American Chipmakers Innovate While Congress Debates Subsidizing Them

By Scott Lincicome of Cato.

"The Senate this week has begun considering the “The United States Innovation and Competition Act of 2021,” which — among many other things — appropriates $52 billion in subsidies for U.S. semiconductor manufacturing facilities and research and development. The stated justification for the bill, according to the fact sheet that accompanied the legislation, is “to encourage the development of domestic semiconductor manufacturing capabilities and ensure the U.S. stay on the cutting‐​edge of the industry with R&D” and to counter China, which is “aggressively investing over $150 billion in semiconductor manufacturing so they can control this key technology.” As I’ve written here previously, there’s little evidence that cash‐​rich chipmakers need taxpayer money (by their own admission); that the current chip shortage will be solved by industrial policy; that U.S. semiconductor R&D or capital expenditures are suffering; or that China — whose industry is years behind global leaders (including U.S.-based Intel) — is a major commercial threat.

And, leaving aside the not‐​insignificant fact that the proposed subsidies do not actually target “cutting‐​edge” R&D, several recent headlines reinforce the aforementioned points:

“Despite Chip Shortage, Chip Innovation Is Booming”

Perhaps most striking, what was a trickle of new chip companies is now approaching a flood. Equity investors for years viewed semiconductor companies as too costly to set up, but in 2020 plowed more than $12 billion into 407 chip‐​related companies, according to CB Insights.

Though a tiny fraction of all venture capital investments, that was more than double what the industry received in 2019 and eight times the total for 2016. Synopsys is tracking more than 200 start‐​ups designing chips for artificial intelligence, the ultrahot technology powering everything from smart speakers to self‐​driving cars.

Cerebras, a start‐​up that sells massive artificial‐​intelligence processors that span an entire silicon wafer, for example, has attracted more than $475 million. Groq, a start‐​up whose chief executive previously helped design an artificial‐​intelligence chip for Google, has raised $367 million.

“It’s a bloody miracle,” said Jim Keller, a veteran chip designer whose résumé includes stints at Apple, Tesla and Intel and who now works at the A.I. chip start‐​up Tenstorrent. “Ten years ago you couldn’t do a hardware start‐​up.”

“IBM says it has created the world’s smallest and most powerful microchip”

On Thursday, IBM announced it has created a 2‐​nanometer chip, the smallest, most powerful microchip yet developed.

Most computer chips powering devices today use 10‐​nanometer or 7‐​nanometer process technology, with some manufacturers producing 5‐​nanometer chips. The lower numbers denote smaller, more advanced processors. IBM’s new chip uses 2‐​nanometer process technology, a huge leap forward for the components used to power everything from consumers’ smart phones and appliances to supercomputers and transportation equipment.

“There are not many technologies or technological breakthroughs that end up lifting all boats,” director of IBM Research Dario Gil said in an interview. “This is an example of one.”

“China’s progress in advanced semiconductor technology slows”

China is facing delays in miniaturizing semiconductors. In a Nikkei survey, most of the seven major Chinese semiconductor manufacturing equipment makers that responded said their mainstay products were those for making 14 nanometer to 28 nm chips, which are two or three generations behind the world’s advanced chips. Some said even older generation machines were their main products.…

U.S. research firm IC Insights in January predicted that China’s self‐​sufficiency ratio for semiconductors would be only 19.4% in 2025. This was a slight downward correction after the firm in 2020 predicted the ratio would rise to 20.7% by 2024. It also noted that over half of the ratio was accounted for by mainland China units of overseas manufacturers, such as Taiwan Semiconductor Manufacturing (TSMC), and South Korea’s SK Hynix and Samsung Electronics, with the self‐​sufficiency ratio that involves only Chinese manufacturers estimated at around 10%.

China’s government under Xi had put large amounts of subsidies into semiconductor projects across the country until 2020, but the results of the funding were limited, with many projects failing. The government now seldom mentions the 70% self‐​sufficiency target laid out in its Made in China 2025 industrial policy.

The “crisis,” it seems, has been averted. Maybe someone should tell Congress."