#135 – Inside Our Industry – Semiconductor fabs: Construction challenges in the United States
Posted on | Inside Our Industry
The shortage of semiconductor chips became a worldwide issue during the COVID-19 pandemic. Products from cars and trucks to laptops sat, waiting for chips to arrive so the items could be moved on to consumers. The pandemic, along with other issues, has prompted companies to diversify their semiconductor manufacturing locations. Following is the first part of an article from McKinsey & Company looking at this issue. Click on the link at the bottom for more on the key challenges for US fab construction.
Semiconductor fabs: Construction challenges in the United States
January 27, 2023 | McKinsey & Company | K. Bartlett, O. Burkacky, L. Li, R. Vrijen, and B. Wiseman
The semiconductor industry is booming, with expected average annual growth of 6 to 8 percent through 2030 and yearly revenues forecasted to reach $1 trillion. The industry will have to double semiconductor production to keep pace with future demand, but most fabrication plants, commonly called fabs, are already operating at capacity. To increase supply, many companies have announced plans to build new fabs and some are already in the construction phase. And in a coordinated push to achieve a microelectronics resurgence, the United States is becoming a hot spot for fab construction.
The value of US-based semiconductor projects that are under way, announced, or under consideration totals $223 billion to over $260 billion through 2030.1 But it’s not just private companies that want to move more manufacturing to the United States. Semiconductor production is getting more funding from the federal government, which recently approved $54 billion in grants for domestic semiconductor manufacturing and research through the US CHIPS and Science Act.
For many years, chip manufacturing has been consolidated in Southeast Asia and China. Semiconductors manufactured in the United States now account for only about 12 percent of the global total, down from 37 percent 30 years ago, according to a recent White House statement.
When supply chains were functioning well, companies had little incentive to build new fabs outside Southeast Asia. But chip output and distribution have recently faced challenges because of the COVID-19 pandemic and consequent supply chain disruptions, with a 2021 drought in Taiwan and recent geopolitical issues compounding the problems. These considerations have prompted companies to take a new interest in diversifying their fab locations and exploring US sites. The availability of subsidies is one of the main considerations when evaluating potential new locations.
Of the total $223 billion to over $260 billion investment in new US fabs, about $183 billion is attributed to projects that are ongoing or announced; the remainder relates to projects still under consideration (Exhibit 3). Most investment is flowing to specific geographic clusters. Arizona and Texas, for instance, are attracting investment because they already have fab ecosystems, and their local governments have historically provided incentives and helped to coordinate the process. Adding to the large incentives play: Ohio is emerging as a desirable site, with over $20 billion in investment announced for Columbus-based fabs, and New York is offering incentives to encourage fab construction. Other states attracting investment include Indiana, New Mexico, Oregon, Utah, and Virginia.