European Union, Korea, Japan and maybe in the near future the Middle East such as Saudi Arabia enact CHIPS Acts.
The US government passed the CHIPS and Science Act in 2022, investing billions of dollars to support semiconductor production coming back to the US and incentives for future R&D investments so the USA continues to be a leader in this technology area. This started a wave of other CHIPS acts across the globe from European Union to Japan to Korea. In fact, some semiconductor companies in the UK are putting extreme pressure on the UK government to join the trend or else. Additionally, I read a recent article that Saudi Arabia might join the trend. After all, they have a lot of sand, a basic ingredient for silicon production, so maybe it makes sense.
Figure 1: 1st Match is US CHIPS Act with more countries following
In news articles in the past, many times I have seen the word โarcaneโ used to describe the semiconductor industry, as the technology is so complex for people without an electrical engineering degree, chemical and/or physics degree to fully understand. Let me try a simple explanation. It all starts with taking sand and making a silicon cylinder. The cylinder is then sliced, like lunchmeat at a deli into thin slices, add some chemicals on top (not mayonnaise or mustard ๏) and then expose it to some sophisticated light and you create transistors that can react to electrical stimulus and perform some function. It is truly amazing. Today, the industry can make billions of transistors on a very small piece of silicon, called a die. These billions of transistors are the heart of what enables things like servers that power all the applications we use in the cloud daily for banking, streaming TV shows, etc. The same thing enables us to have mobile phones that have the power of what supercomputers had just a few decades ago. As I said, amazing.
Semiconductor vs Oil
We all understand that technology continues to move and change our lives at a fast pace, but what has happened recently in terms of semiconductors is the recognition of their importance to government entities, and the speed of the reaction is unprecedented. Let me share a little historical perspective. I remember in the 70โs that the US had an oil shortage, and we were in gas lines due to political turmoil in the Middle East that I will not dive into here. Oil was the critical life blood of powering the economy and represented a significant piece of GDP for the US. In the late 70โs the US created the Energy Department with a goal at that time to lead the US to energy independence so we would never have gas lines again. That is how much focus this issue received. Over time, though oil is still very important, it has become less important with the investments in alternative energies of all kinds as we all know.
Within the last couple years due to two main dynamics, the COVID-19 pandemic with its impact on supply chains and the political conflict between the US and China, then the democracies of the world have quickly learned how important this โarcaneโ industry has become. In essence it is replacing oil as the dominant industry for the future in terms of national security, economic growth, prosperity and peace.
Figure 2: Chip industry replacing Oil Industry as most critical
National Security
Letโs take each one of those for a moment. If we look at national security, we can again learn from history that the country with the leading technology wins wars. Rifles beat bow and arrows, naval power had its time in history, then it was airpower โ jets beat propeller planes, and now we are into a world of smart bombs, unmanned drones and cyber-attacks.
It is clear, the country with the leading technology helps support a policy that the US usually follows โ Peace through Strength.
Economic Growth and Prosperity
Technology is a key driver for economic growth. The PC in the 90s opened up a huge software opportunity and created the IT industry, as a couple of examples. Then in the 2000s we have had the evolution of the phone from a mobile calling device to a powerful computer in our hands to shop, get directions and a host of thousands of apps that we use daily. As we go forward we are investing in autonomous cars, AI, VR and more new things that all help drive economic growth, good jobs and opportunities for people. So another reason governments are making investments in the arcane industry.
Peace
Of course, technology like the internet and 5G have enabled an infrastructure that allows communications to flow easily between people anywhere and everywhere on earth. We all hope that communications brings better understanding among people so the world is more peaceful. In some cases it is achieving that goal, but unfortunately other areas are using the technology for non-peaceful ends. Again, the semiconductor industry is the heart of communications today and into the future.
Whatโs Next
The funding and focus for the semiconductor industry is great, but now the focus needs to turn to the โdevil in the detailsโ of how things move forward to achieve the goal of a secure, innovative supply chain. The key detail is capital, and with the government funding and industry funding that is occurring, that detail looks to be in great shape. Next is the labor resources and talent to execute the onshoring and technology advancement the capital spending expects. That area is lacking. Iโll start that discussion with the next few blogs.
