Semiconductor Monthly July 2022

Semiconductors in the USA; from strength to strength

Just months after the US government passed the Chips Act, promising a multi-billion dollar investment into their national chips industry, the US Senate voted on another $52 billion in grants and incentives, aptly named the 'CHIPS Plus' package, with a 64-34 majority in favour of the initiative.

In addition to the $52 billion for the construction of fabs across the country, a draft bill circulated by the senate leadership included a "25% investment tax credit for manufacturers of semiconductors and tools to create semiconductors, an additional $500 million for a secure, international communications program, $200 million in training and $1.5 billion for public wireless supply-chain innovations."

The 'CHIPS Plus' initiative is aimed exclusively at 'fabless companies' after a backlash on the initial CHIPS ACT and how it would be split between companies. AMD and NVIDIA both criticised how the CHIPS ACT would be distributed after rumours emerged that Intel would be securing $20 billion of the $52 on offer.

Automotive giant claims the semiconductor shortage is easing

Jim Rowan, CEO of Volvo Cars, told CNBC on the 20th July that they're past the worst of a 'chip supply crunch' that has been ravaging the automotive industry for almost 2 years. 

Whilst Volvo saw a 27% drop in retail sales and a 2% drop in revenues in the second quarter of 2022, they reported a 10.8 billion Swedish Krona EBIT (Earnings Before Interest and Taxes), more than double the 4.8 billion reported in the second quarter of 2021. 

It appears that Volvo aren't the only automotive giant feeling positive about the future. On the 21st July, VW and STMicroelectronics announced a partnership on ICs, helping to shape Volkswagen's entire semiconductor supply chain for years to come. The companies announce they are developing “perfectly tailored hardware for connectivity, energy management, and over-the-air updates making vehicles fully software-defined, secure, and future-proof."

These partnerships have become more common after the disruptions caused by the semiconductor shortage highlighted how important a secure supply chain is for companies. Ford announced a partnership with GlobalFoundries in 2021 to secure their supply chain, and Nvidia were rumoured to be in talks with Intel in March 2022 about Nvidia using Intels fabs to manufacture their chips.

Will these partnerships become the norm for the industry? Will they make the industry more collaborative or less accessible to new comers? Only time will tell…

Samsung: I'll see your $52 billion and raise you… $200 billion?

When the US Government announced a second $52B bill for the semiconductor industry called the USICA Act it tipped Americas investment into the industry over the $100B mark; an eye watering amount of money for any country, let alone company.

Samsung, however, decided to up the stakes for America by filing for 11 applications seeking tax breaks for new facilities in the Taylor and Manor school districts in Texas totalling $192 billion. This investment is quadruple that of the governments initial commitment to the industry. To think that one private organisation is considering such an eye watering investment over a 12 year period is almost inconceivable to most people, but it does raise some questions.

Looking back to 1990, America had a 37% global market share of the semiconductor industry; today, it stands at just 12%. Given that other countries are also receiving multi-billion dollar investments to bolster their industry amidst the global shortage, how much would it cost for America to regain the market share that has been lost over the years? Is it even feasible?

The other question is a cynical one; are we seeing an overcorrection in reaction to the shortage? Eventually, demand will level out to a 'normal' level, and population growth is slowing across much of the world. Whilst private organisations are making plans that cover the next decade, there's no way of telling what the demand will be like when we get there, and it's not like you can just take a fab back once it's built.

Moreover, the great resignation has led to a number of companies struggling to hire talent to fill the fabs they currently have operational; what happens when they have to staff multiple new fabs from scratch? Where will the workforce come from?

It's also worth noting that, for as long as the industry has been around, it's been plagued by 'boom and bust' cycles, often over a 7 year period. Considering that demand has been soaring for the past two years, we could be 5 years off of the next 'bust' if history repeats itself. Considering the sheer amount of fabs that will be operational in the next 4-5 years, the industry could find itself with more chips than it knows what to do with.

Looking at the future in a more positive light, the exponential rate of technological advancement is putting semiconductors into more products across more industries, expanding their potential demand exponentially. Bloomberg believe this is the future for the industry, and the end to the boom and bust cycle as we know it. With manufacturers booked through 2022 for another good year, and every semiconductor company reporting positive growth through a pandemic, the future could be brighter than the sceptics think.

News just in; The US senate passes $280b of funding for the semiconductor industry

LinkedIn, industry outlets and newspapers are brimming with news that, on the 27th July, the US senate passed a $280b chips bill to subsidise chip manufacturing across the USA. The bill comes almost two years after an international chips shortage. The bill will cover the entire lifecycle of the semiconductor industry, from supporting the research, design, production and development of semiconductor chips.

With many expecting the bill to be passed by the house as early as the end of July, people are already weighing in on what this means for the industry and the wider economy in the US, take a look at the link below to find out for yourself!

https://www.linkedin.com/news/story/senate-passes-280b-chip-bill-5920914/

One of the biggest questions on everyone's mind is how the funding will be distributed between the various companies within the US semiconductor ecosystem. Concerns were raised when the lions share of the first $52b was expected to disproportionately benefit manufacturers like Intel as they manufacture their own chips, building their own fabs and therefore benefiting from the tax subsidies included in the bill.