In January 2021, the U.S. Senate passed America’s Helpful Incentives to Manufacture Semiconductors (CHIPS) bill, which, among other things, provides significant tax credits for domestic semiconductor manufacturing and research facilities. The bill will provide $ 52 billion for domestic semiconductor research and foundries over the next several years.
Why is the semiconductor
To understand more about the importance of this law and how the current scarcity of computer chips is affecting our everyday lives, we need to understand why the semiconductor industry is so important. Semiconductors are at the heart of the electronics and computer industries. A shortage of semiconductors directly leads to a shortage of electronic chips that are used in various applications such as computers, cell phones, home appliances, automobiles, healthcare, security, and manufacturing equipment.
As cars become more computerized, it is estimated that the average new car has around 30 to 50 computer processors, while some luxury cars may have more than 100 internal computers. According to the market research company IDC, the auto industry accounts for only 9% of the chip requirement. The auto industry is also one of the hardest hit by chip shortages; This leads to a short supply of new vehicles and high customer demand. Automakers currently offer little or no incentive for the latest models. It’s not uncommon for some car models to sell above MSRP. Research firm JD Power reported that by mid-June 2021, 75% of all vehicles sold in the U.S. were at or above sticker price. This effect also applies to used cars. Edmunds (an online vehicle inventory and information resource) reported that the average used car price was up 27% year over year.
In addition, some used vehicles sell for more than the original sticker price. It may be a good time to sell or trade old cars, but not to buy new ones. The scope of the problem extends to household appliances as most appliances use a computerized user interface and digitized control systems; There is a general shortage of all large devices and of the spare parts for their computer-aided components.
Who dominates the chip market?
The most advanced chip design takes place in the USA. However, the big US tech companies like Apple, Google, AMD, Amazon, Qualcomm, and Nvidia are fabulous companies. They rely heavily on outsourcing the manufacture of their chips to Asian semiconductor foundries such as Taiwan Semiconductor Manufacturing Company (TSMC), the world’s largest chip maker. As more and more US companies become fableless or outsource chip manufacturing, US semiconductor manufacturing has dropped to just 12% of the semiconductor manufacturing market share, as Intel’s CEO Pat Gelsinger reported in an interview with CBS on 60 Minutes. However, Intel remains the world’s largest chip supplier in terms of sales, followed by Samsung and TSMC.
As the chip shortage problem escalated in recent months, Intel allocated a budget of $ 20 billion through 2024 to build two new semiconductor factories in Arizona. In response, TSMC announced that it would increase its investment to $ 30 billion this year. In addition, TSMC began building a $ 12 billion semiconductor factory in Arizona earlier this year. The war not only serves to establish semiconductor foundries, but also to provide cutting-edge technology for chips. According to Moore’s Law, the number of transistors in microchips doubles every two years. Chip manufacturing technology has to constantly evolve in terms of the number of transistors per chip and power consumption. This requires that a significant portion of semiconductor chip manufacturers’ revenue be spent on research and development (R&D). In 2020, IC Insights reported that chipmakers spend 14.2% of their income on R&D investments. The most advanced chip manufacturing technology, the 5 nanometer (nm) process, is now only offered by two companies, TSMC and Samsung.
As technology has advanced, the demand for semiconductor chips continues to outpace supply. Any business can be affected by the chip shortage in one way or another. Chip manufacturers are already on a buying spree to solve this problem. The most critical shortage of chips will decrease by the end of the year, but the problem may not be fully resolved until 2024.
Dr. Mohamed Morsy is an Associate Professor of Electrical Engineering at Texas A&M University-Texarkana.