Chips Act skips US leaders for Asian winners
The law was designed to help close the gap with Taiwan and South Korea in terms of manufacturing capacity and prowess, while ensuring that the United States stays ahead of China, which is also spending large sums. to boost its own chip industry. But the move will hardly dent U.S. reliance on foreign manufacturing, nor will it build resilience to supply shocks. The Taiwan Semiconductor Manufacturing Co. plant in Arizona will ultimately represent only a tiny 1% of its global capacity. And even then, once these chips are manufactured, they will be directly embarked on a plane to be tested and packaged in Asia, before being assembled in a telephone or a PC in China.
Even after all that government money has been spent, Taiwan and South Korea will retain a dominant share of capacity and continue to be technology leaders. That said, Intel Corp., which designs, manufactures and packages chips in factories around the world, including the United States, Israel, China, Vietnam and Ireland, stands to be a big winner. Texas Instruments Inc. can also expect to benefit. Neither company is capable of manufacturing chips using the world’s major manufacturing nodes. Still, overseas players including TSMC, Samsung Electronics Co. and materials supplier GlobalWafers Co. have already raised their hands for grants and are expected to receive funds as well.
However, the companies that will dominate the most advanced semiconductor technologies on the planet will be absent, including Nvidia Corp., Qualcomm Inc. and Broadcom Inc. This is because these companies, each of which has a larger market capitalization than ‘Intel and TI, only focus on designing and developing chips, not manufacturing them.
The political rhetoric behind the promotion and drafting of the Useful Incentives for Semiconductor Production (CHIPS) Act is the idea that the manufacture of physical goods – their manufacture – is more important and crucial to the national security as they design.
In fact, Apple Inc., which also develops advanced chips, is proof that being a technology leader doesn’t mean being a manufacturer since the Cupertino giant doesn’t manufacture most of its gadgets. And it’s the iPhone designer’s chips, along with Nvidia – a world leader in artificial intelligence – and Qualcomm, the biggest name in wireless communications, that fill the cutting-edge facilities of TSMC in Taiwan and Samsung in Korea. Intel has fallen so far behind that it needs TSMC’s factories to produce some of its best products.
You wouldn’t have the world’s most powerful machine learning tools, global cellphone communications, or the best-selling device on the planet without fabless chip designers.
Still, you won’t hear Nvidia, Apple, and Qualcomm complaining – at least not publicly. Although they’ve been passed over for congressional candy, they’ll end up benefiting as that largesse helps their vendors of choice (TSMC and Samsung) get a foothold on American soil. Neither were particularly keen to divert attention from their home manufacturing hubs, but a change in the global political environment coupled with promises of tax breaks and other subsidies meant that they couldn’t resist. Yet they also made it clear that the money would be better channeled if the United States wanted such projects to continue.
A large part of its materials and equipment also comes from abroad. While Lam Research Corp., KLA Corp. and Applied Materials Inc. are from the United States, dozens more, such as ASML Holding NV from the Netherlands, BASF SE from Germany and Shin-Etsu Chemical Co., based in Tokyo, are part of an international network . Of the hundreds of global suppliers, few will have the funds or personnel to transfer operations to the United States, even with the incentives on offer.
Reality often doesn’t matter in politics. The long-awaited funding of the Chips Act is hailed as a victory for the White House and a show of bipartisan collegiality, but in reality, it’s a victory for America’s semiconductor laggards and the foreign companies that dominate them.
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This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.
Tim Culpan is a Bloomberg Opinion columnist covering technology in Asia. Previously, he was a technology reporter for Bloomberg News.
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