Chipmakers Petition for Language Change in Funding Bill to Include Mission-Critical DevicesNovember 07, 2020 by Luke James
A bill currently going through Congress which would see semiconductor firms handed an extra $3 billion in funding could do more harm than good if its language isn’t modified, some defense firms have said.
$3 billion. That’s how much semiconductor firms could be offered to build new, U.S.-based fabrication plants in a bid to lure back some of the semiconductor and microelectronics manufacturing that has been outsourced to Asia—China in particular—over the last few decades.
This funding could come in the form of a section in the 2021 National Defense Authorization Act (NDAA) that’s set to be voted on in Congress in the near future, just as soon as agreements have been reached on a final version. This proposed bill is an evolution of the CHIPS for America Act discussed earlier this year.
Heading of the bill. Image used courtesy of Gov Track
But, according to some of the semiconductor companies that build the chips used by the Department of Defense (DoD), there’s one big problem: the bill’s language focuses too much on the bigger picture state-of-the-art commercial chips and not the smaller, more nuanced application-specific, small-order chips that the Pentagon needs to build directed energy weapons.
Diversifying the U.S. Semiconductor Supply Chain
Since the early 90s, industry analysts have noted that the United States’ share of global semiconductor manufacturing has slowed while China’s has risen.
In 1990, the U.S. made 37 percent of the world’s semiconductors, according to the Semiconductor Industry Association (SIA). Today, it sits at around 12 percent and this is expected to drop to 10 percent by 2030. In contrast, 77 percent of chips are likely to be produced in Asia at this time, primarily in China and Taiwan, with 24 percent and 21 percent of the share respectively, the SIA report said.
While the U.S. excels in most areas of the semiconductor value chain, one area that has lagged in recent years is domestic manufacturing. Image used courtesy of the Boston Consulting Group (BCG) and the Semiconductor Industry Association (SIA)
The report goes on to say that maintaining domestic manufacturing capabilities is essential to ensure that the U.S. semiconductor industry has a highly-resilient and geographically-diversified supply chain, noting that this is especially true for chips used in U.S. defense systems.
This hasn’t gone unnoticed by the semiconductor industry, which has begun to respond. TSMC, which operates the world’s largest foundry, announced earlier this year that it plans to invest $12 billion to build a new fab in Arizona. Intel has also expressed its interest in working with the DoD to build a new U.S.-based foundry.
“Mission-Critical and Integration-Level Semiconductors”
Now, around a dozen semiconductor companies that specialize in developing chips used by the DoD are lobbying Congress to change the language of the bill so that it includes what it refers to as “mission-critical and integration-level semiconductors” before the bill is finalized.
This addition would shine a light on Pentagon-qualified semiconductor manufacturing and integration, helping to secure a very fragile global supply chain. Without this language, however, the companies say that around 50,000 jobs nationwide could be at stake.
Example of a mission-critical computing chip from Intel, the Itanium processor 9700 series. Image used courtesy of Intel
Despite being included in a defense bill, the $3 billion incentive program is designed to fix the slowing of U.S. semiconductor and microelectronics manufacturing that has been whittled down throughout the last three-or-so decades.
The grants, which are set to be distributed by the Commerce Department, will have a finite amount of funding. Previously, some senators have advocated authorizing $15 billion, however, the final amount is expected to be included in the compromised version of the NDAA.
James Lewis, the director of the Strategic Technologies Program at the Center for Strategic and International Studies, said that the language of the NDAA is meant to “rejuvenate the whole gamut of high-end U.S. semiconductor design and manufacture,” which would give the United States the ability to try and take the high ground of the new global economy.
A Case for the Language Change
By adding more sector-specific language to the semiconductor section of the NDAA, this intent could be watered down as “more firms will be taking a slice out of a single pie.”
“We want to spend money on keeping America as the technological leader in semiconductors,” Lewis said. “The Chinese cannot duplicate what they get from Qualcomm and Intel. They cannot make 5G without America.”
Section of the bill directly relating to semiconductor funding. Image used courtesy of Gov Track
Echoing Lewis, John Costello, the vice president of government affairs for Microchip Technology, acknowledges that it makes financial sense for firms to exit the U.S. market and adopt a fabless outsourced model so that they can go after high-volume commercial applications. Microchip Technology develops circuits for defense and aerospace systems and is part of the group currently lobbying Congress to change the language of the bill.
Other chipmakers admit that reshoring will mean higher costs, but that it’ll also bring greater resilience. Terry Spitzer, CEO of Global Technical Systems, which supplies cybersecurity and security products to the U.S. military, says that manufacturing and integration should come back to the United States.
“Will it cost a little more? It will cost a little more,” he said. “But in the long run, we’ll have those jobs in this country, we’ll have the technology … and we’ll have the secure supply lines.”