OM in the News: The Battle for Chip Manufacturers

A Taiwan-based company plans to build a $5 billion factory in Texas to make silicon wafers used in semiconductors, but the deal hinges on financial incentives bogged down in Congress.

GlobalWafers said its planned factory in would be the first U.S. silicon wafer-facility in more than two decades and create as many as 1,500 jobs, as well as helping fuel the expansion of the U.S. chip-making industry. But the firm said the plant will require financial incentives included in the Chips Act, which is aimed at increasing chip production in the U.S. “If the Chips Act is not passed, we have to pivot to South Korea, as costs there would be substantially less,” said the CEO. (The Chips Act would provide $52 billion to build up the U.S. semiconductor industry).

South Korea, Japan and members of the E.U. are all offering hefty subsidies to ensure stable supplies of chips that power consumer, industrial and military products amid a global shortage, reports The Wall Street Journal (June 27, 2022). 

The GlobalWafers plant in Texas would contribute to a U.S. effort to boost domestic production of advanced semiconductors and reduce reliance on imports by supplying materials to companies such as Intel and Taiwan Semiconductor (TMSC). These leading semiconductor manufacturers have pledged significant investments in new U.S. factories to make chips to meet strong demand, and to relieve shortages that have disrupted production of a range of products, including automobiles.

The existing U.S. manufacturing capacity of silicon wafers will be able to supply only 20% of the estimated domestic demand by 2025, and the wafers won’t be suitable for some of the advanced chips planned to be manufactured at the new production facilities currently being built by Intel, TSMC and Samsung. Most advanced semiconductors, as well as silicon wafers, are manufactured in Northeast Asia. In 2021, 92% of the world supply of advanced semiconductors came from one company, TSMC.

The U.S. share of the global semiconductor market has fallen to 10%-12% from 40% previously. “In search of cheap labor, we’ve watched a lot of our manufacturing leave our shores,” said the U.S. Commerce Secretary. “As a result, the lack of chip production in the United States is hurting our economy and also our national security.”

Classroom discussion questions:

1. Why is this an important OM issue?
2. What might happen if the Chips Act fails to pass Congress?