Analysis: How idled car factories super-charged a push for U.S. chip
subsidies
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[February 27, 2021] By
Stephen Nellis
(Reuters) - When President Joe Biden on
Wednesday stood at a lectern holding a microchip and pledged to support
$37 billion in federal subsidies for American semiconductor
manufacturing, it marked a political breakthrough that happened much
more quickly than industry insiders had expected.
For years, chip industry executives and U.S. government officials have
been concerned about the slow drift of costly chip factories to Taiwan
and Korea. While major American companies such as Qualcomm Inc and
Nvidia Corp dominate their fields, they depend on factories abroad to
build the chips they design.
As tensions with China heated up last year, U.S. lawmakers authorized
manufacturing subsidies as part of an annual military spending bill due
to concerns that depending on foreign factories for advanced chips posed
national security risks. Yet funding for the subsidies was not
guaranteed.
Then came the auto-chip crunch. Ford Motor Co said a lack of chips could
slash a fifth of its first-quarter production and General Motors Co cut
output across North America.
"It brings home very clearly the message that the semiconductor is
really a critical component in a lot of the end products we take for
granted," said Mike Rosa, head of strategic and technical marketing for
a group within semiconductor manufacturing toolmaker Applied Materials
Inc that sells tools to automotive chip factories.
Within weeks, automakers joined chip companies calling for chip factory
subsidies, and U.S. Senate Majority Leader Chuck Schumer and President
Biden both pledged to fight for funding.
Industry backers now aim to be part of a package of legislation to
counter China that Schumer hopes to bring to the Senate floor this
spring. Still, all agree it will do little to solve the immediate
auto-chip problem.
Headlines about idled car plants resonated with the public that had
shrugged off abstract warnings in the past, said Jim Lewis, a senior
fellow at the Center for Strategic and International Studies. Lawmakers,
already worried that a promised infrastructure bill will not materialize
this year, decided to push for quick solution.
"Nobody wants to be seen as soft on China. No one wants to tell the Ford
workers in their district, 'Sorry, can't help,'" Lewis said. "It was one
of those moments where everything aligned."
The package includes matching funds for state and local chip-plant
subsidies, a provision likely to heat up competition among states
including Texas and Arizona to host big new chip plants that can cost as
much as $20 billion.
[to top of second column] |
President Joe Biden delivers holds a semiconductor chip as he speaks
prior to signing an executive order, aimed at addressing a global
semiconductor chip shortage, in the State Dining Room at the White
House in Washington, U.S., February 24, 2021. REUTERS/Jonathan Ernst
The subsidies could benefit a factory in Arizona proposed by Taiwan
Semiconductor Manufacturing Co and one in Texas eyed by Samsung Electronics Co
Ltd, even though those factories would be geared toward high-end chips for
smartphones and laptops, rather than simpler auto chips. And those factories
would not come on line until 2023 or 2024, according to plans disclosed by the
companies, the world's two largest chip manufacturers.
In the longer term, a raft of U.S. companies are also poised to benefit. Any
chipmakers that build factories will source many tools from American companies
such as Applied, Lam Research Corp and KLA Corp.
Intel Corp, Micron Technology Inc and GlobalFoundries - which already have U.S.
factory networks - will also likely benefit.
Smaller, specialty chip factories also could benefit.
“The recent chip shortage in the automotive industry has highlighted the need to
strengthen the microelectronics supply chain in the U.S.," said Thomas Sonderman,
chief executive of SkyWater Technology, a Minnesota-based chipmaker that makes
automotive and defense chips. "We believe that SkyWater is uniquely positioned
due to our differentiated business model and status as a U.S.- owned and U.S.-
operated pure play semiconductor contract manufacturer."
Even with subsidies, the U.S. companies still must compete with low-cost Asian
vendors over the long run, and the immediate auto chip troubles will probably
persist.
Surya Iyer, a vice president at Minnesota-based Polar Semiconductor, which makes
chips for automakers, said his factory is booked beyond capacity and has started
to speed some orders up while slowing others down, to meet automakers' needs as
best it can.
"We are expecting this level of demand to continue at least for the next 12
months, maybe even longer," he said.
(This story adds attribution to quote in paragraph 9, adds dropped words in
paragraphs 10 and 17)
(Reporting by Stephen Nellis and Hyunjoo Jin in San Francisco and Alexandra
Alper in Washington. Editing by Jonathan Weber and David Gregorio)
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