Why CHIPS is unlikely to reduce US dependence on Asia | Techno Glob

The recently passed CHIPS Act earmarked $53 billion in US federal funding for the construction of chip manufacturing facilities in the United States. According to Goldman Sachs Research, while it could provide valuable protection against future supply chain disruptions, it is unlikely to help supplant Asia’s dominance in the sector.

The dislocation of the global supply chain fueled by the pandemic has made many aware that semiconductors power almost everything: cars, cell phones, washing machines, refrigerators, etc. When global supply chains came to a virtual standstill during COVID-19, manufacturer access to chips, and therefore consumer access to a wide range of products, became scarce.

Demand for chips is expected to accelerate, according to GS Research. Megatrends such as 5G, electric vehicles, artificial intelligence and high-performance computing have set global semiconductor revenue growth on an even steeper trajectory than it has been in recent decades. .

The fact that most of the world’s semiconductor manufacturing capacity is based in Asia is of crucial importance. According to the Semiconductor Industry Association and BCG, the region serves as a production hub for 75-80% of global chip manufacturing, mostly by companies based in Taiwan, South Korea, mainland China and Japan. Asia’s dominance has come at the expense of everyone else: in the United States, the share of global semiconductor manufacturing capacity has fallen to 12%, from 37% in 1990. In Europe, the decline was even more abrupt: 9% in 2021, down from 44% in 1990. This left both regions vulnerable when the pandemic caused supply chain disruptions across Asia and prompted Congress to pass the CHIPS Act to strengthen domestic manufacturing capacity.

Except that the funding allocated at this stage should be insufficient at this stage, says GS Research. Why? Production costs, for one. In the United States, it is significantly more expensive (44% higher) to build and operate a new fab than in Taiwan, analysts say. Of this 44% premium, 21% comes from higher capital expenditures in the United States than in Asia, 18% from higher operational costs over a 10-year period and 5% from operational inefficiencies mainly related to differences in culture, operations and management style. , and other factors.

The CHIPS Act will help boost production, but GS Research says the act’s current incentives will only be able to “fully support” an increase in US market share in global chip capacity of less than 1%. Indeed, industry capital expenditure will continue to increase as we move towards more advanced technologies, and capital expenditure is expected to double over the next three years and increase by a growth rate. annual compound of 17%, up from just 8% over the past decade, according to GS Research forecasts.

GS Research concludes that the CHIPS Act will help create a national pressure valve when future supply disruptions occur, but much more funding will be needed to reshape the global semiconductor industry. “We believe the CHIPS Act should be viewed more in the context of U.S. geopolitical strategy, as a ‘hedge’ against future crises or major supply chain disruptions, rather than efforts to replace the position and the current importance of Asia within the semiconductor supply chain,” the authors wrote.

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