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A supply chain in flux

A shortage of semiconductors is seeing a growing number of governments look at constructing their own cutting-edge fabs.

The COVID-19 crisis, the fire at a Renesas facility and the pro-longed and exceptional winter weather in Texas have combined to cause a chip shortage undermining the automotive and electronics industries and, in turn, have highlighted just how dependent the world is on supplies from Taiwan and South Korea.

Governments are said to be weighing up the possibilities of subsidising the construction of new semiconductor factories in response with the United States, the European Union, India and Japan all looking at the possibility of developing cutting-edge ‘fabs’ as unease grows that more than two-thirds of advanced computing chips are now manufactured in Taiwan.

There is seen to be a need for factories outside of Asia and Intel, Samsung and TSMC have already drawn up plans to build factories in the US. In the case of Intel, it is also talking about building a new factory in Europe.

However, is any of this likely to actually happen? It would be “economically unrealistic” for the US and Europe to build local foundry capacity for local demand, according to TSMC’s chairman Mark Liu, who has suggested that any new capacity would likely end up being ‘non-profitable’.

He also said that there was already enough capacity in the system to meet the rising demand for AI and 5G chips and that the pandemic and growing trade tensions between the US and China were both abnormal factors affecting the supply chain – left alone, things would return to normal.

While that might be true in Japan, Canon, Tokyo Electron and Screen Semiconductor Electron have joined a government funded programme to develop advanced 2nm chips, while India is looking to build on its strengths as a design centre for global chip firms and lure factories with new subsidies.

It does appear that every country wants to build its own fab, in what could be seen as a return to the 1970s, before the US and Europe outsourced chip manufacturing to the Far East.

In Europe there have been clashes between the EU and national governments over the need for advanced computer chip factories - a policy that’s being promoted by the EU’s internal market chief Thierry Breton.

In opposition, Helmut Gassel, head of strategy at German chipmaker Infineon has warned, "Europe dropped out of this race a long time ago and no longer has the necessary local know-how," to deliver.

So, if we are to see a new tranche of factories appearing could we end up seeing nations developing their own semiconductor industries and, if they do, a chip ‘arms race’ develops might we simply end up with too much chip making capacity and in the process waste limited resources and vast amounts of tax payers’ money?

Author
Neil Tyler

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