Chip manufacturing has become the winner and loser of the semiconductor industry, mastering the top manufacturing process is the key to the next era, which is why TSMC has become the uncrowned king.
In terms of this capability, the United States and Europe have lagged far behind Asia (excluding Japan), which not only restricts the improvement of its scientific research capabilities, but also leads to a weakening of supply chain control. In order to reverse this disadvantage, the United States and Europe have successively introduced chip industry incentive laws to try to rewrite the chip manufacturing map.
U.S.-EU Chip Act: Favoring Wafer Manufacturing
The Biden administration is ramping up investment in chips. Image source: Network
There is no doubt that the core of the US-EU chip bill goes straight to the chip manufacturing industry.
In February 2022, the U.S. House of Representatives passed the America COMPETES Act of 2022, which is closely related to chip manufacturing as follows:
1 Invest $52 billion to increase investment in semiconductor chips to support U.S. semiconductor production of key components for consumer electronics, automotive, healthcare, defense systems, and other critical products.
$245 billion strengthenStribute supply chains and manufacturing in the United States and strengthen U.S. economic and national security by preventing shortages of critical goods and ensuring that more of these goods are produced on U.S. soil.
According to U.S. House Speaker Pelosi, "The package will accelerate U.S. production of critical semiconductor chips, strengthen the supply chain to produce more goods in the United States, and enhance our ability to lead future technologies and enhance our global competitiveness." supply chain to make more goods in America, turbocharge our research capacity to lead the technologies of the future, and advance our global competitiveness）。
Prior to this, the U.S. Senate also passed its own Innovation and Competition In America Act (USICA) in June 2021, which also focused on chip manufacturing.
USICA, much like the House's SESSIONS Act, invested $52 billion in chip manufacturing. Among them, the semiconductor manufacturing subsidy is 39 billion US dollars, and the semiconductor manufacturing subsidy is used separately for mature technology nodes of 2 billion US dollars (priority for key manufacturing such as the automotive industry), and the allocation ratio is basically the same as the House plan.
Both versions of the bill aim to authorize the semiconductor industry incentive programs mentioned in the CHIPS Act of 2021 in the NDAA (National Defense Authorization Act). Both versions of the relevant provisions have adopted the same name, such as USICA Section 1002 and Section 10001 of the Composites Act, both of which are "U.S. funds creating helpful incentives to produce semiconductors (Chips) for America funds."
Given the dispute between the House and Senate, the two bills will eventually have to be tweaked to reach a unified version, but the part that funds chipmakers is currently the least controversial, and semiconductor companies such as Intel and Samsung believe the measure will increase the attractiveness of investment in the United States.
The Euro Chips Act can be considered to some extent to be based on the U.S. bill. The bill intends to mobilize more than 43 billion euros of public and private funding to support chip production, pilot projects and start-ups. Of this amount, 11 billion euros were used to ensure the deployment of advanced semiconductor tools, prototyping test lines, and the development of new equipment for testing and experimentation.
By 2030, in addition to the 30 billion euros of public investment that plans to support existing semiconductor research and innovation projects, the EU will add 15 billion euros of public and private investment, totaling about 45 billion euros, to support chip production, pilot projects and start-ups, and most importantly, the construction of large chip manufacturing plants.
Looking closely at the US-Eun Bill, the key word in the whole content is chip production.
All-round input: the trend of free competition has changed
The establishment of advanced fabs is the key to reviving the chip manufacturing industry, but both the US Senate and the House of Representatives and the European bill only provide guiding principles, including approval standards, procedures, etc. To learn more about fab policy, go back to earlier bills.
In June 2020, the U.S. Senate introduced two bills, the CHIPS for America Act and the American Foundries Act. Many of the contents of these two bills are also the main basis for the chip manufacturing part of the future US Senate and House of Representatives Act.
The U.S. Wafer Industries Act proposes to authorize $25 billion of federal investment in U.S. chip manufacturing. Specifically, it includes:
1Each state receives up to $3 billion in federal funding to attract a semiconductor company to build foundries and facilities for all supporting processes, including training.
2 Under the Defense Advanced Research Projects Agency's (DARPA) Electronics Renaissance Initiative, it plans to invest $2 billion in microelectronics research in 2021, $15 billion to the National Science Foundation, $12.5 billion to the Department of Energy, and $2.5 billion to the National Institute of Standards and Technology, which will remain the same as of September 30, 2031.
3 Draft a national microelectronics research and development plan under the coordination of the President's National Council for Science and Technology, with input from the Industry Advisory Committee.
The "Act on Creating Effective Incentives for Semiconductor Production" is the "CHIPS Act" mentioned above, and its main contents include:
1 Amend the Internal Revenue Code of 1986 to provide tax credits for investments in semiconductor equipment, manufacturing facilities, equipment leasing, etc. during the tax year. The bill will provide an income tax credit for investments in semiconductor equipment and manufacturing facilities that are in place by the end of 2026, with the proportion of the investment tax credit decreasing on an annual basis and exiting completely by 2027.
2 Authorizes the U.S. Department of Commerce to establish a federal matching program for state and local government semiconductor incentives. The federal government grants subsidies up to the state and local governments to grant corporate semiconductor investment tax incentives (such as incentives or reductions for employment taxes or payroll taxes, or tax relief for individuals or immovable properties), labor-related incentives (including subsidy agreements related to labor training or occupations), subsidies for real estate such as land, etc., up to the amount of subsidies granted by the state and local governments.
The bill also establishes a fiscal trust fund, with treasury departments allocating no more than $10 billion per fiscal year to provide federal matching funding.
3 The Department of Commerce, through the National Institute of Standards and Technology (NIST), conducts a semiconductor R&D investment program to strengthen basic research into the design, development, and manufacturing capabilities of next-generation microelectronics and ensure U.S. competitiveness and leadership in the field. Among them, advanced processes for transistors of 3 nanometers and above will provide $10 million in funding each year between fiscal years 2021 and 2025.
The makers of these two bills and many people in the United States believe that the United States has not provided subsidies for chip manufacturing companies like South Korea and Japan before, which makes American semiconductor companies in an unequal position in international competition. Therefore, measures such as government direct investment, low-interest loans, and tax rebates also appear in the US bill.
The European act also aims to guide investment in the establishment of fabs. To attract such investment, the proposed regulation defines two types of facilities, namely "open EU fabs", i.e. facilities that design and produce components primarily for other industrial players, and "integrated production facilities", i.e. plants designed and produced to serve the European market. Such a facility must be a "first" in Europe, and its operators should commit to continuing to invest in innovation in the EU semiconductor industry.
The European bill gives the green light to both types of fab construction, allowing them to obtain fast-track licenses for facility construction and operation in member states, giving priority access to the proposed European chip pilot production line under certain conditions. At the same time, Member States may provide public support to such facilities without prejudice to national aid rules. The Commission will consider the positive impact of such facilities on the European ecosystem in the relevant national assistance assessments.
In addition to using industrial policy in the memory war with Japan, the US and European governments have always pursued a strategy of free competition for the semiconductor industry. But the introduction of this chip bill marks that the wind direction has changed.
Zhu Jing, deputy secretary-general of the Beijing Semiconductor Industry Association, believes that the state-led integrated circuit industry policy and financial support has not been the main practice of the United States, and the introduction of the chip bill indicates that the position of the United States and Europe in the integrated circuit industry policy has been strengthened, reflecting the deep change in the role of the government, and the impact of this change is greater than that of the specific amount of support.
Semiconductor industry expert Mo Dakang pointed out that the globalized industrial chain has a huge role in promoting the progress of the semiconductor industry and should continue. The United States and Europe, on the grounds of national security, are moving against globalization, believing that even if they maintain it for a period of time, they will eventually return to the path of globalization, because this is the most efficient path.
Controversy and Implications: Disrupting the Global Chip Supply?
On February 8, European Commission President von der Leyen speaks at the European Commission's headquarters in Brussels, Belgium, on the EU's Chip Act. Image source: Xinhua News Agency
The chip bill in the United States and Europe is still in the early moments of its birth, but there are already controversies. The doubts mainly focus on whether the subsidy funds are sufficient and how to allocate them, and whether they will have an impact on the balance of production capacity.
U.S. chip law is about to invest $52 billion, and lawmakers argued at the meeting that the money would build 7 to 10 new fabs in the United States. Europe will invest 45 billion euros ($49 billion) in the goal of building 4 to 5 fabs. The reality is that TSMC will invest $12 billion to build a factory in the United States, and Samsung will invest $17 billion to build a factory in the United States. Even a plant with a 28nm process would cost $6 billion. The U.S. Chip Act also stipulates that private companies and public agencies or consortiums of both can only submit federal subsidy applications of up to $3 billion to the Secretary of Commerce unless approved by the Secretary of Commerce in consultation with other federal stakeholders.
Sheng Linghai, vice president of semiconductor research institute Gartner, said that the allocation of subsidy funds will be a very challenging task, which will test the judgment and coordination ability of executors, and if the subsidy funds are limited to $3 billion, it will be difficult to play a real incentive role, especially for advanced process fabs. He also pointed out that the United States and Europe should strive to build a balanced semiconductor partnership to ensure the continuity of supply, but due to different interests, it is difficult for the two sides to coordinate on subsidies.
Another point of contention is the capacity aspect. According to market research firm Counterpoint, with the support of chips funding, the U.S. market share will rise from 18% to 24% from 2021 to 2027, while also driving an average wafer capacity increase of 21% at process nodes of 10nm and below worldwide. The question ensues, will this disrupt the global chip capacity supply relationship?
Zhu Jing believes that it is unlikely, "The US-EU chip bill is currently more hoping to reshape technical sovereignty through industrial policy, in order to revitalize the leadership position in the field of integrated circuit manufacturing, more to release signals and influence on the industry and enterprises, and it cannot reach the extent that it will affect the supply relationship of chip production capacity." ”
In addition, in order to achieve the original intention of the chip bill, the United States and Europe must consider more issues in addition to building more fabs. For example, the semiconductor industry must be rigorously optimized for efficiency, because elasticity and efficiency are not always opposed to each other. More importantly, fabs alone are not enough, and a semiconductor supply chain must be established to prevent the lack of stock of other components and the resulting unsmooth operations.
However, it is still necessary to see that the US-Eu chip bill also has something worth learning. Zhu Jing pointed out: "The chip bill of the United States and Europe enlightens us to further improve the accuracy and pertinence of industrial policy formulation, strengthen the coordination and cooperation between departments in policy formulation, and improve the coordination mechanism of industrial policy tools, so as to enhance the implementation effect of industrial policy." (Proofreading/Andrew)