US politicians, business leaders and think-tank analysts seem to believe that locally made chips will fortify the nation’s technology supply chain at a time when global tensions are running hot. They’re mistaken, and that error could push the US into even greater dependence on foreign manufacturers.
Passage of the $52 billion CHIPS Act in August is rightly hailed as a landmark move to rebuild America’s role in the semiconductor industry. Chipmakers, both in the US and overseas, are incentivized to set up more facilities on local soil and many are doing just that. Taiwan Semiconductor Manufacturing Co. and Samsung Electronics Co. announced expansion plans, and made clear that such projects will depend on government money.
The challenge for the US is that a 12-inch slice of silicon — layered with chemicals at microscopic dimensions by $150 million machines in $10 billion factories — isn’t very useful. In fact, a completed wafer doesn’t do anything — it cannot play a video, process an image or guide a warhead. Yet that’s all a semiconductor fab churns out, with great difficulty and at high cost. TSMC is currently the only company in the world that can produce the most-advanced chips, and does so with an annual capex budget of $36 billion and $5 billion in R&D.
Once out of the clean room, these wafers are likely to be loaded onto an aircraft and sent to the other side of the world — straight back to the very geographies that US lawmakers were hoping to wean themselves off.
The life of a chip doesn’t actually begin until the silicon wafer has been sliced into squares, tested for quality, and then packaged inside a ceramic casing with wires attached.
ASE Technology Holding Co. in Kaohsiung, Taiwan, is the world leader in outsourced semiconductor assembly and testing. US-made chips may also find their way to facilities ASE runs in China, Malaysia and Singapore. There’s a handful of other packaging and testing companies too, while TSMC and Intel Corp. are among those that also undertake some of this work. To its credit, Congress recognized the importance of packaging and allocated $2.5 billion in the CHIPS Act to help build more local capacity.
Still, it’s a grave miscalculation to believe that having greater, or even full, control over a nation’s semiconductor needs makes its entire supply chain resilient. Dozens of companies produce connectors, cables, display screens, and partially completed devices (called modules), and the vast majority are not in the US.
If there’s one company the world is most reliant on, apart from TSMC, it’s Foxconn Technology Group. While the Taiwanese firm is best known for making iPhones and iPads for Apple Inc., it actually provides thousands of different components from USB sockets to radio antennas that are assembled into millions of gadgets every year. There’s hardly a device on the planet that doesn’t have Foxconn inside.
Even as Apple tries to diversify its supply chain to a broader array of vendors and geographies, it still relies on Foxconn to produce as much as two-thirds of its iPhones. A decade ago, every single one of these smartphones was made in China. Today, Apple has deepened its globalization with Brazil, India and Vietnam now hubs of manufacturing — albeit with Foxconn as a primary partner.
What this means for the US is that even a complete transfer of TSMC’s capacity to American soil, and 100% control over its semiconductor needs, wouldn’t provide independence. The notion that Washington would evacuate TSMC engineers from Taiwan in the event of war, as has been recently floated, would do little to save the American supply chain.
Foxconn’s foray in Wisconsin — with big dreams that were never fulfilled — has shown just how challenging it is to get device assembly up and running in the US. The high costs, coupled with a lack of labor and supply-chain infrastructure make the US an unlikely place to churn out iPhones. Even semiconductor facilities — that have a lower labor component than device assemblers — are estimated by Goldman Sachs Group Inc. to cost 44% more than in Taiwan.
By focusing on chips, the most expensive and complicated piece of the puzzle, US leaders are kidding themselves into believing that semiconductors are the holy grail of technology manufacturing. Such an attitude risks policy laziness and makes the nation no less dependent on overseas suppliers, yet leaves people blinded into believing that enough has been done to make itself resilient.
As an expert and enthusiast, I have extensive knowledge about the semiconductor industry, global supply chains, geopolitical implications of technology manufacturing, and the nuances associated with various companies mentioned in the passage. Let me break down the concepts presented in the article to provide a comprehensive understanding:
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CHIPS Act:
- The $52 billion CHIPS Act, passed in August, aims to bolster the U.S.'s semiconductor industry.
- This act incentivizes both domestic and foreign chipmakers to establish or expand their manufacturing facilities within the U.S. by providing financial support.
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Semiconductor Manufacturing Process:
- A 12-inch silicon wafer undergoes a complex manufacturing process involving chemical layering at microscopic scales.
- The fabrication (fab) process results in creating semiconductor chips, which, in their raw form, are essentially silicon wafers with microscopic circuit patterns.
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TSMC (Taiwan Semiconductor Manufacturing Co.):
- TSMC is recognized as a global leader in semiconductor manufacturing.
- It possesses the capability to produce the most advanced semiconductor chips.
- The company has a significant annual capital expenditure (capex) budget and invests heavily in research and development (R&D).
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Outsourced Semiconductor Assembly and Testing:
- After manufacturing, semiconductor wafers undergo packaging, testing, and assembly processes.
- ASE Technology Holding Co., based in Taiwan, is a prominent player in this domain, specializing in outsourced semiconductor assembly and testing.
- While the CHIPS Act acknowledges the importance of this phase, the U.S. doesn't have full control over this aspect of the supply chain.
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Foxconn Technology Group:
- Foxconn is a Taiwanese multinational known for its vast manufacturing capabilities.
- While recognized for producing Apple's iPhones and iPads, Foxconn manufactures a myriad of components for various devices.
- The company's global reach and dominance in the electronics manufacturing supply chain illustrate its critical role in the global tech ecosystem.
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Diversification of Supply Chains:
- Companies like Apple have sought to diversify their manufacturing bases beyond China, expanding to countries like Brazil, India, and Vietnam.
- However, regardless of geographical diversification, many of these facilities still rely heavily on partners like Foxconn for manufacturing expertise and infrastructure.
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U.S. Manufacturing Challenges:
- The article underscores the challenges associated with establishing semiconductor and device manufacturing facilities in the U.S.
- Factors such as higher costs, lack of specialized labor, and supply chain infrastructure constraints make domestic manufacturing less competitive compared to regions like Taiwan.
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Policy and Perception:
- The article critiques the U.S. policy focus on semiconductors as the primary solution to bolstering technological resilience.
- By solely emphasizing chip production, policymakers may overlook the broader intricacies of the technology manufacturing ecosystem, thereby potentially perpetuating dependence on overseas suppliers.
In summary, while efforts like the CHIPS Act aim to strengthen the U.S. semiconductor industry, achieving genuine technological resilience necessitates a more holistic understanding of the global supply chain dynamics. Solely focusing on chip manufacturing overlooks the multifaceted nature of technology production and distribution, where companies like Foxconn play pivotal roles.
