China, US, Europe: Everybody's Got a CHIPS Act

I ran across a very interesting report from the Semiconductor Industry Association (SIA) China’s Share of Global Chip Sales Now Surpasses Taiwan’s, Closing in on Europe’s and Japan’s.

The global market share by major regions looks like this:

It is no secret that China has been trying hard to ramp up its semiconductor segment. The same can be said for the US, which has been trying to "reshore" some portion of its semiconductor manufacturing, and Europe has plans to invest and grow European semiconductor manufacturing to 20% of global capacity.

Note that this report is based on 2020 data since 2021 data is not yet available.

Just five years ago, China’s semiconductor device sales were $13 billion, accounting for only 3.8% of global chip sales. In 2020 however, the Chinese semiconductor industry registered an unprecedented annual growth rate of 30.6% to reach $39.8 billion in total annual sales, according to an SIA analysis. The jump in growth helped China capture 9% of the global semiconductor market in 2020, surpassing Taiwan for two consecutive years and closely following Japan and the EU, which each took 10% of market share. Sales data for 2021 are not yet available.

If China’s semiconductor development continues its strong momentum – maintaining 30% CAGR over the next three years – and assuming growth rates of industries in other countries stay the same, the Chinese semiconductor industry could generate $116 billion in annual revenue by 2024, capturing upwards of 17.4% of global market share. This would place China behind only the United States and South Korea in global market share.

There is more to come since there are 28 fab construction projects totaling $26B. Many of these are in trailing nodes with a lot of joint ventures with local government, and other financial incentives.

US CHIPS Act

Meanwhile, in the US we have the CHIPS Act. As always this is a somewhat hokey acronym, Creating Helpful Incentives to Produce Semiconductors for America Act. It has been partially passed but not funded.

As far as I can tell, the current status is that the CHIPS Act includes $52 billion for domestic semiconductor production. It was approved in January 2021 as part of the most-recent National Defense Authorization Act, but without funding. 

In June, the Senate passed the Innovation and Competition Act (USICA), with a 68-32 vote. The bill included $52 billion for the CHIPS Act, but the measure has been since stalled in the House of Representatives.

Going back to the Semiconductor Industry Association, they are obviously in favor of this. From their website (not from the report that this post opened with):

The share of modern semiconductor manufacturing capacity located in the U.S. has eroded from 37% in 1990 to 12% today, mostly because other countries’ governments have invested ambitiously in chip manufacturing incentives and the U.S. government has not. Meanwhile, federal investments in chip research have held flat as a share of GDP, while other countries have significantly ramped up research investments.

By enacting the CHIPS for America Act in the FY 2021 National Defense Authorization Act (NDAA), Congress recognized the critical role the U.S. semiconductor industry plays in America’s future. Now, the administration and Congress must fully fund the semiconductor manufacturing and research provisions authorized by the CHIPS Act — and enact an investment tax credit — to strengthen America’s global leadership in chip technology for years to come. 

The U.S. Senate on June 8, 2021 took a significant step toward this goal by passing the U.S. Innovation and Competition Act (USICA) (S.1260), which includes $52 billion in federal investments for the domestic semiconductor research, design, and manufacturing provisions in the CHIPS Act. The House of Representatives should swiftly follow suit and send legislation to the President’s desk to be signed into law.

Europe's Chips Act

On the other side of the Atlantic, Europe has its own Chips act. From the European Union's website they lay out their version of the problem:

Europe has many strengths and some weaknesses in the semiconductor value chain. The semiconductor sector is characterised by intense R&D activity, with first-class companies reinvesting more than 15% of their revenues into research in next generation technologies. The EU is home to world-leading research and technology organisations and many excellent universities and research institutes spread across the Union. These are pioneering the techniques behind the production of some of the world's most advanced chips.

Despite these strengths, Europe has an overall global semiconductors production market share of less than 10% and is heavily dependent on third-country suppliers. In case of severe disruption of the global supply chain, Europe's chips' reserves in some industrial sectors (e.g. automotive or healthcare devices) could run out in a few weeks, bringing many European industries to a standstill.

So what does it plan to provide? The European Chips Act, adopted by the EU Commission, bundles together €43 billion ($49 billion) in public and private funding for the sector, with an end-goal of doubling the EU’s share of global chip production from 9 percent to 20 percent by 2030.

It is unclear whether this funding will truly materialize. Some comes from the EU itself, but the expectation is that a lot should come from member countries. I'm not sure how workable that is. France is not going to provide billions in funding for fabs to be built in Dresden Germany, for example. And clearly, every country cannot have its own fab (there are 27 in the EU).

ASML

One of the most significant European companies in the semiconductor supply chain is ASML, since it is the only manufacturer of EUV equipment. They have produced a CHIPS Act Position Paper which anyone can download. A key paragraph from the summary:

The global semiconductor industry is expected to double to approximately $1 trillion of annual revenues by the end of the decade. If no action is taken, the European semiconductor manufacturing capacity will fall below 4%, making it virtually irrelevant on a global scale and creating a structural threat of insufficient chip supplies to European industries. To avoid this undesirable scenario, significant public- and private-sector investments are required.

And here's an interesting graph from the paper: who are the major purchasers of semiconductors in Europe:

 

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