Government Won’t Fix the Semiconductor Shortage

The semiconductor and auto industries will resolve the issue before politicians finish assigning blame.

By T.J. Rodgers. He was founding CEO of Cypress Semiconductor Corporation and is a former chairman of the Semiconductor Industry Association. Excerpts:

"The U.S. has wasted money “solving” the chip problem before. In 1987 the Sematech consortium began spending $500 million in government funds that did zero for the industry. Due to the relentless pace of progress under bare-knuckle competition, Sematech’s Austin, Texas, chip plant, was obsolescent when it opened. The layoffs started in 2002.

Today, the Semiconductor Industry Association is recycling old Sematech-era arguments for pork-barrel funding. It argues the industry is critical to America, and its plants cost a lot of money, but erroneously concludes the government should subsidize it. The semiconductor industry is well off and has a high market valuation, giving it access to cheap capital. More important, “free government money” induces horribly inefficient spending and undeserved payouts to executives and shareholders. I’ve seen it.

Semiconductor industry advocates argue that other countries will take market share if the U.S. government doesn’t help. But the governments of Europe and mainland China have been throwing money at chip companies for decades, and neither has a highly competitive chip industry. China’s biggest chip company, Semiconductor Manufacturing International Corp. , or SMIC, is irrelevant compared with Taiwan’s free-market foundries. Taiwan Semiconductor Manufacturing Co. , TSMC, was founded and run by two veterans of Texas Instruments and competes on a research-and-development budget far smaller than Intel’s . Former President Trump also dealt a near-fatal blow last year to SMIC by preventing the export of advanced U.S. semiconductor equipment to China.

It is true that America has slipped to a 12% market share in semiconductor manufacturing, but it doesn’t follow that firms need government help not to slip further. Around 60 years after the commercialization of the integrated circuit, most chips have become commodities with little strategic value, and their manufacturing has been pushed offshore by relentless demand for lower cost.

These losses aren’t dire. Silicon Valley’s Intel, Advanced Microdevices and Nvidia make state-of-the-art processors; Boise, Idaho-based Micron Technology manufactures advanced memories; and Wilmington, Mass.-based Analog Devices still dominates the market for analog chips. U.S. defense chips aren’t dependent on foreign sources, and TSMC, the winner from Asia, is building a plant in Arizona. More important, the industry has moved into the software age, in which the code that drives the chip is usually more important than the chip itself. The U.S. dominates in software, as Google well knows."