Government Chip Funding Spreads Globally

This is the first in a series of articles tracking government chip investments.

Countries around the world are ramping up investments into their semiconductor industries as part of new or existing schemes. The increased government activity stems from growing awareness of the strategic importance of the chip sector, a desire to avoid a repeat of pandemic-era supply chain issues, and heightened geopolitical tensions, particularly between the U.S. and China. (See below for a table of significant government initiatives.)

Government support takes many forms, including cash injections, subsidies, tax breaks, loans, regulatory easement, advisories, and more. In some cases, each action is part of a broader national plan. In other cases, assistance seems to appear on an ad hoc basis.

For example:

• China launched its chip fund back in 2014 with three planned phases spanning 25 years, and announced $48 billion for phase three in May 2024.
• The Korean government offers all kinds of support, proposing the Yongin semiconductor cluster back in 2019, following through with subsidies and regulatory assistance, then announcing a $19 billion funding package in May 2024.
• Europe launched the New European Industrial Strategy for Electronics back in 2013, the ESCEL Joint Undertaking in 2014, the €100 billion Horizon R&D initiative in 2019, and its €3.3 billion EU Chips Act and CHIPS JU in 2023.
• In the U.S., the $53 billion CHIPS and Science Act in 2022 followed earlier initiatives involving agencies such as the National Institute of Standards and Technology (NIST), which celebrated a 40-year partnership way back in 1998.

“We are seeing unprecedented attention from Europe, Japan, Korea, other places — a recognition that the semiconductor industry is critical for national economic security, not only in the United States, but for themselves and globally,” said a senior U.S. Department of Commerce (DoC) official, speaking on condition of anonymity. “There’s a shared interest in making sure that this industry is vibrant, but also secure and resilient. We are seeing trends of more government involvement and interest in proposals to attract investments in places where they have not had fabs, or major fabs, such as India and other places. But that’s actually not new. That has been around for several years, if not decades, to try to attempt. There are structural and market reasons why that has not yet happened, but we’re noticing a renewed effort.”

Others agree that government funding is having a significant positive impact on regions throughout the global semiconductor ecosystem.

“Both the United States and Europe are looking to become a more prominent source of manufacturing after years of offshoring,” said Todd Younkin, president and CEO of Semiconductor Research Corp. (SRC). [Younkin is also a member of the Chips Act Industrial Advisory Committee, but in this interview was not speaking on behalf of the committee.] “The U.S. is looking at the CHIPS Act to bolster its domestic production and is making good inroads there. Europe is looking to do the same, to double their manufacturing capabilities in the EU and reduce their reliance on other regions. The EU has made some great progress. GlobalFoundries (GF), ASM, and ASML are doing well. The joint venture between TSMC, Bosch, Infineon, and NXP is going well. The EU recently received some bad news, with Intel’s delay of its Magdeburg, Germany facility by two years. However, Intel remains committed to the German facility in time. Spain has a new partnership with imec, and the Iberian Peninsula is gaining some exciting capabilities in packaging with the strategic cooperation between GF and Amkor.”

U.S. and EU progress is mirrored by similar initiatives across Asia.

“In East Asia, Japan, Taiwan and South Korea are trying to figure out what they do really well, and how they can continue to be number one in those areas,” said Younkin. “They are using those strengths to round out their partnerships and reduce their own resilience on other nations. To me, it’s exciting to see TSMC go to Japan, and to see Japan’s higher ambitions for microelectronics, because both nations are an important part of the materials, equipment, and consumer goods landscape.”

One of the key outcomes of the recent spate of government investment is that manufacturing facilities are being built in countries outside of the traditional centers, where countries like Malaysia and Vietnam offering themselves as neutral territory in a bid to win a portion of the enormous global capital expenditure.

“If you look at the capital expenditures of this industry, it is top heavy in terms of both companies that are spending the funds, as well as countries that are receiving those funds, to build out these projects,” said the Commerce official. “The top five companies in terms of CapEx – Intel, TSMC, Samsung, Micron, SK hynix – account for somewhere between 50% and 70% of the of the industry’s CapEx, which ranges somewhere between $130 billion and $860 billion depending on the cyclical nature of the industry. So these companies can dictate where things are built, for the most part. They have traditionally been built in the places where fabs already exist, and there is this inertia to continue to build in these countries, because once you build a fab, then an ecosystem exists around it to make it easier for you to build the next fab. If you want to take a regional approach as to where the CapEx is being spent, then you can add up the United States, Europe, Japan, Korea, Taiwan and China, and they would account for most of the world. There’s some concentration within Europe, as well, with a lot of spending in Germany. And there’s traditionally fabs in places like Italy, but other countries in Europe are interested in expanding. Economies of scales matter, and that’s why it’s so exciting for us to see the CHIPS Act announcements. The economies of scale as well as increased CapEx that we are expecting in the United States is unlike anything we’ve seen in the past few decades. And this is opening up a sea change in the strength of the U.S. ecosystem, but we expect that to benefit the entire world, not just the United States.”

The CHIPS for America program office has a global outlook with a dedicated International Engagements Team. The office also coordinates very closely with other government agencies that have a stake in CHIPS funding, including the U.S. Department of State, which runs the $500 million International Technology Security and Innovation (ITSI) Fund aiming to deepen ties with allies. For example, the State recently partnered with India and Mexico.

Others agree that countries can mutually benefit from the wave of global investments, and that strength comes from interdependence.

“The momentum around the U.S. CHIPS Act is building very well,” said Ajit Manocha, president and CEO of SEMI. “We held SEMICON West in July and had a record number of attendees, and the same goes for SEMICON around the world. The motivation is coming because companies see the growth and opportunities in the industry, and they see that governments are very actively participating in the growth. At SEMICON West, we had about 70 or 80 people from multiple state governments and the federal government – Department of Commerce and State Department – because there’s a lot of interest that the onshoring is happening in U.S. Similarly, onshoring is happening in Europe. Japan and South Korea are very active. India is next in line to be very active. So the momentum is very, very positive, and the government schemes are working around the world.”

National security
U.S.-China geopolitical tension remains a concern as countries forge alliances based on export controls of equipment and critical materials. Overall, there is acceptance that China is a major player in the global supply chain, but security is paramount.

“Countries have to resolve these kinds of issues bilaterally, and if they cannot be resolved bilaterally, the like-minded countries need to get involved,” said Manocha. “At this stage, we are heavily dependent on each other. We need to treat each other as competitors, but not as enemies. The most important thing is that every country must play a fair game. Every country must comply to the international laws for IP protection, national security, cyber security, even economic security. SEMI does not get involved in the politics or with politicians. We only focus on policies, and the policies should be such that they should not create disruptions for the industry. But you cannot compromise on the principles of security.”

Both SEMI’s Manocha and the Commerce Department official agree that end-to-end supply chain self-sufficiency is not the goal for any single country. The global semiconductor industry will remain interconnected for the foreseeable future as regions continue to specialize in certain parts of the supply chain, whether that be test, assembly, manufacturing, packaging, or design.

“The good news is that the way the industry is growing to $1 trillion, it is not only the bleeding-edge technology at 5nm or 2nm,” said SEMI’s Manocha. “There is growth across the board, including the legacy technologies, which are mostly based in Asian countries. If you take the smartphone, maybe 20% of the chips are advanced technologies for GPUs and so on. But 80% are chips that are not on advanced technologies, like sensors and cameras. There’s room for growing every segment of the semiconductor value chain when it comes to the nanometer race, or the specific technologies.”

That said, it is understood that certain products related to defense or critical infrastructure need to be obtained from domestic sources whenever possible.

“There are certain products that require end-to-end capability,” said the Commerce official. “But for the most part, we expect the industry and the supply chain to remain international, and we are not approaching the chips implementation as to create a technology autarchy in the United States. We would like to attract as much semiconductor innovation capability as well as production capacity as possible. We evaluate the economic and national security value depending on what end-uses they serve, and whether we have a gap in that production or not. There’s a team that is solely engaged in international work that recognizes certain products and certain specialized manufacturing will come from our allies, and that they are investing in things that are good for us, and we’re investing in things that are good for them, as well. We have to protect our critical and national security-related technologies. But we’re not out to create a fully sufficient and closed off, walled off technology ecosystem. We recognize that the industry is global and that it is remarkable global supply chains that make it work.”

Research and development
Along with manufacturing, another key focus for government funding is R&D, which SRC’s Younkin said falls into four main buckets — generative AI; smart manufacturing; autonomy and electrification, and cybersecurity.

“Generative AI is driving a wide variety of technologies,” said Younkin. “AI accelerator chips in the form of GPUs, FPGAs, new compute and memory solutions are coming into the market and the pain point is often the software used to program the chips. One of NVIDIA’s competitive elements is their CUDA ecosystem, which allows hundreds of thousands of programmers to unlock the power of their chips. Another example here is high-bandwidth memory, namely HBM 3 and 4. The announced SK hynix investment in West Lafayette, Indiana, will bring additional HBM 3e and 4 manufacturing to America as a key part of that NVIDIA AI acceleration wave.”

The next frontier is smart manufacturing and digital twins.

“If the CHIPS Act in the United States is going to be successful, it must drive more innovative, automated, cost-competitive, and holistic advances in nature,” said Younkin. “So what can we do to digitize the manufacturing processes to provide access for those that are not on the factory floor? How can we use that to train and upskill industry workers so they all have good jobs and exciting roles in this growing industry? And can we use it to keep our speed, yields, and costs at the forefront?”

The third bucket is autonomy and electrification, which includes self-driving cars, aerospace, power electronics, vehicle-to-vehicle, and vehicle-to-human communications, according to Younkin.

“Rad-hard [radiation hardened] systems, which are required for space-based operations, is an additional dynamic that is helping to drive the growth of wide-bandgap semiconductors and announcements such as Infineon’s new 300 millimeter gallium nitride technology,” he said.

Cybersecurity also is drawing significant attention and investment. “This is really a question of how you stay ahead of the hackers, but with growing emphasis on hardware solutions or new secure semiconductor technologies that will protect our critical infrastructure and, what’s under more visible attack, our enterprise and personal data,” said Younkin.

Ultimately, the focus of an R&D project needs to be able to attract funding if it ever wants to see the light of day and make it into practical use.

“Money flow determines where critical mass is achieved and, often, which ideas mature and materialize through the R&D pipeline,” said Younkin. “Fundamental academic research has a goal of publication to the benefit of humanity, and really has very few boundary conditions. That’s not true of all funding arrangements we see. When we look at governments, whether it’s Korea, the U.S. or the EU, they move about 5X slower, or at about 20% of the speed of industry. How they make up for that is by having a longer time horizon with larger objectives and funding that is typically more communal. The primary challenge with international cooperation is that it moves about 10X slower than that. So, you’re looking at ~0.2% of the speed of industry for well-funded international initiatives. Where an organization like SRC or imec is able to move at speed, it is often because we can direct the dollars to the right technology or location, and seek out, not funded partnerships, but joint ventures or partnerships that allow for progress based on independent funding. We can put funds there and move at industry-related speed, rather than be dependent upon the long-time constants that it takes to get first a domestic agenda and then an international agenda off the ground.”

Younkin pointed to EUV lithography, which took 30 years and billions of dollars in investment by hundreds of companies and several nations to achieve. But those outside of industry may have perceived it to be an overnight success.

“The pipeline problem at its heart is a capitalism problem,” he said. “R&D critically depends on where you put the incentives. With different nations structured in different ways, they all have pipelines that can fail at different points and for varied reasons.”

Workforce development
Another key government challenge is to build a talent pipeline to meet current and future needs when the proposed new facilities come online. To that end, governments have been linking up with industry and academia to try and fill the talent gap. For example:

• The U.S. launched its National Semiconductor Technology Center’s Workforce Center of Excellence and the National Science Foundation and Department of Commerce partnered to advance semiconductor workforce development.
• The UK Semiconductor Strategy has three areas of focus — R&D, infrastructure, and skills and talent.
• A key aim of the EU CHIPS Act is to address the skills shortage, attract new talent, and support the emergence of a skilled workforce.
• Japan and U.S. governments launched a workforce development exchange and Japanese universities partnered with New York state universities.
• In Malaysia, the Higher Education Ministry (MOHE) said it will proactively meet the workforce demands of incoming semiconductor investments.
• India partnered with the U.S., Purdue University, and Singapore on the semiconductor ecosystem including workforce development.
• The Vietnam Ministry of Planning and Investment is promoting human resources development for the semiconductor industry until 2030 with a vision to 2050.

Many chip companies also run global workforce initiatives with government partners. One major scheme is Arm’s Global Semiconductor Alliance, supported by Siemens, Cadence, Synopsys, SRC, and others. The Synopsys Academic & Research Alliances (SARA) program also extends worldwide.

“If you go to places where new ecosystems have emerged in terms of fabs or even packaging, and places like Southeast Asia, you’ll see a simultaneous buildup of capacity and factories and fabs, as well as an education and training ecosystem that is able to place workers within those fabs, and we are working towards that, and we fully expect that to happen within the United States as well,” said the Commerce official. “One thing that’s really exciting is our engagement with universities, local economic development agencies, as well as community colleges, to make sure that programs are in place, to place qualified workers within these factories, as well as these R&D ecosystems. And we’re seeing a tremendous amount of response to those things.”

SEMI is leading workforce development efforts on multiple fronts. “I won’t declare victory yet, but I would say there is a strong hope,” said Manocha. “The CHIPS Act and the onshoring will not be successful unless we solve the talent problem. And whether it’s a talent problem or a climate problem, no single company, country, or CEO can solve it. It requires collaboration at the national level, as well as the global level.”

One solution is for an international company that has net workers to send some of its skilled talent to work in a foreign outpost, as seen by TSMC in Arizona. This may become more common, as governments are investing in both domestic and international chip companies.

“It was always normal for multinational companies to bring experts from their country to a new site,” said Manocha. “Delays can happen if the ecosystem is suffering, but the government is very sensitive to support this. SEMI also plays a big role in ecosystem enablement so that we can take the entire value chain of semiconductor companies in different segments to that region, and make sure that we install the company, their shops or service centers, and so on.”

Table of significant government initiatives

Below is a table of high-level government investments and initiatives from selected countries in the global semiconductor ecosystem. This is the first in a series of articles on government investments. Articles focused on 2024 announcements in North America, Europe, and Asia will follow.

[Editor’s note: There is some overlap in funding programs, and while Semiconductor Engineering strives to be thorough, there may be others that are not included. In addition, some programs encompass more than just semiconductors, so the total investment may be different than the totals by adding up all of the different programs.]