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New proposed federal funding for semiconductor manufacturing and research is a good start but the U.S. needs to invest in education, training and the broader ecosystem as well, according to analysts. Policy makers should plan long-term investments to make sure America can keep up with other countries in chip manufacturing.

The CHIPS for America Act was added to the 2021 National Defense Authorization Act and senators must now approve funding for the work. Reuters reported in mid-May that the funding for this bill includes $39 billion in production and R&D incentives and $10.5 billion to implement R&D programs.

According to the Semiconductor Industry Association, the U.S. produced 37% of the world’s chips in 1990 while the number is only 12% now.

Glenn O’Donnell, vice president and research director at Forrester, said that some level of government support is necessary to strengthen competitiveness. This bill could help in the long run but won’t do much about the immediate shortage.

“More supply is coming — and this is where this funding can help — but it takes at least two years to build a new chip factory,” he said. “I expect the shortage to last into 2023 regardless of funding.”

Seventy-two senators and representatives sent a letter of support for the CHIPS Act to President Joe Biden, stating that the Chinese Community Party has “aggressive plans to reorient and dominate the semiconductor supply chain, pouring over $150 billion in semiconductor manufacturing subsidies and investing $1.4 trillion in their effort to become the dominate (sic) global technological power.” The letter also urges Biden to approve more funding than what it is in the original proposal.

SEE: Global chip shortage: The logjam is holding up more than laptops and cars and could spoil the holidays (TechRepublic)

Gaurav Gupta, a Gartner Research vice president, said that South Korea, Taiwan and China have been using incentives to encourage domestic chip manufacturing.

“There is already a cost disadvantage to the U.S., so it’s good to see some support here for the industry,” he said. “For these efforts to be really successful, policies and support have to be consistent in the long run.”

Gupta said the federal government also needs to support education in addition to chip manufacturing, similar to what China is doing with engineering education at universities.

“Also, it is important to focus on the entire supply chain of semiconductors, including testing and packaging,” he said. “These areas have been the bottlenecks in the current chip shortage situation.”

The Endless Frontier Act is another bill designed to boost America’s competitiveness in advanced manufacturing. The legislation started out with a relatively narrow focus on manufacturing and research and development for the tech industry and a price tag of $120 billion. Senators have pushed the total to $250 billion in funding and crammed in many unrelated amendments that cover everything from Tik Tok to the summer Olympics. The bill is now called the U.S. Innovation and Competition Act.

The Semiconductor Industry Association in a letter of support for the Endless Frontiers Act said that the bill will increase U.S. competitiveness and build a talent pipeline.

Gupta said that it’s important to understand that the South Asian countries where chip manufacturing has been expanding will continue to invest as well. This means that the U.S. must act now to protect current production levels.

“Plus, the advantage in Asian countries where the semiconductor industry has flourished in the last few years is that they have developed a strong supporting ecosystem, including suppliers, vendors, and talent, and that takes time to duplicate,” he said.

O’Donnell said that this bill could improve the U.S. manufacturing capacity, but the bigger issue is how the global economy sustains a free market over time.

“Protectionist policies can take a good idea (more domestic semiconductor production) too far and make it a bad idea,” he said.

O’Donnell said that the trade war with China has to be resolved in addition to ensuring national security interests.

Intel announced in March plans to build two major chip factories in Arizona. Intel also plans to serve as a foundry for other companies that need chips. Part of this announcement suggested that Amazon, Google, Microsoft and Qualcomm could be partners for this new Intel Foundry Services. Intel currently has 10 chip plants worldwide including sites in Arizona, Massachusetts, New Mexico and Oregon.

“Ultimately, the competitiveness of any country requires private enterprise to be relentlessly innovative,” O’Donnell said. “Government support needs to be minimal, but if one country escalates with financial support for the industry, others will be forced to respond in kind.”

O’Donnell said leaders in both countries need to agree on basic conditions and penalties for noncompliance.

Sen. John Cornyn proposed the CHIPS Act in 2020 as this amendment to the National Defense Authorization Act. The goals of this bill include:

  • Creating a grant program for constructing, expanding or modernizing commercial semiconductor fabrication, assembly, testing, packaging and advanced R&D facilities.
  • Create a partnership program with the private sector to encourage the development of advanced, measurably secure microelectronics for use by the Department of Defense, Intelligence Community, critical infrastructure, and other national-security applications.
  • Establish a Multilateral Microelectronics Security Fund, with which the U.S., its allies and partners will work to reach agreements promoting consistency in their policies related to microelectronics, greater transparency including supply chains, and greater alignment in export control and foreign direct investment policies.
  • Direct the president to establish a subcommittee on semiconductor technology and innovation within the National Science and Technology Council.
  • Establish a national semiconductor technology center to conduct research, fund semiconductor startups and a Manufacturing USA Institute, and a National Advanced Packaging Manufacturing Program.

The Endless Frontier Act was first proposed in the 2020 and sets these goals:

  1. Strengthen U.S. leadership in critical technologies through fundamental research in key technology focus areas, such as artificial intelligence, high-performance computing and advanced manufacturing.
  2. Enhance U.S. competitiveness in the focus areas by improving education in such areas and attracting more students to such areas.
  3. Foster the impact of federally funded research and development through accelerated translation of advances in the focus areas into processes and products that help achieve national goals.