The Semiconductor Billions

For the last 25 years, everyone in and around the semiconductor industry has been saying to each other (and I paraphrase here)  

“Hey, we’re awesome, the world depends on us, it’s built on chips, cool, smiley face emoji.”  

For about 23 of those years, they’ve also been saying to each other…  

“Governments and industries don’t value us, the world depends on us, it’s built on chips, sob, sad face with tear emoji.”   

Well, that last bit has all changed.   

The industry has been hitting headlines since early 2020 when COVID set in. The sudden drop in demand and cancellation of many orders led to historically low utilisation rates and reduced capacity. But the semiconductor industry began to pick up again faster than anyone predicted, and rather than one industry at a time (i.e. computers then mobiles then smartphones) driving demand, EVERY INDUSTRY is now driving demand. So suddenly a depleted supply chain was faced with unprecedented demand.     

This has led to a shortage of ICs slowing down the entire global supply chain with the automotive industry being a newsworthy example. Add to this the projections of semiconductors going from 500 billion $ today to a trillion $ in 2030, the perceived threat of ‘embedded’ cyber-attacks or leaks and the cooling to frosty levels of relations between parts of the West and China. This heady mix means that global governments have finally recognised something that the chippies have known for 25 years: semiconductors run the world. 

The European Union is trying to influence the semiconductor industry to shift more into Europe. The President of the European Commission, Ursula von der Leyen, presented the EU Chips Act in February 2022. This Act allows for €15 billion of private and public investments to target semiconductor industry growth in Europe, bolstering an existing €30 billion STEM fund.  

The 5 main areas of focus of the European Chip Act are:   

1. Research and Development to keep up with global competitors   
2. “From the lab to the fab” - working on bridging the gap between excellence in lab research and onshore manufacturing   
3. Industry production increase to meet the EU Commission goal of going from 9% to 20% of global production by 2030  
4. Local Support – The EU Chips Fund will create a more competitive market for semiconductor start-ups   
5. Overhaul the European Supply Chain and build partnerships with the United States and other nations to create a resilient global network.

After her statement, Ursula von der Leyen posted on Twitter that “Europe is the world's centre for semiconductor research. And we are strong in specific sectors, such as chips for cars and for Industry 4.0. But I want us to become a strong player all across the value chain.”   

In India, the demand for semiconductors is over $10 Billion USD. There is a vibrant chip design industry in the country, and the government has a Ministry of Electronics and Information Technology alongside an India Semiconductor Mission (ISM) set up within Digital India Corporation to help “drive India’s strategies for developing semiconductors and display ecosystem. The scheme has been aimed at making India a global electronics hub as a shortage of microchips hurts industrial production.”  

The Minister of Electronics and Information Technology in India organised the country's first semiconductor conference in May 2022 called ‘SemiconIndia 2022’ with the Prime Minister, Narendra Modi, virtually inaugurating the event.  

In April 2022, TSMC announced that they would be building a speciality chip fab in Japan alongside Sony. TSMC is investing up to $44 billion in 2022 to ‘beef up chip production’. From cars to data centres, robust demand for semiconductors will help TSMC grow, the CEO says. There has also been an educational reform towards the 21st century in Japan, with curriculum changes that support manufacturing skills. TSCM, among many others, is also building a new fab in the US. 

Is all this investment a good idea? Of course, it makes a huge amount of sense to invest in a booming industry and all funding is welcome to the semis industry. However, the global rush for everyone to build semiconductor capacity at the same time may not be. Industry analyst and founder of Future Horizons, Malcolm Penn, says 

“It’s basic pig (hog) cycle economics 101.  First, no one has the experience or confidence to believe new capacity is needed, they all seek the reassurance of proof to de-risk the decision, so they all wait until this fact is blindingly obvious, proved beyond reasonable doubt, by which time the problem is really bad, and the need now really desperate, so everyone now, fueled by the ‘safety in numbers’ lemming confidence factor, invests en masse … with the net result everyone’s new capacity comes on line simultaneously, triggering a massive spike in availability and crashing the market.  D’Oh.” 

So there's a risk that some or much future investment could end up being sub-optimal if not deployed sensibly. Is it realistic for the EU to be a 'strong player all across the value chain'? Well, do the maths... 

Skills are the arena in which an investment of millions could result in benefits of billions, in both pounds and Euros. The 'hidden layer' between demand and manufacture is - design. There is a global shortage of IC design skills - a situation that has existed pretty much since the transistor was invented. To gain a global competitive advantage, the UK and EU powers-that-be should do one simple thing: integrate electronics into secondary school curricula. Then, link schools and students to industry practitioners and 'hands-on' resources, and you will grow a generation of electronics engineers that can lead the world in designing cutting-edge products. The tragedy is that many schools are actually scaling back on electronics because of budgetary constraints. An injection of millions could turn that tragedy into triumph and generate billions in tax revenue in the years to come. 

Our next step is to generate documentation to present to the UK Government with UKESF to outline in detail how we could turn millions of investments in the education system into billions in tax revenue.  

Watch this space and if you want to discuss this article with us, please call 0118 988 1150.