"Stars and Stripes" chip: the US will revive the electronics industry

Alexander Sychev

The US Department of Defense is seriously concerned about the security of its armed forces. The Pentagon report, written by a group of analysts led by Under Secretary of Defense for Research and Engineering Heidi Schew, calls on American industry, academia, government laboratories and semiconductor manufacturers to contribute to the establishment of microprocessor design and manufacturing centers on American soil.

The era of "détente" that has gone down in history, as it now turns out, dealt a strong blow to the American electronic element base. Even Intel, once considered the largest and most advanced in the field of chip creation, has moved to second, and even third positions. In the 90s of the last century, the United States relied on outsourcing and began to purchase almost the entire element base abroad. As of 2020, the US share of global chip production was only 12%, up from 37% in 1990. Today, 88% of microelectronics manufacturing capacity and 98% of related assembly, packaging, and testing are located outside the US, primarily in Taiwan, South Korea, and China.

At the moment, the leading manufacturers of semiconductors and microcircuits are the Taiwanese company Taiwan Semiconductor Manufacturing Company (TSMC), which owns 54% of the world market, and the South Korean Samsung - 17%. TSMC chips are present in many modern electronic products, including almost all weapons systems in the United States and many other countries. About 60% of TSMC chips are now shipped to US companies.

The current system in the world works like this. Most companies that supply chips to the market do not manufacture them themselves, but only own the design technology. These are companies such as Broadcom, Qualcomm, Nvidia and others. They develop processors for specific needs and place corresponding orders with manufacturing companies - TSMC, Samsung and others. Until recently, this scheme suited everyone. The labor of Asians is cheap, they are diligent, accurate and have established high-tech production facilities.

Anxiety in Washington and, in particular, the Pentagon began to grow for a number of reasons. The chip shortage that suddenly appeared on the market may not be the most frightening reason, but it should be mentioned. It arose, according to many analysts, due to the COVID-19 pandemic. Like, people who are sick or in quarantine have too much free time, which has led to an increase in demand for smartphones, tablets and other electronics that brighten up being locked up.

Analysts at TrendForce calculated that global demand for chips, depending on the category, was 10-30% higher than the current supply. And according to Susquehanna Financial Group, in the first four months of 2021, semiconductor manufacturers began to fall behind on order fulfillment dramatically. Large companies had to wait up to 17 weeks for chips, and small companies up to one year or even abandon their projects.

The shortage caused chips to rise in price - the law of the market. Since the second quarter of 2021, more than 30 semiconductor manufacturers, such as UMC, SMIC and Power Semiconductor Manufacturing, have increased prices for their products from 10% to 30%, and for certain items by dozens of times.

At the "counter" the crush began. Apple, apparently having some insider information, at the end of 2020 purchased 80% of TSMC's production capacity for the manufacture of its M1 chips. As a result, chips for other customers are shipped second, so to speak, on a leftover basis.

What information did Apple rely on? Apparently, the one that was associated with the intention of Washington to start more large-scale operations in the trade war with China. In 2020, the United States banned TSMC from supplying chips to the Chinese company Huawei. In response, the Chinese increased the volume of purchases from the warehouses of already existing chips and quickly emptied the shelves. Later, a leading Chinese chip maker, Semiconductor Manufacturing International Corporation (SMIC), was sanctioned, which only exacerbated the situation.

Finally, geopolitics occupies the most important place in Washington's chip layouts. Taiwan, which owns TSMC, lives under the constant threat of being returned to mainland China. Beijing insists that Taiwan is an integral part of China. In Washington, apparently, they do not rule out that one day words can turn into a practical plane. And even if Taipei can be defended, there could be a disruption in the supply chain that will negatively affect the American economy and defense.

“The migration of semiconductor and microcircuit manufacturing to the Asia-Pacific region and the subsequent decline in domestic production pose a serious threat to the security and economy of the United States and many allied countries,” states Deputy Minister Heidi Scheu.

The US defense industry certainly has stockpiles of chips, but they are not unlimited, and its own production capacity is not enough to cover the expected shortage. That is why the US Department of Defense has requested approximately $2.3 billion for fiscal year 2022 to organize its own production of electronic components.

Work on the restoration of the electronic industry did not begin today. Last year, the National Defense Appropriations Act directed the Pentagon to create a national microelectronics research and development network to support the "transition of innovation from labs to manufacturing" and expand US leadership in this area. Humanity is entering the era of artificial intelligence, and, most likely, it is impossible to do without its own advanced element base.

Today, regional centers are being created throughout the country on the basis of public-private partnerships that will focus on identifying new microelectronic technologies in companies, laboratories, research centers and refining them to the required level of readiness.

The report's authors also found that the lack of equipment has become a serious obstacle for start-up companies. As a result, many American start-ups go abroad to get the opportunity to refine their technologies and even establish production. Now American innovators will be paid for specialized laboratory equipment, technical expertise and help to bring products to market. In this regard, the US Senate approved subsidies for local manufacturers of the national semiconductor industry in the amount of $52 billion over five years.

Today, the Pentagon also runs the Trusted and Assured program, which promotes the release of commercial technologies, after appropriate testing and elucidation, into the military sphere.

But the most important concern of the American authorities today is to solve the problem of the physical return to American soil of electronic production. To this end, Washington has agreed with TSMC management to build new chip production lines in Arizona. The factory will produce 20,000 state-of-the-art 5nm chips per month. In general, the company plans to build six plants in the US and intends to spend about $100 billion on this.

The Korean company Samsung was also interested in the American market. As a result, it plans to build its $17 billion plant in the small town of Taylor, Texas.

By reviving national microelectronics, the United States will protect itself from many surprises in the world, including the consequences of its own actions. According to the Pentagon, which in this case one cannot but agree with, national microelectronics will become, as the report says, "the main factor of an undeniable technological advantage over potential adversaries".