In January 2021, the U.S. Senate passed The Creating Helpful Incentives to Produce Semiconductors (CHIPS) For America Act, which grants significant tax credit, among other incentives, to domestic semiconductor manufacturing and research facilities. The Act will provide $52 billion for domestic semiconductors research and foundries over the next few years.
Why is the semiconductor
industry essential?
To gain more insight into the significance of this Act and how the current shortage of computer chips affects our everyday life, we need to understand why semiconductor industries are essential. Semiconductors are the core of the electronic and computing industries. A shortage of semiconductors will directly result in a lack of electronic chips used in various applications, such as computers, cell phones, appliances, automobiles, healthcare, security, and manufacturing facilities.
With cars getting more computerized, it is estimated that the average new car has about 30 to 50 computing processors, while some luxury cars can have more than 100 internal computers. The auto industry makes only 9% of chip demand, according to the market research firm IDC. The auto industry is also one of the most hit by chip shortage; that results in short supply of new vehicles and high customer demand. Automakers currently provide little or no incentives for most recent models. It is not unusual that some car models are being sold above the MSRP. The research firm J.D. power reported that 75% of all vehicles sold in the U.S. were at the sticker price or above in mid-June of 2021. That effect also extends to used cars. Edmunds (an online resource for automotive inventory and information) reported that the average used car price surged 27% from last year.
Moreover, some used vehicles are being sold for more than the original sticker price. It may be a good time for selling or trading in old cars, but not for buying new ones. The scope of the problem extends to household appliances since most appliances utilize a computerized user interface and digitized control systems; there is a general shortage of all major appliances as well as the spare parts of their computerized components.
Who dominates the chip market?
The most advanced chip design occurs in the U.S. However, the major U.S. tech firms like Apple, Google, AMD, Amazon, Qualcomm and Nvidia are fabless companies. They rely heavily on outsourcing the fabrication of their chips to Asian semiconductors foundries such as the Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest chipmaker. With more U.S. companies becoming fabless or outsourcing chip manufacturing, U.S. semiconductor manufacturing has dropped to only 12% of the semiconductor manufacturing market share, as Intel's CEO Pat Gelsinger reported in an interview with CBS on 60 Minutes. However, Intel remains the world's largest supplier of chips by revenue, followed by Samsung and TSMC.
Foundry wars
As the problem of chips shortage escalated over the last few months, Intel allocated a budget of 20 billion dollars to build two new semiconductor factories in Arizona between now and 2024. In response, TSMC announced increasing its capital expenditure to $30 billion for this year. Moreover, TSMC already started constructing a $12 billion semiconductor factory in Arizona this year. The war is not only for establishing semiconductors foundries but also for providing cutting-edge technology for chips. According to Moore's law, a hypothesis states that the number of transistors in microchips doubles every two years. Chip manufacturing technology has to continuously develop in terms of the number of transistors per chip and power consumption. That requires a considerable percentage of semiconductor chipmakers' revenue to be spent on research and development (R&D). In 2020, IC Insights reported that chipmakers dedicated 14.2% of their income to R&D investments. In the meantime, the most advanced chip-making technology, the 5-nanometer (nm) process, is being offered by only two companies, TSMC and Samsung.
Conclusion
As the technology has evolved, the demand for semiconductor chips continues to outpace supply. Every business can be affected by the chips shortage in one way or another. Chipmakers are already on a spending spree to resolve this problem. The most critical shortage of chips will start to ease by the end of the year, but the issue may not be fully resolved until 2024.
Dr. Mohamed Morsy is an associate professor of electrical engineering at Texas A&M University-Texarkana.
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