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How Asia became a dominant force in chipmaking and what the U.S. plans to do about it

How Asia became a dominant force in chipmaking and what the U.S. plans to do about it

Asian chipmakers have been competing fiercely for decades. The rise of China and other Asian countries has made the competition more intense than ever before, as they now account for over 80% of semiconductor production. This is a problem because this market dominance means that these companies are less likely to buy from American suppliers, leading to them becoming obsolete in global markets.

This article discusses the shift in chip manufacturing from American companies to Taiwanese and South Korean firms. TSMC and Samsung have combined control of more than 70% of the semiconductor market. 

In contrast, America’s once-leading position has been diminished by industry shifts that concentrated power with a small number of players. But now, U.S.-led scrutiny over supply chains is boosting Washington’s interest as globalization creates tensions between China and other nations as they hope to regain leadership.

The U.S. is heavily reliant on a single supplier of semiconductors, and there are fears that China could take advantage at any time. The U.S. has earmarked billions of dollars to improve their self-sufficiency rate for this component, crucial for so many industries, from cars to smartphones. It has also become the center of tensions between the two countries, with Bank Of America saying, “One aspect of U.S. policy implies that it focuses mainly on China.”

In the past decades, Asia has come to dominate global manufacturing, and it’s been a game-changer for both multinationals and local economies. The key lies in understanding how they have done this by looking at business models of companies like Intel, which is integrated device manufacturers (IDMs), meaning designing their chips but outsourcing production overseas. 

Then there are fabless semiconductor firms who only design the silicon wafer instead of designing then producing them onsite where labor costs would be prohibitively high or not feasible due to natural disasters such as an earthquake-ravaged Taiwan after SARS hit China back in 2003, leading investors into Korea with Samsung Electronics becoming more dominant than ever before — now its success could even lead other Asian countries.

In the last 15 years, companies have been shifting away from a model of manufacturing that produces integrated circuits in-house. TSMC and Samsung saw this change coming as they invested heavily into leading-edge technologies like wafer fabrication lines which produce microchips for laptops or smartphones. 

Now, suppose Apple wants to get their latest chip produced. In that case, it turns to TSMC who has a 55% stake in the foundry market share globally, and 18% by South Korea’s Samsung Electronics Co Ltd. Taiwan and South Korea collectively hold 81% of global capacity in I.C. production, thanks mainly due to investment made by these two countries over time.

The Bank of America reports that 30 companies once manufactured at the leading edge, but now there are just 3: TSMC, Intel, and Samsung. This is because semi-manufacturing has grown in cost and difficulty. However, Intel’s manufacturing process is still behind TSMC and Samsung; Taiwan and South Korea have become leaders in wafer fabrication which requires massive capital investment–partly due to supportive government policies enabling them to access skilled labor forces.

The complex supply chain

As a result of the ever-increasing demand for new and better semiconductors, various countries are scrambling to compete in this lucrative industry. Manufacturers like TSMC and Samsung have relied on equipment from other developed nations such as Japan, Europe, and America. Still, they can’t continue using these outside manufacturers forever without investing more money into their production facilities. According to Gartner, any company that makes anything needed by chipmakers falls under the category Semi cap, which has some major players, including three U.S., one European, and one Japanese company, all with over 70% market share data cited by Bank of America.

ASML Holdings N.V., Ltd has risen above all other firms with their ability to make extreme ultraviolet (EUV) tools required by high tech giants such as TSMC or Samsung Foundries Inc.; these European engineers manufacture unique equipment used across sectors from automotive engineering through semiconductor manufacturing due largely because they use lasers which emit light at 1310 nanometers wavelength—a narrow band suited specifically for photo etching complex three-dimensional chipsets on silicon. Other companies are trying to get a share of this technology.

What is the U.S. planning and why?

After years of being on top, the U.S. is now falling behind in semiconductor manufacturing and supply chains as a whole. Under President Joe Biden’s leadership, this problem will be solved with investment from a $2 trillion economic stimulus package to guarantee that America has enough resources for both research and production at home — something it needs if they want to regain its status as an industry leader again. The “CHIPS for America Act” aims to provide incentives and secure the supply chain of advanced research and development in our country.

Biden approves the bill to enhance the chip supply chain.

Intel will spend $20 billion to build two new chip factories, offering a domestic alternative for companies looking to make chips. The company’s announcement comes as worldwide production of these devices has been slowed by the coronavirus pandemic and economic downturns in various sectors. However, Intel is not worried due to their higher demand from other industries such as automotive–and now foundry business can be fueled locally!

Recently, the semiconductor supply shortage “has probably made the U.S. administration realize they aren’t in control of their own destiny.” But there are also geopolitical factors at play influencing U.S. policy on this issue; Biden’s administration wants to continue to encourage both foreign and USA semiconductor manufacturers as well as create engineering jobs for Americans by encouraging companies such as TSMC and Samsung from Taiwan or South Korea to expand production facilities here instead.

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