According to the Center for Strategic & International Studies: “The United States is awakening to the remarkable diminution of its capacity to manufacture semiconductors, an industry that was invented and established in the U.S.” Enter the CHIPS Act.

In the 1970s, the United States dominated 98% of its domestic market for semiconductors and 70% of the international market. Eventually, the U.S. willingly – almost eagerly – in its search for short term profits, exited the semiconductor manufacturing market, outsourcing the fabrication of leading-edge processors, mostly to Asia. The chief beneficiaries of this outsourcing being Taiwan Semiconductor and South Korea based Samsung Electronics.

This manufacturing shift led to a heavy dependence on overseas factories. These factories were non-U.S. owned companies and thus our dependence on a technology critical to our corporations, and the U.S. government, creating national security and technology supply issues. Consider this: the world’s top contract chip manufacturer, TSMC (Taiwan Semiconductor Manufacturing) faces the persistent threat of a Chinese takeover!

If you read the press and construction reports, the CHIPS ACT … and its $52 BILLION investment commitment to the construction of semiconductor manufacturing facilities … would solve the semiconductor manufacturing crisis.

Yet, for all the $52 BILLION allocated in the CHIPS Act for manufacturing grants, is it enough? According to a McKinsey report:

“Building fabs in the United States may also present different challenges than those encountered in other countries. Some projects have already experienced delays, including those related to labor and material shortages. What’s more, volatile prices for raw-material commodities are injecting another element of uncertainty into the construction process.”

Two years after President Biden signed the law, the boost in domestic semiconductor manufacturing is showing signs of picking up but the manufacturing renaissance that the government had hope for has not materialized. The CHIPS Act is not paying for 100% of the projects’ cost. The CHIPS Act money is supplemental and most, if not all, of the CHIPS Act money comes with strings. Let’s look at how we got here!

If the United States loses its competitive edge in the semiconductor industry relative to its competition it will become subservient to that competitor: politically, and most certainly, militarily. Consumer demand within the automotive, data storage and wireless industries predicts aggregate annual growth will average between 6% – 8% a year through 2030. As demand for semiconductors increases, there remains a lack of skilled workers to construct the facilities as well as skilled, specialized engineers.

Even with the present funding and recent construction activity, shortages are anticipated. According to a recent S&P Global

The global semiconductor industry continues to grapple with a deficit in chip fabrication capacity, particularly for mature process nodes ranging from 90 nm to 180 nm. This shortage was somewhat obscured during 2022 and 2023 due to a slowdown in demand. However, the risk of constraints on automotive chip supply is expected to resurface by 2025. Several factors contribute to this looming challenge.

In summary, while the industry has gained valuable insights from pandemic-induced shortages and implemented more robust forecasting and process improvements, some level of disruption is anticipated. The projected shortage in late 2025 may not reach the severity or duration of the previous crisis, but a supply-demand mismatch is likely, especially if there are global demand fluctuations.