Opinion: Politicising semiconductor manufacturing is a global failure

October 08, 2021 // By Nick Flaherty
Opinion: Politicising semiconductor manufacturing is a global failure
Intel's plans for a megafab chip plant in Europe have highlighted the increasingly political risks to the global semiconductor industry in the coming years

There has been some surprise this week that Intel is not looking at the UK to build a megafab.

While this has been put down to Brexit, Intel’s move to boost semiconductor manufacturing only came with the new CEO Pat Gelsinger this year. Prior to his appointment in February, Intel had a fab-lite approach. European production was focussed on Leixlip in Ireland, taking advantage of the lower tax rates in the country.

There were plans to expand that site back in 2019, long after the Brexit referendum and long before the pandemic and the current chip shortages showed the strategic importance of semiconductor manufacturing. Now Galway is in the frame for two fabs on a greenfield site, tapping into potential EU subsidies and the skills base in the country.

But the competition is fierce, with 70 proposals from 10 European countries, for hundreds of billions of dollars of investment. from Intel, TMC and Samsung.

Despite hosting the first office outside California in 1974, Intel has never committed manufacturing to the UK, and the European headquarters later shifted to Munich to serve customers more directly.

The UK also has a history littered with political support for semiconductor fabs. Some got built, such as the NEC plant at Livingston, Scotland, while some took the subsidies but the fabs never materialised, such as the LG plant in Wales and the site ended up making LED TVs instead.

Fujitsu built a DRAM memory fab in Newton Aycliffe, opened to the fanfare of politicians in 1991 and closed in 1998, sold onto Filtronic. That fab has moved from owner to owner since then, and this month saw expansion under the latest owner, photonic component maker II-VI.

While the UK has a strong network of specialist power, analog and RF fabs, the political desire for leading edge technology, however strong, has never been achieved. Championing Inmos as a manufacturer as well as chip designer delivered the Newport fab that was sold onto International Rectifier, Infineon and Nexperia. That deal highlighted Nexperia's Chinese connections and raised security concerns.  

This highlights the gap between market forces and political will that has come into sharp focus during the pandemic and the resulting chip shortage.

Both the US government and the European parliament have pushed ‘chips acts’ aimed at supporting sovereignty in chip production through subsidies. This raises the spectre of a trade war reminiscent of the battle over subsidies for Airbus and Boeing in another strategic market, aerospace.

The recently-formed bilateral Tech Trade Council aims to head off these issues, but still wants to see each region with its own supply chain for key industries.  TSMC is planning to build six fabs at a site in Arizona, and Samsung will announce which of three US sites it has chosen for a new megafab in the next few weeks, and all of these deals will have had significant financial support.

Of course large industries have to live in the real world, and political considerations, including tax rates, always come not play, Ireland has been forced by the rest of the EU to increase its business tax rates to 15 percent, but still remains host to the likes of Intel, Analog Devices, Apple and Facebook.  

But as highly experienced analyst Malcolm Penn of Future Horizons has pointed out in our coverage of the chip shortage, there are more significant geopolitical issues in play. Taiwan produces the vast majority of the world’s chips with a cluster of leading edge fabs sharing resources and boosting skills, but is vulnerable to its large neighbour.

Chinese military aircraft are more regularly entering the ‘air defence zone’ around Taiwan, and this raises questions over the long term control of the supply of semiconductors from the region. This is what is driving the political move to encourage Intel, TSMC and Samsung to build fabs in Europe as well as in the US.

The comments by Pat Gelsinger also come at a time of eye-watering energy prices in the UK, significantly higher than in the EU. As fabs are a large user of energy, that commercial requirement alone would likely have ruled out placing a fab in the UK.

This may not be a bad thing. While political attention has been focussed on the shortages and the impact on the car industry, the semiconductor industry is following its usual cycle with over-capacity predicted for 2023. This is likely to hit chip makers hard and will mean the current ambitious plans will have to be scaled back as the reality of the market bites.

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