It’s Time to Build a More Geographically Diverse Supply Chain

By Randhir Thakur

The semiconductor industry is at an inflection point as we face a shortage of chips impacting supply chains around the globe. This comes at a time when industry experts, economists and elected officials are raising concerns about an over-concentration of manufacturing capacity in one region of the world. According to a joint study by the Semiconductor Industry Association and Boston Consulting Group, 75% of global capacity is concentrated in East Asia. At the same time, U.S. companies account for 48% of the world’s chip sales, but U.S.-based fabs account for only 12% of the world’s semiconductor manufacturing. This type of geographical imbalance creates tremendous supply chain risk for components critical to many industries.

Companies benefit from a 25% to 50% cost advantage when establishing factories in Asia, primarily due to government incentives that have driven the current geographical imbalance. Without significantly incentivizing domestic investments in chip manufacturing, the U.S. and European semiconductor industrial base will continue to erode. How governments in the U.S. and Europe respond to the global chip shortage will determine their ability to be a global leader in technology and innovation.

At Intel, we are doing our part to build a more geographically diverse supply chain. We are making significant investments in manufacturing capacity, but more needs to be done by elected leaders to promote a robust U.S. chip manufacturing industry.

At a groundbreaking ceremony today, Intel CEO Pat Gelsinger marked the start of construction on a $20 billion investment to build two new state-of-the-art semiconductor fabrication facilities at our Ocotillo campus in Arizona in the United States. In May, we announced an additional $3.5 billion investment in our New Mexico operations for the manufacturing of advanced semiconductor packaging technologies. These new factories will not only support future demand for Intel’s products, but they will also provide committed capacity for our new foundry business, Intel Foundry Services (IFS).

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With IFS, Intel is opening its fab doors wide to serve the needs of foundry customers around the globe – many of whom are looking for more geographical balance in the semiconductor supply chain. We are also directly supporting the U.S. government’s need for leading-edge integrated circuits that are critical for Department of Defense systems, through our leadership of the Rapid Assured Microelectronics Prototypes - Commercial (RAMP-C) program. When we launched IFS earlier this year, we made our capabilities available to a wider range of partners, including in the U.S. government.

Customers are enthusiastic about these capabilities. And we have plans for continued investments in the United States, but we can’t do it without government partnership to level the playing field. As Congress returns from recess, we urge both chambers to send a bipartisan bill to President Biden aimed at bolstering American competitiveness and investing in advanced semiconductor manufacturing and R&D.

In June, the Senate passed the bipartisan U.S. Innovation and Competition Act (USICA), which includes $52 billion in federal funding for domestic semiconductor manufacturing incentives and R&D programs authorized in the 2021 National Defense Authorization Act. The USICA will boost investment in manufacturing capacity here at home, but also foster an innovation ecosystem and protect a critical supply chain.

Similarly, the House-passed National Science Foundation for the Future Act and Department of Energy Science for the Future Act seek to further U.S. innovation and competitiveness in technology by providing new funding for R&D and scientific discovery. Both House bills provide a welcome focus on boosting research funding for applied science and technology, and education in STEM, but they lack funding provisions to support U.S. manufacturing and the semiconductor industry.

While investments in STEM education and R&D are important for advancing scientific breakthroughs and fostering a strong workforce, we must also work to reduce the risks of over-reliance on one region of the world. That’s why a final, bipartisan competitiveness bill must include funding for domestic semiconductor manufacturing incentives. In combination with investments Intel is making in the U.S. and elsewhere, this will ensure a more resilient and balanced semiconductor supply chain for the entire industry.

Randhir Thakur is the president of Intel Foundry Services.