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U.S. Chip Industry Urges Federal Aid for Chip Design, Too

Dec. 9, 2022
The U.S. risks losing its leadership in chip design unless the country commits to more federal aid, a top industry group warned.

The U.S. risks losing its leadership in the realm of semiconductor design unless it commits tens of billions of dollars in subsidies to the cause, according to a new report by a U.S. chip industry trade group.

In a report released with the Boston Consulting Group last month, the Semiconductor Industry Association (SIA) urged the U.S. to invest roughly $20 billion to $30 billion in chip design and research and development (R&D) by 2030.

That would be on top of the approximately $52 billion in subsidies passed by Congress earlier this year as part of the CHIPS and Science Act to help rebuild fabs on U.S. soil and boost U.S. competitiveness with China. 

Leadership at Risk

The U.S. has long been the global leader in the chip design realm, with fabless chip companies such as Qualcomm, Broadcom, NVIDIA, and AMD and integrated device manufacturers like Intel contributing to its prestige.

Top U.S. technology companies, including Apple, Microsoft, Google, and Amazon, are investing aggressively in their in-house chip designs. U.S. auto makers Ford and GM are also becoming more serious about chips.

The U.S. has built-in advantages when it comes to chip design, including being home to the world's best universities and a highly skilled workforce. In addition, it's home to the leading players in electronic design automation (EDA) software.

But the report warns that the U.S.'s share of chip designU.S.'sed revenue has been slipping in recent years, falling from more than 50% in 2015 to 46% in 2020. But if the U.S. government fails to act, that figure could fall to 36% by the end of this decade, the report said.

Federal funding would give a boost to the research budgets of U.S. chip companies, which last year alone spent more than $44 billion on R&D, according to estimates by market research firm TechInsights.

While the U.S. chip industry spends more on R&D than any other region, investments made by the U.S. government currently amount to a mere 13% of the country's total spending at a time when designing a modern chip is becoming vastly more complex and expensive. That puts the U.S. behind the likes of China, Europe, and South Korea, which are investing on the order of 30%, helping chip designers there gain market share over U.S. rivals.

A $30 Billion Petition

The U.S. lost its leadership in semiconductor manufacturing long ago, both in terms of quality and quantity.

A separate report released in 2020 and frequently cited by the SIA revealed that America's share of global chip manufacturing capacity declined to only slightly more than 10% by 2020, down from 37% in 1990.

The U.S. government has made it its mission to lure more high-end chip-making capabilities and production capacity to its shores in recent years, as it seeks to reduce its dependence on countries like Taiwan, which makes most of the world's advanced chips. U.S. companies dogged by the global chip shortage also want to evade further disruptions of the sort caused by the pandemic. As a result, they are keen to see more of the electronics supply chain replicated in the U.S.

Reshoring more fabs could also help the U.S. hedge against future geopolitical instability, especially in the event China invades Taiwan and takes control of its chip-making facilities, and create more domestic manufacturing jobs.

These factors pushed the U.S. to approve more than $50 billion in federal subsidies from the CHIPS and Science Act in July to fund the construction of fabs on U.S. soil, such as Intel's future manufacturing site in Ohio.

While the new law will dole out $39 billion in manufacturing grants to build new chip fabs and $13 billion to fund R&D programs, none of the funding is tagged explicitly for chip design, the SIA pointed out.

To stop the U.S. from ceding its leadership in the long run, the report argues in favor of investing as much as $30 billion on chip design through 2030, with up to $20 billion consisting of tax incentives, aligning U.S. spending with other nations.

U.S. chip giants are also keen for the country to step up its spending on workforce training to help create a rich talent pipeline for the semiconductor industry. The report estimates the U.S. will be short 23,000 chip designers by 2030.

The report calls for some of the funds it's proposing to support a public-private collaboration to encourage U.S. workers to enter the field of chip design and to encourage experienced designers not to leave the field in the first place.

The Future's Unclear

While the U.S. chip industry has a sense of urgency about reinforcing its leadership in chip design, it's unclear whether the companies that stand to benefit most from the proposed funding have any political capital left.

Qualcomm, NVIDIA, and AMD all reportedly pushed for the U.S. to expand the tax credits created by the CHIPS and Science Act so that both chip designers and manufacturers qualify. But they failed to get what they wanted.

As a result, it could be an uphill battle for U.S. chip makers, which are lately struggling with a slump in demand due to the weakening state of the global economy, to persuade politicians to invest even more in their sector.

Matt Johnson, chair of the Semiconductor Industry Association and CEO of Silicon Labs, said it makes sense to increase federal aid to chip designers, given the importance of chips to virtually every sector of the economy.

"Building on the momentum from the recent enactment of the CHIPS and Science Act to strengthen domestic semiconductor manufacturing and research, leaders in Washington should increase focus on maintaining and even extending our semiconductor design leadership that is so fundamental to our country's future," he said.

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