NBER-CES). This trend is reflective of the industry's challenges and adjustments in response to market dynamics. The profitability trend experienced a notable upswing post the dot-com bubble era, attributed to the elimination of inefficient suppliers during that period. This shift underscores the industry's adaptation to market forces and the potential for increased profitability moving forward as the landscape becomes more streamlined and efficient.
Moreover, examining the ratio of production workers to total employees (PRODE / EMP) plays a crucial role in understanding the industry's labor dynamics and its implications for investments. The plot over time illustrates a decreasing trend, with the ratio declining from 75% in 1958 to 54% in 2018 (NBER-CES). This shift highlights changes in manufacturing processes, technological advancements, and workforce composition within the semiconductor sector. Understanding how many production workers are present relative to total employees provides insights into operational efficiencies, resource allocation, and strategic decision-making within semiconductor firms. These factors collectively contribute to shaping the industry's competitive landscape and long-term sustainability amidst evolving market conditions.
Profit per Shipment
Source: NBER-CES
Production Workers to Employee Ratio
Source: NBER-CES
Outlook and Recommendations
The semiconductor industry is expected to have an average annual growth of 6-8% through 2030, with yearly revenues projected to reach $1 trillion. To keep up with future demand, the industry will have to double its current amount of semiconductor production. Many companies have announced plans for fab construction, with many already under construction. In a combination of private company investment and federal investment via the CHIPS Act, the value of American semiconductor projects amounts to $223 to $260 billion through 2030. Figure 1 displays the division of investment dedicated to fab construction. While approximately $183 billion are dedicated to ongoing or announced projects, the remaining amount has not yet been applied into action, leaving a significant amount available for consideration regarding further progression of American semiconductor manufacturing.
Figure 1
Source: McKinsey
The projected impact of these new plants is that the geographic flow of investment within the US is expected to create fab ecosystems within the country. Arizona and Texas are attracting more investment due to pre-existing fab ecosystems. For example, four fab constructions adding up to $30 billion began construction in Texas in the November of 2021 for the production of 45-130 nm analog products. Additionally, local governments are also helping with the process with the provision of incentives. Other states that are primary attractions for fab construction are Indiana, New Mexico, Oregon, Utah, and Virginia (McKinsey).
Sustaining American competitiveness in the semiconductor industry can be done through focusing on appeals that the USA has that attracts chipmaking companies and investors: top talented workers, high-quality chip designs, intellectual property protection, and land protection. To make highest effective use of the funding provided by the CHIPS Act, the US must organize its priorities towards specific semiconductor capacity. Primarily, the US should reshore enough leading capacity to meet 100% American consumer demand through 2027. 62% of the funding provided by the CHIPS Act ($23 billion) should sufficiently cover 100% of advanced logic chips within the US, and would also push big corporations such as Intel, Samsung, and TSMC to maintain or establish a presence in the country. Also, reshoring a large DRAM (Dynamic Random-Access Memory) fab can address the country’s most sensitive needs as it has high economies for scale, and can address any major shortages in the future. This step will require approximately $5-10 billion from the funding but will prepare the nation and work to prevent future crises regarding supply chain shortages. Finally, any remaining funding should go to further reshoring in coordination with American industrial allies (Germany, Japan, and South Korea), recommending them to make similar investments in order to reduce a combined dependence on China and Taiwan semiconductor productions (Sustaining U.S. Competitiveness in Semiconductor Manufacturing Priorities). Ultimately, working to reshore fabs to the United States will sustain competitiveness in the industry and allow the nation to gain a place among the global technology leaders.
Further research and analysis concerning semiconductor manufacturing begins at mastering intellectual property (IP) reuse; the majority of industry leaders call it a top concern in the 2023 Perforce State of Semiconductors survey conducted by Perforce Software Inc. Design reuse is important to increase time-to-market for semiconductors and can be done with investing research in standardizing file transfers between software development tools. Connecting remote talent (developers and designers) via standardized systems can allow for efficient progress and can achieve quick file delivery, increasing the necessity and thus analysis of advanced replication technology (Perforce). The semiconductor production industry has taken an approach of customization to achieve market growth in diversification, increasing industrial reliance on “chiplets,” which are specialized, modular chips that act as building blocks for larger hardware. This approach results in lighter hardware, lower costs for consumers, and greater sustainability, and holds great potential for the acceleration of industrial productivity. At the current state, these chiplets will likely take another five years before they can be considered the industry standard. More research and analysis into this approach can prove to be beneficial for the semiconductor industry (“The Future of the Semiconductor Industry”).