DARK MODE
Research Themes
May 2021

The Changing Semiconductor Landscape

Recent nationalization trends and the global pandemic have prompted governments to focus on expanding their investment in semiconductor manufacturing to secure supply chains and protect national security. In her recent report, Citi’s Semiconductor analyst, Amanda Scarnati, discusses this topic and the resultant push for more domestic semiconductor capacity. We summarize the key takeaways, particularly as relates to the United States.
Citi Global Insights

As Citi’s Amanda Scarnati highlights in her report, each decade of semiconductor growth historically has tended to focus on a specific country entering and often dominating the market. These positions have typically been achieved as a result of factors such as a technological developments (e.g., memory) or flexibility in production (e.g., foundry) – see Figure 1.

  • In the 1970s, the United States dominated the semiconductor industry.
  • In the 1980s, Japan moved to the forefront as PC growth drove memory demand.
  • In the 1990s, Korea rose to prominence in the industry as large-scale memory production began.
  • In the 2000s, Taiwan burst onto the scene as high-mix foundries and fast ramps became more important.
  • In the 2010s, China dominated with a significant increase in the number of greenfield fabs across multiple locations in Mainland China. Growth also continued to be driven by projects across various device types (foundry/logic, memory, analog, and discrete architectures) at hubs in Taiwan and Korea.
  • In the 2020s, with rising nationalization and supply shortages from the pandemic, governments globally (including in the US, Europe, China, and Japan) are increasingly focusing on investments in semiconductor manufacturing to secure supply chains, limit “brain drain,” and protect national security – notably via shoring up or building more domestic capacity.

Figure 1. Geographic Breakdown of Semiconductor Sales by Decade

CIRACHART

Source: KLA Corp

 

Concern about the United States’ decreased competitiveness in and share of the semiconductor industry actually has been brewing for years.

  • In January 2017, President Obama’s Council of Advisors on Science and Technology found that Chinese semiconductor policy “threatens the competitiveness of the US industry and the national and global benefits it brings.” It further warned that in order “to maintain a strong and globally competitive semiconductor industry, the US needs an economic and policy environment that fosters innovation and keeps the US industry at the technological frontier.”
  • In 2018, President Trump authorized a review of China’s trade practices to determine what actions the US could take to protect its technology, intellectual property (IP), and market position. The review led the Trump administration to blacklist Huawei and put licensing requirements on the sale of equipment and materials to SMIC, China’s largest foundry.
  • Now, in 2021, President Biden is proposing $50 billion in his infrastructure spending plan to promote and support the semiconductor industry in the United States. A goal of the Biden plan is to help make US fabs more competitive globally by making them less expensive to own and operate. The funding would include incentives for production and R&D and the creation of a National Semiconductor Technology Center. As Amanda notes, although there is bipartisan support for subsidizing the semiconductor industry, the bill has yet to reach Congress, and multiple iterations are likely during the negotiation process – leaving the exact amount and uses of potential semiconductor subsidies uncertain at this time.

United States Has Moved from Dominant in Semiconductors to Too Expensive

From being dominant in the 1970s, the United States now has only a 12% share of global semiconductor manufacturing and accounts for 28% of leading-edge manufacturing. As Amanda notes, although the United States ranks well in terms of access to talent and security of IP, it is more expensive to do business in the United States given higher labor and infrastructure costs and lower government incentives. She adds that the total cost of ownership of a fab in the United States over a ten-year time frame is 25-50% greater than in other countries, with as much as 70% of that gap due to lower government incentives (see Figure 2).

Figure 2. Total Cost of Ownership of a New Fab

Source: Semiconductor Industry Association (SIA)

 

More Needs to Be Done in the United States to Close the Gap

Amanda notes that equipment makers are already beneficiaries of the US “Chips Act” (Creating Helpful Incentives to Produce Semiconductors for America, part of the National Defense Authorization Act of late 2020) and various other global government programs. These programs offer cash and incentives to semiconductor companies to help them regain their manufacturing lead, increase inventory to avoid supply shortages, and expand domestic manufacturing capabilities. Rebuilt domestic capacity could, over time, help alleviate supply chain constraints, which have been spotlighted and exacerbated by the pandemic. Moreover, and importantly, Amanda highlights that these local supplies would allow for domestic production of semiconductors for critical defense and infrastructure applications and help to alleviate concerns about IP leakage and national security. However, more needs to be done to achieve these goals in the United States and close the gap between it and other countries.

 

For more information on this subject, please see United States Semiconductor Equipment: Government Incentives Change the Semi Landscape.

 

Citi Global Insights (CGI) is Citi’s premier non-independent thought leadership curation. It is not investment research; however, it may contain thematic content previously expressed in an Independent Research report. For the full CGI disclosure, click here.

 

Get in touch
If you need further assistance, Contact Us.

Why cookies on the Citi ICG website ?

This website uses cookies to give you the best user experience by personalizing your content and analyzing traffic. Without cookies, the site won't function as expected . If you want to learn more please read our Privacy policy.