Intel’s chip factories aren’t enough to secure a US semiconductor supply chain
Intel announced on Jan. 21 it will spend $20 billion to build two new semiconductor plants in Ohio by 2025, eventually investing in as many as eight chip factories in the state. “Our expectation is that this becomes the largest silicon manufacturing location on the planet,” Intel CEO Pat Gelsinger told Time.
Intel’s efforts are part of a broader push to reshore US semiconductor manufacturing. In 2020, pandemic-related supply chain disruptions created a global chip shortage that disrupted at least 169 industries, but hit the US auto manufacturing especially hard. To avoid a similar crisis in the future, American politicians have been working to entice semiconductor manufacturers to open factories in the US through subsidies and tax breaks. Intel is betting these subsidies will make the new factories a good investment.
Since July, Democrats and Republicans in Congress have been working to revive a stalled bill that would offer $52 billion in federal subsidies for the construction of new semiconductor factories in the US. Ohio senators Rob Portman and Sherrod Brown, in a rare moment of bipartisan consensus, urged their congressional colleagues in a Jan. 7 press release to approve the subsidies quickly to alleviate “an unprecedented shortage of semiconductors, exacerbated by foreign governments luring this sector abroad and US overreliance on overseas production.”
US lawmakers are reportedly looking to ensure that the $52 billion chip factory subsidy becomes law by including it in a funding bill that must pass by Feb. 18 to avoid a government shutdown.
But building a few high-tech semiconductor factories isn’t enough to make America’s chip supply independent from foreign manufacturing. For that, the US would have to reshore an entire semiconductor supply chain that includes testing and packaging plants, in addition to chip fabrication plants, or “fabs,” like the ones Intel plans to build in Ohio.
The text of the semiconductor subsidy bill, known as the CHIPS Act, allows the government to subsidize any “machinery or equipment that is designed and used to manufacture or process semiconductors,” a broad definition that could encompass testing and packaging plants. But so far, all of the factories Intel, Samsung, and TSMC have said they would build in the US if the CHIPS Act were passed are high-tech fabs.
“If you were only worried about supply security and manufacturing [semiconductors] locally so that automakers don’t get cut off, then you should also be looking at outsourced assembly and tests,” said Harvard Business School professor Willy Shih, who studies semiconductor supply chains. “You should be looking at all the materials that feed the foundries as well.”
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Chip factories are only part of the supply chain
The most complicated and specialized part of semiconductor manufacturing happens in multibillion-dollar chip fabrication plants, or “fabs,” like the ones Intel plans to build in Ohio. There, machines etch microscopic transistors into large, circular silicon wafers that might be a foot (.3 m) in diameter.
The next step is sending those wafers off to testing and packaging plants. There, machines probe each tiny transistor pattern to ensure they’ve been printed correctly. If the transistors are arranged correctly, they get punched out of the wafer and packaged as individual chips that might measure as little as 10 millimeters across, roughly the width of a fingernail.
As a result, getting semiconductors ready for a car, smartphone, or washing machine depends as much on testing and packaging plants as high-tech fabs.
But most of the world’s testing and packaging plants are still in Southeast Asia. Just 3% of global chip packaging happens in North America, primarily California and Texas. Although Intel promises to build new fabs in Ohio, it will still have to ship the bulk of its unfinished chips to labor-intensive packaging operations overseas, which it’s expanding. The region’s low minimum wages—typically four times lower than US minimum wages—means it’s still probably cheaper to test and package American chips overseas. In December, Intel announced plans to build a new $7 billion testing and packaging plant in Malaysia.
“Alright, you’re going to put your factory in Ohio, but you’re still shipping chips to China or Vietnam or Malaysia for packaging, and then they’ve got to come back” to the US to be sold, said Shih. “How much have we really added in resilience there?”
Even so, Shih says there is a benefit to fabricating chip wafers in US factories. “We have neglected that part in the US because it was easier to let the Taiwanese or the Koreans do it,” he said, “and I think there’s a growing realization that actually a lot of innovation happens at that stage.”