A mega-spending package to boost US semiconductor production faces a harsh reality: the world is already awash with chipmaking stimulus.
What makes the US effort unique is the enormous one-time sum — about $77 billion in subsidies and tax credits — earmarked to boost American production of the ubiquitous technology component. But other countries, particularly in Asia, have been doling out government dollars and offering favorable arrangements for decades. And they plan even more.
By one estimate, China has prepared more than $150 billion in investments by 2030. South Korea plans to boost around $260 billion in chip investment over the next five years with an aggressive set of stimulus plans. The European Union is targeting more than $40 billion in public and private semiconductor investment. Japan is spending about $6 billion to double its domestic chip earnings by the end of the decade.
Taiwan has undertaken some 150 state-sponsored chip-making projects in the past decade, with its leader pushing for more localized manufacture of semiconductor equipment. Singapore acquired a $5 billion chip factory from United Microelectronics Corp earlier this year. who said she was drawn to the city-state’s vision of attracting high-tech companies.
“We’re in a race to subsidize semiconductor manufacturing,” said Peter Hanbury, a partner with engineering supply chain experience at Bain & Co., a management consulting firm. Countries must compete for a limited number of chipmakers that have relatively limited needs for new manufacturing bases, while also building engineering talent, stable infrastructure and supply chains, he said.
Semiconductors are found in almost every electronic device and are critical to a number of key industries, from smartphones and automobiles to military and healthcare equipment. The recent chip shortages that have rocked supply chains have highlighted how large parts of the global economy can be crippled and related jobs lost without these tiny tech components.
A wafer fabrication facility.
Photo: Heather Ainsworth for The Wall Street Journal
Photoresist material is applied at GlobalFoundaries in Malta, New York.
Photo: Caitlin Ochs for The Wall Street Journal
With federal stimulus now available, a key question will be to what extent the US will be able to attract larger investment in chip fabs that would have gone elsewhere. The chip industry is notoriously conservative when it comes to capital expenditures, with the most advanced equipment requiring tens of billions of dollars – and a single machine costing in excess of $150 million.
Many countries have formulated high ambitions to become larger players in global chip production. However, only a handful of chip-making giants have the financial resources to approve billions of dollars in investments and benefit from government incentives that reduce construction, operating, research and hiring costs.
The U.S. is expected to coordinate with other major chipmakers that are allies to avoid subsidy competition that could lead to production overruns or overlapping government investments, said Will Hunt, a research analyst specializing in semiconductor policy at the Georgetown Center for Security and emerging technology.
“You don’t want to be in a race to the bottom,” said Mr. Hunt.
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Chip demand is forecast to increase significantly in the coming years, leaving room for bold investment bets. According to International Business Strategies Inc., a chip consultancy, the chip industry’s annual revenue is expected to reach $1.35 trillion by 2030, doubling from $553 billion in 2021. Given the recent slowdown in demand, some types of chips may be oversupplied in the next two years, but shortages are expected to return in 2025 and 2026, according to IBS projects.
“Government subsidies are therefore unlikely to lead to global overcapacity,” said Handel Jones, who runs IBS.
According to the Semiconductor Industry Association, an industry body, about three quarters of chip manufacturing capacity is in China, Taiwan, South Korea and Japan. The US accounts for 13%.
Senator Chuck Schumer (D., NY) at a Wolfspeed chip factory in Marcy, NY
Photo: Heather Ainsworth for The Wall Street Journal
The new U.S. stimulus, approved by Congress after a vote in the House of Representatives on Thursday, will help bring down the significantly higher price of building an advanced chip factory on American soil, industry leaders, lawmakers and semiconductor analysts say.
Decades ago, the US and Europe enjoyed a much larger foothold in global semiconductor manufacturing. According to SIA, the US is now about 30% more expensive than Taiwan, South Korea or Singapore to build and maintain an advanced chip fab over a decade. The distance to China can be up to 50%.
Government subsidies — or lack thereof — accounted for a significant portion of the cost differential, SIA added. Labor and utility costs were also factors in America’s distance from other places.
The lack of US subsidies prompted American chipmaker Intel Corp. in June to announce he would postpone groundbreaking for a new $20 billion chip-making factory in Ohio if Congress didn’t pass the subsidy bill. “Federal funding support to level the playing field and make this investment competitive is critical,” said Bruce Andrews, Intel’s chief government affairs officer, in a March comment posted on the company’s website.
Samsung Electronics Co. recently floated the prospect of investing nearly $200 billion in 11 new chip factories in Texas over the next few decades. Other chip giants that may try to cash in on large chunks of US subsidies include Taiwan Semiconductor Manufacturing Co., GlobalFoundries Inc., and Texas Instruments Inc.
The semiconductor industry is already on a historic spending spree. According to market researcher Gartner Inc., around $153 billion in investments have been approved in 2021 — about 50% more than before the pandemic began and double the amount five years earlier.
According to Gartner’s July projections, the US should account for about 13% of global semiconductor investment by 2026, with Asia projected to account for more than three-quarters of total spending. The expected geographic distribution of semiconductor spending is not significantly different than in recent years.
China offers its chip companies cash subsidies, preferential financing and tax breaks. It provides more than $150 billion worth of funding, based on an SIA estimate of government spending from 2014 to 2030.
Taiwan sees semiconductors as the lifeline of its economy and military protection, and has long provided chip companies with generous tax breaks, infrastructural and financial support. In its latest annual report, TSMC, the island’s largest chip provider, cites around $2 billion in local tax exemptions it has received since 2020 for building and expanding two factories in Taiwan.
Other chip giants that may try to cash in on large chunks of US subsidies include Taiwan Semiconductor Manufacturing Co.
Photo: I-Hwa Cheng/Bloomberg News
A TSMC construction site in Tainan, Taiwan.
Photo: Billy HC Kwok/Bloomberg News
South Korea will offset utility costs, including electricity and water, at certain manufacturing sites, while expanding tax breaks for large companies’ investments in semiconductor facilities, as part of new chip industry support plans announced in July. Much of Japan’s new chip spending plan has already helped offset the cost of a multi-billion-dollar TSMC fab announced last year.
The European Union is still considering semiconductor funds in the tens of billions. But it wants to ensure that Europe can more than double its share of world production from 9% today to 20% by 2030, according to the European Commission.
“Chips are at the heart of the global technological race,” European Commission President Ursula von der Leyen said in a February statement supporting the bill.
— Yang Jie in Tokyo and Joyu Wang in Taipei contributed to this article.
write to Jiyoung Sohn at [email protected]
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