There is a tech race going on in most industrialized countries to capture a material part of semiconductor (chip) manufacturing. While Canada has semiconductors top of mind, it hasn’t entered the chip race.
Semiconductors are the life blood of our digital economy. Almost every piece of electronics requires chips – cellular phones, computers, vehicles, appliances. Every sector needs them from manufacturing, energy, aviation, medicine, agriculture, transportation, construction, entertainment and tourism. Annual sales of chips are estimated to grow 6%-10% for the foreseeable future.
The current manufacturing of chips has geopolitical risks, and is considered a national security issue in the U.S. among other reasons because leading-edge manufacturing is concentrated in three countries – Taiwan, South Korea and China - and there is a lack of domestic chip capacity, and guaranteed access to chip supply.
Another risk is tech economic dependency – non-chipmaking economies are economically dependent upon chipmaking countries, losing out on transfers of wealth, economic growth prospects and tech talent.
U.S. Allocates US$250 Billion
You need government money – lots of it – to participate in the chip race.
In recognition of this and national security risks, last week the U.S. Congress passed the US Innovation and Competition Act, allocating US$250 billion to support U.S. innovation and tech. It includes US$52 billion in grants and subsidies for U.S. companies to manufacture chips, another US$24 billion in tax credits, and billions more for R&D. The US$250 billion is meant to
help the U.S. become a chip superpower, be chip self-sufficient, and spur an innovation revolution.
Taiwan, South Korea, China
The three existing chip superpowers excel in different ways but at their core, all operate chip fabrication facilities, called FABs. In Taiwan, one company, TSMC has 90% of the global non-leading-edge chip market and manufactures 92% of leading-edge semiconductors (transistors that are 7 nanometers wide, or less).
The next chip superpower is South Korea. Unlike TSMC which only manufactures chips, Samsung designs and manufactures chips and is consequently, more globally important.
The third chip superpower, China, designs and manufactures chips, and controls 60% of chip ATP (assembly, testing and packaging). ATP is one of the technology frontiers of chipmaking. Transistors have an end point in terms of decreasing size and the demand for smaller transistors carries with it a demand for increased computing power. ATP industrial work concerns itself with how much computing power can be built into smaller transistors.
British Columbia and the Chip Race
So where does all this leave British Columbia?
The prize is to build FABs. In the industry, there is talk of having TSMC build a FAB in another country to reduce its Taiwan foot print. The EU is working to lure TSMC to a member state. One can see why – FABs employ 50,000 people in one facility. There is no reason why British Columbia couldn’t likewise pitch TSMC to relocate.
One FAB costs US$15 billion to build, hence the size of funding in last week’s U.S. bill. In Canada, we would need similar government funding of US$52 billion to become chip relevant.
FABs can’t go just anywhere. They need massive amounts of open land. FABs are 70-foot-tall structures with over 1,000 machines that occupy 400 football fields. They need reliable sources
of electricity, proximity to a large body of water, no exposure to temperature extremes, access to transportation systems, network stability, and to be sited in the two lowest seismic zones.
British Columbia is the only province that has all of these features, including seismic zone hazard ratings among the two lowest categories in the interior.
We also have some drawbacks. British Columbia’s political leadership would need to be more supportive of businesses and leading-edge technology and the province has systemic problems it needs to overcome, including very low wages, unaffordable housing, lack of access to family medical care, capital markets fraud which causes downstream harm to private enterprise, and a reputation of having money laundering problems.
Not all economies can afford to build their own FABs or have the elements to site a FAB. Some countries focused on one component of the supply chain. For example, one company in the world, ASML in the Netherlands, makes the only specialized lithography machine that enables chipmakers to reach widths of 7 nanometers or less. Its machines sell for US$200 million each and they use some of the most complex technology on Earth that took 20 years to build. They didn’t go the FAB route but still invested in their domestic semiconductor industry decades ago and built a company with an unheard-of 100% market share.
There is no question that the costs of entering the chip race and building a FAB is massive but the cost of chip irrelevance is even higher in the long term. We won’t simply be losing tech and losing jobs - we’ll lose our brightest scholars and entrepreneurs for the well-funded tech revolution taking place south of the border.
Christine Duhaime is a financial crime expert with Fusion Intelligence.