Money no object as governments race to build chip arsenals

Money no object as governments race to build chip arsenals

(Reuters) - Governments around the world are subsidizing the construction of semiconductor factories as a chip shortage hobbles the auto and electronics industries and highlights the world’s singular dependence on Taiwan for vital supplies.

But beyond a consensus that something must be done to diversify supplies, divisions over strategy are emerging along with concerns that free-spending governments could spur over-building in an industry that has historically been highly cyclical.

Governments in the United States, the European Union and Japan are contemplating spending tens of billions of dollars on cutting-edge “fabs,” or chip fabrication plants, as unease grows that more than two-thirds of advanced computing chips are manufactured in Taiwan. Earlier this week, a top U.S. military commander told U.S. lawmakers that a Chinese takeover of the island was the military’s foremost concern in the Pacific.

China has also offered a myriad of subsidies to the chip industry as it tries to reduce its dependence on Western technology, including setting up a $29 billion investment fund in 2019, helping feed arguments that Western governments need to step up.

The need for chip plants outside Asia has helped prompt Taiwan Semiconductor Manufacturing Co (TSMC) and Samsung Electronics Co Ltd - the only two chip contract manufacturers capable of making the most advanced computing chips - to draw up plans for new factories in the United States and vie for what could be $30 billion or more in U.S. subsidies.

And Intel Corp, another of the “Big Three” which also makes cutting edge chips, dramatically changed the playing field on Tuesday when it disclosed plans to throw open its factory doors to outside customers and build a new factory in Europe in addition to two new ones in the United States.

The net result could be a government-backed restructuring of the semiconductor industry after decades in which American and European chip firms outsourced their manufacturing to Taiwan and Korea in the name of efficiency and delivering ever cheap computing power to billions of people.

“We’re in a situation now where every country is going to want to build their own fab,” Dan Hutcheson, chief executive officer of VLSI Research, told Reuters. “We’re going from this global interconnectedness to vertical silos everywhere.”