The Senate just agreed $52 billion to boost US chip making. It's going to take a lot more

The US wants to fix the semiconductor supply chain, and it will require a big budget. But $52 billion might not be enough to tackle every challenge.
Written by Daphne Leprince-Ringuet, Contributor on

Expanding the US semiconductor industry is one of the key provisions of the new act approved by the Senate.

Image: Yellow Dog Productions / Getty Images

While the global shortage of chips continues to expand to more industries, the US Senate has passed a landmark bill that would unlock an eye-watering $52 billion to boost the national production of semiconductors. 

The investment is part of a wider package of about $250 billion that covers scientific endeavors ranging from artificial intelligence to quantum communications, called the US Innovation and Competition Act. 

Expanding the US semiconductor industry, in particular, is one of the key provisions of the new act. It follows from a previous pledge made by US President Joe Biden, who called on Congress earlier this year to invest $50 billion in semiconductor manufacturing and research to support the aptly-named CHIPS Act (Creating Helpful Incentives to Produce Semiconductors). 

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Biden's call was widely supported by the industry, with a cross-sector alliance of semiconductors companies forming promptly after the announcement in an effort to push for the money to be rapidly secured

With the Senate green-lighting the bill, the funding is effectively one step closer to becoming a reality. The law is now headed to the House of Representatives, where it will be debated before it is sent to the White House for the president's signature. 

"We are in a competition to win the 21st century, and the starting gun has gone off. As other countries continue to invest in their own research and development, we cannot risk falling behind," said Biden in a press release. "I look forward to working with the House of Representatives on this important bipartisan legislation, and I look forward to signing it into law as soon as possible." 

If the bill is passed, the vast majority of the investment will be allocated to a CHIPS for America fund that will boost research and development programs across the nation during the next five years to develop next-generation semiconductors. Part of the budget will also be allocated specifically to support the needs of the Department of Defense (DoD) and of intelligence agencies. 

The bill also seeks to establish a new program that will identify vulnerabilities in the US's semiconductor supply chain, and work to address and mitigate those gaps. 

Currently, in effect, chip manufacturing is largely concentrated in regions outside of the US. Specifically, semiconductor foundries – which print the silicon wafers that contain nanometer-scale integrated circuits – are predominantly based in South-East Asia. 

This is because, instead of going through the complex process of manufacturing semiconductors for their products in-house, most companies have in the past years outsourced the job to two leading companies: Samsung and TSMC. As a result, about three-quarters of the world's semiconductor manufacturing capacity comes from China, Japan, South Korea and Taiwan. 

At the same time, manufacturing capacity in the US has significantly declined. According to a recent report carried out by the Semiconductor Industry Association (SIA), the US held 37% of the global chip manufacturing capacity in 1990 – a number that has gone down to 12% today, mostly due to the stagnation of government subsidies to help the industry prosper. 

The latest round of funding included in the Innovation and Competition Act, therefore, is likely to contribute to boosting the domestic production of semiconductors.  

"The main challenge in the semiconductor industry at the moment is that the leading-edge processor technology is centered in Asia, in TSMC and Samsung," Alan Priestley, vice president analyst at Gartner, told ZDNet. "This is about the US trying to encourage more foundry and production capacity within the US to mitigate this." 

Recent months have only stressed the risk of relying on a handful of foreign companies to supply components that are as critical as semiconductors. The COVID-19 pandemic, in effect, has triggered a spike in demand for products that require large numbers of sophisticated chips – think PCs, laptops or gaming consoles. Foundries, however, do not currently have the capacity to manufacture enough semiconductors to meet global demand, meaning that many industries are finding themselves short of components.  

Recent analysis forecasts that equipment manufacturers will be facing six to 12 months of lead times for wafer deliveries in the coming months, meaning that consumers will experience delays when ordering products. What is now described as a global chip shortage is expected to last well into 2022. 

The new bill's $52 billion investment, of course, would come too late to resolve the current issue. "The US want to expand its capacity, but it takes time," said Priestley. "In the near term, this won't have any impact whatsoever. It will take many years to follow through." 

In the longer term, the budget could have a significant impact on the domestic production of semiconductors. SIA previously estimated that a $50 billion investment in the industry would enable the construction of 19 foundries, and ensure that the US can meet domestic demand for chips used in national security systems, aerospace and critical infrastructure. 

SIA's CEO John Neuffer, in fact, praised the passage of the new bill as a "pivotal step" towards strengthening the country's semiconductor industry, and called on the House of Representatives to swiftly pass the investments to be signed into law. 

But on top of building foundries and manufacturing capacity, the bill is also designed to drive long-term research and development programs that will deliver leading-edge semiconductor technologies. According to Priestley, despite the huge budget, this will be easier said than done. 

"There's a huge number of aspects that go into the supply chain, from growing the silicon to make the wafers, building the foundries, assembling, testing, or packaging. It's a seriously complex chain that is spread at the moment across a wide range of different places," said Priestley. 

The $52 billion budget, therefore, will need to be spread across a range of academic institutions tackling different parts of the supply chain. "It will contribute and accelerate development, but it won't make a radical change to the industry," concluded Priestley. "You'd need more than that." 

Although strengthening the US's semiconductor industry constitutes a major part of the Innovation and Competition Act, the new bill also addressed many other national objectives when it comes to new technologies. 

For example, the law proposes the creation of a new working group to coordinate the development of artificial intelligence and quantum science; and includes, in particular, a focus on building up a solid quantum network infrastructure, which has long been a priority for the US

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