U.S. chipmaking ambitions, first disclosed in detail

Editor's note: A few days ago, the United States released the application process for chip subsidies. At the same time, they also released a white paper in which they disclosed their vision for manufacturing, which we excerpt below.

Semiconductors are integral to America's economic and national security, powering our consumer electronics, cars, data centers, critical infrastructure, and nearly every military system. However, while the U.S. remains a global leader in semiconductor design and research and development (R&D), it has lagged behind in manufacturing, currently accounting for only about 10% of global commercial production. Today, none of the most advanced logic and memory chips — the chips that power personal computers, smartphones and supercomputers — are produced on a commercial scale in the United States.

In addition, many elements of the semiconductor supply chain are geographically concentrated, which makes them vulnerable to disruption and endangers the global economy and U.S. national security. In addition, U.S. undercapacity also jeopardizes its technological leadership and long-term global leadership as continued investment in manufacturing technology and related R&D improves technological knowledge and fosters a virtuous cycle of innovation.

In this context, the CHIPS Program Office of the U.S. Department of Commerce issued the first funding opportunity seeking applications for the construction, expansion or modernization of cutting-edge technology front-end, current-generation and mature semiconductor manufacturing commercial facilities, and issued a vision for these projects, covering four aspects: cutting-edge logic, advanced packaging, cutting-edge memory, and mature nodes.

According to the CHIPS Office of Programs, the funds managed by the department represent only a fraction of the investment needed to achieve this vision of success. At the same time, trade-offs are necessary, not every applicant will receive funding, and many projects will not receive as much support as applicants request. In addition, although the CHIPS Program Office is launching its first funding opportunity during a cyclical downturn in the industry, CHIPS funding will not be used as a crutch to help businesses endure temporary downturns. Instead, the CHIPS Program Office will focus on advancing U.S. economic and national security goals.

The CHIPS Program Office is well aware of the scale of the challenges it faces. It will not be easy for the United States to rebuild a highly sophisticated manufacturing industry that has been in decline for decades. Success requires long-term ambition: building a domestic semiconductor ecosystem, revitalizing U.S. manufacturing, and educating the next generation of scientists, engineers, and technicians. To address this challenge, the CHIPS Program Office identified nine cross-cutting themes to guide its implementation, including:

1. Promotion of private investment;

2. Encourage customer needs;

3. Engage with U.S. partners and allies;

4. Build a skilled and diverse workforce;

5. Shorten build time;

6. Reduce costs through innovation;

7. Promote operational security, supply chain security, and cybersecurity at CHIPS-funded facilities;

8. Promote regional economic development and inclusive economic growth;

9. Strengthen guardrails;

Success in these topics will help ensure that CHIPS funding promotes U.S. leadership in chip manufacturing, enhances the stability of the semiconductor supply chain, and promotes U.S. economic and national security.

Cutting-edge logic

America's economic and national security depends on our ability to design and produce cutting-edge logic chips. These advanced chips power our computers, smartphones, servers, and supercomputers. They are increasingly the foundation of U.S. critical infrastructure and military modernization efforts. They are critical to future technologies from artificial intelligence to biotechnology to clean energy.

Today, the commercial production of all leading logic chips takes place in East Asia, but this is a recent development. East Asian chipmakers surpass the U.S. in both process technology (a manufacturing method that allows engineers to fit more transistors and other electronic components onto a single chip) and scale, attracting a broad customer base that supports their continued expansion and innovation. This is partly due to the "pure foundry" business model pioneered by East Asian companies. Unlike integrated equipment manufacturers who design and manufacture their own chips, pure-play foundries manufacture chip designs from a variety of customers on a contract basis. As a result, many U.S. companies have become "fabless," leading the world in semiconductor design, while outsourcing manufacturing to East Asian foundries.

U.S. prowess in chip design is a key commercial and strategic asset, but the decline in U.S. manufacturing — and subsequent geographic concentration — has created supply chain vulnerabilities. It also erodes U.S. technological leadership: Without fabs, it is difficult to build domestic manufacturing technologies that help spur technological innovation in processes and advances related to chip design. A core priority for the CHIPS Program Office is to help the U.S. once again produce state-of-the-art chips at competitive scale on a sustainable basis, either through a foundry-only model or an alternative model that allows companies to manufacture chips at scale. Accordingly, the CHIPS Program Office has set the following objectives:

By the end of the decade, the United States will have at least two new large cutting-edge logic factory clusters. To this end, the CHIPS Planning Office defines a cluster as a geographically compact area with multiple commercial-scale fabs owned and operated by one or more companies; a large, diverse and skilled workforce; Proximity to semiconductor industry suppliers, R&D facilities, public services, and specialized infrastructure such as chemical processing and water treatment facilities.

Given the importance of continued logic chip production capacity in the U.S. and the rapidly changing competitive landscape for advanced logic chip production, there are serious risks in relying on a single cluster. As a result, the CHIPS Program Office wants to focus its leading logic investments on clusters where at least two companies manufacture highly advanced chips in the United States.

Each frontier cluster will have the scale, infrastructure and other competitive advantages to ensure that chipmakers see continued expansion in the U.S. as central to economically attractive and business models, even without future funding from the CHIPS Program Office. The CHIPS Program Office will evaluate applications based on the extent to which the applicant has made a credible business commitment to ongoing private investment in the United States. The CHIPS Program Office will also work to ensure that each U.S. cluster is sized enough to reduce the cost of future capacity expansion, and strongly encourages applicants to explore other innovative ways to reduce costs over the long term.

In addition, the CHIPS Program Office will encourage fabless companies and OEMs to prioritize supply chain security by increasing demand for domestically produced chips.

Workers in the United States will develop and expand the process technology that will underpin future generations of logic chips. Applicants will be required to submit their ongoing reinvestment strategy in the U.S. semiconductor industry, and the CHIPS Program Office will prioritize applicants who have confidence in committing to investing in R&D in the U.S., such as through the construction of domestic R&D fabs or other domestic R&D facilities. R&D in the U.S. will facilitate the shift of new cutting-edge process technologies to high-volume production and signal the chipmaker's interest in investing in the U.S. for the long term.

Each CHIPS Act-funded fab will be supported by an ecosystem of reliable suppliers committed to operating and innovating in the United States. The CHIPS Program Office encourages applicants to take steps to attract relevant suppliers, such as by identifying plans for key suppliers to locate in the same region, identifying infrastructure suppliers that can benefit applicants and materials or manufacturing equipment, or including these suppliers in the applicant's workforce development or R&D commitments. The CHIPS Program Office will also issue separate funding opportunities for materials and manufacturing facility facilities in late spring 2023.

The U.S. Department of Defense and the National Security Department will be able to secure leading-edge logic chip manufacturing in the U.S. commercial production environment. The U.S. military is currently unable to procure cutting-edge chips from homegrown facilities, leaving critical military systems vulnerable to supply disruptions. Therefore, producing security chips in the United States is a strategic priority.

Advanced packaging

Assembly, test, and packaging (ATP) is the final step in semiconductor production. These steps are often performed in specialized facilities and have historically been labor-intensive. Today, most packaging capabilities are located in East and Southeast Asia, where ATP facilities can be located near companies that perform electronics assembly. The U.S. currently has only limited ATP capacity, and this shortage represents a strategic hole, as enhancing front-end manufacturing capacity without investing in packaging would limit supply chain resilience.

The industry divides packaging into two categories: conventional packages and advanced packages. Although the United States must place some conventional packaging onshore for national security purposes, it is generally difficult to establish economically competitive conventional packaging facilities in the United States. For legacy packaging, the CHIPS Program Office will coordinate with other departments and agencies to support ongoing work with allies and partners, including countries in the Americas and countries and regions participating in the Indo-Pacific Economic Prosperity Framework, to ensure global adequacy capabilities and assured supply.

At the same time, the CHIPS Program Office will invest in supporting U.S. leading programs in advanced packaging—a subset of packaging technologies that use new technologies and materials to improve the performance, power, modularity, and/or durability of integrated circuits. Chipmakers are increasingly seeing advances in advanced packaging as key to maintaining a leading edge in logic and memory chip production. In fact, advanced packaging is expected to play an important role in chip development for artificial intelligence, cloud computing and medical applications, as well as many other next-generation technologies.

As a result, the CHIPS Program Office has set the following goals for advanced packaging:

By the end of the century, the United States will have multiple high-volume advanced packaging facilities. Given the importance of advanced packaging to leading-edge logic and memory manufacturing, the CHIPS Program Office encourages applicants to invest in advanced packaging beyond wafer fabrication. The CHIPS Program Office welcomes applications from outsourced assembly and test companies, as well as from integrated equipment manufacturers and foundries with in-house advanced packaging capabilities.

The U.S. will become the global technology leader in commercial-scale advanced packaging for logic and memory chips. The CHIPS R&D office established the National Advanced Packaging Manufacturing Program, which will use some of its funds to drive the rapid development of advanced packaging over the next decade and accelerate progress in strategic industries such as artificial intelligence, cloud computing, and next-generation. The CHIPS Program Office aims to build on this progress by ensuring the latest advanced packaging technologies achieve commercial scale in the United States.

Semiconductors produced by CHIPS-funded fabs will have a variety of packaging service options, including facilities from the United States and other facilities located in different locations outside the relevant countries. In addition, the United States and its allies and partners will greatly reduce the dependence of traditional packaging on countries of concern. Together with state governments, Commerce will work with U.S. allies and partners to help them attract investment in traditional packaging facilities. For applicants seeking funding for front-end manufacturing facilities, the CHIPS Program Office will consider the national security risk of the location of any upstream and downstream steps in the manufacturing process.

Leading-edge memory

Memory chips are an important part of all computing systems, from supercomputers to smartphones, and account for a large portion of the global semiconductor market. While the U.S. was once the leader in memory production, cost competition and market consolidation led most U.S. companies to exit the memory business in the 1980s and 1990s. Most manufacturing — even fabs run by U.S. companies — now takes place in East Asia. As a result, investments in U.S. leading memory production will enhance U.S. technology leadership and geographic advantages to diversify global supply.

Unlike logic chips, memory products are standardized and often interoperable: memory chips from one company can often replace memory chips from another. These features generally increase the resiliency of the memory market, as memory customers are willing to pay a fee for the mainstream market and can usually source their products from any memory producer in the market. Therefore, memory chip manufacturers must compete primarily on price and operate at lower margins compared to logic chip manufacturers. As a result, U.S. memory producers need to be large enough to benefit from the economies of scale enjoyed by larger clusters in East Asia.

The CHIPS Program Office has set the following goals for memory chips:

By the end of the decade, U.S. fabs will be producing high-volume, leading-edge dynamic random access memory (DRAM) chips on economically competitive terms. The CHIPS Program Office welcomes applications from memory companies to build advanced memory capacity in the United States, especially those identifying innovative ways to reduce production costs in the United States. Funding applicants should demonstrate that their U.S. storage facilities are economically competitive and maintained through ongoing upgrades after the end of the CHIPS Incentive Program, and the CHIPS Program Office encourages applicants to explore innovative ways to reduce costs over the long term.

Research and development of next-generation memory technologies critical to supercomputing and other applications will take place in the United States. DRAM will be key to supercomputing and other advanced technologies. In addition, with innovations in advanced packaging technologies, memory and logic technologies will work together to enable advanced computing, and eventually logic and memory functions will be more deeply integrated on a single or co-packaged chip.

Current generation and mature node semiconductors

The resilient supply of current-generation and mature node chips is critical to U.S. economic and national security. These chips are widely used in modern technologies, including automotive, aerospace and defense systems, medical devices, and critical infrastructure. But over the past few years, the COVID-19 pandemic and related economic impacts have exposed the potential vulnerabilities of these supply chains. Between 2020 and 2021, demand for semiconductors related to computing, communications, and consumer and industrial goods skyrocketed. As the industry struggles to increase supply, the resulting shortages exacerbate ongoing supply-demand imbalances and lead to delays in the production of a range of goods, including automobiles and medical devices.

While COVID-19 is unprecedented, it has revealed structural issues in semiconductor supply chain management that will persist unless aggressively addressed. Upstream and downstream companies of chipmakers often have limited knowledge of their supply chains, often only their direct customers and suppliers. Procurement typically involves the use of third-party distributors and short-term purchase contracts. These characteristics make it difficult for companies to assess supply chain risks and diagnose and address shortages when they arise. In addition, current generation and mature node production is very geographically concentrated, East Asia accounts for the majority of global legacy space capacity, and the Chinese government actively subsidizes additional investment in mature node production.

These challenges are further exacerbated by the limited interoperability of chips manufactured by different vendors or manufactured to different specifications. If one chipmaker experiences an unexpected shortage, other chipmakers try to fill the gap. These problems are particularly evident for the long tail of mature process chips used in the defense industrial base.

With these challenges in mind, the CHIPS Program Office will invest in current generation and mature production based on the following objectives:

By the end of the decade, the United States will increase production of current-generation and mature node chips that are most important to the U.S. economy and national security. This includes, for example, certain semiconductors used in automotive, aerospace and defense, medical devices, or other U.S. critical infrastructure sectors. The CHIPS Program Office believes that developing new capacity within the confines of the current generation and mature nodes will advance U.S. economic and national security, and will require applicants seeking project funding at specific nodes to indicate how their proposed approach will advance this goal.

In addition, the CHIPS Program Office encourages applicants to explore innovative ways to reduce costs over the long term. It also plans to engage semiconductor customers, including fabless companies and OEMs, to increase demand for U.S.-origin chips and improve the resilience of its own supply.

The U.S. will increase production of compound semiconductors and other specialty chips and maintain technological leadership. Innovation in semiconductor manufacturing is not limited to reducing the size of features on logic and memory chips. For example, semiconductors made from composites such as silicon carbide or gallium nitride will increasingly be at the heart of defense applications, electric vehicles, and next-generation communications infrastructure. Specialized process technologies such as silicon on fully depleted insulators are also critical for defense applications, and specialized chips will become key inputs for emerging technologies such as quantum information systems. The CHIPS Program Office does not seek to replace private capital already invested in these technologies, but rather encourages applications for CHIPS funding where appropriate.

The United States will coordinate with allies and partners to ensure resilient production and access to current-generation and mature node chips. The U.S. does not seek to achieve self-sufficiency in chip manufacturing and expects U.S. allies and partners to also increase chip production to reduce the global concentration of chips in the current generation and mature nodes. International coordination will help mitigate the risk of overproduction and fill known gaps in the ecosystem of allies and partners.

Chipmakers will be able to respond more flexibly to supply and demand shocks. If one chipmaker can't meet customer demand, other chipmakers should fill the gap in time to avoid months or years of delays. In evaluating proposals for current generation and mature node facilities, the CHIPS Program Office will consider the extent to which proposed manufacturing processes can be easily converted to produce different types of semiconductors during periods of disruption.

In the eyes of the CHIPS Program Office, they are embarking on a once-in-a-lifetime investment in U.S. industry. This document presents a vision for successfully investing in front-end and back-end manufacturing of leading-edge, current-generation, and mature node semiconductors. It will guide the Commerce Department on how to implement it with an eye toward advancing U.S. economic and national security, enhancing the resilience of global supply chains, and solidifying U.S. leadership in designing and building the technologies that will define our future.