As the United States strives to develop stronger regional supply chains for several key components supporting the green transition, both the United States and Mexico are building large microchip manufacturing facilities. The United States is increasingly seeking to move away from its reliance on China for critical minerals and manufactured components essential to a green transition. North America is expected to become an important hub for microchip manufacturing, despite playing a relatively minimal role in the global market at the moment.
Global demand for semiconductors is growing rapidly as the deployment of renewable energy projects and the rollout of electric vehicles using the technology increases. The global semiconductor market size was valued at nearly $611.4 billion in 2023 and is expected to grow to $2.06 trillion in 2032with a CAGR of 14.9 percent from 2024 to 2032. Currently, the Asia Pacific semiconductor industry has a market share of just over 50 percent, with most manufacturing activities taking place in Taiwan and dominated by Taiwan Semiconductor Manufacturing Company (TSMC). The East Asian country also produces approx 90 percent of the world’s super-advanced semiconductors. The second largest microchip manufacturers are South Korea, China and the United States.
Microchips are used for a wide range of applicationsfrom artificial intelligence, military use, telecommunications, healthcare and other key industries to helping cars, smartphones and thermostats run. Yet most countries are heavily dependent on one region of the world for their chip supply, making them extremely vulnerable to supply chain disruptions and geopolitical challenges. The 2020 COVID-19 pandemic made governments around the world increasingly aware of the potential vulnerabilities of a global event, which has prompted several major powers, such as the United States, to begin strengthening their regional supply chains and domestic manufacturing capabilities.
The U.S. semiconductor market is expected to grow significantly in the coming years, thanks to favorable national policies, to about $258.3 billion in 2032. In 2022, the Biden administration signed the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act, aimed at expanding of the US semiconductor manufacturing industry. CHIPS earmarked $70 billion for high-tech manufacturing, scientific research and development, and workforce development in the microchip industry.
Since the passage of the CHIPS Act, private companies have announced almost $400 billion in financing for microchips and other electronics. This has been supported by the provision of a semiconductor investment tax credit available until 2027. Arizona is expected to become a microchip manufacturing hub along with several other US states. The government has provided 15 billion dollars in investment for Intel and TSMC to build five new semiconductor factories in Arizona, which is expected to drive an additional $100 million in private investment. Sally Morton, professor at Arizona State University, listed“We are poised to truly be the epicenter of chip manufacturing, but also research, development and prototyping.”
The U.S. used to be a major hub for microchip production, making nearly 40 percent of the world’s semiconductors in 1990. But as many manufacturing activities moved overseas to cut costs and China rose as a green energy and manufacturing powerhouse, that number has declined until right 12 percent. In addition, no advanced microchips are produced in the United States
American officials have suggested that new investment will put the country on track to manufacture about 20 percent of the world’s leading logic chips by the end of the decade. These are the chips needed to power some of the most complex technologies, such as artificial intelligence. Based on this prediction, the role of the United States in microchip production will expand significantly. But Asia will ultimately continue to dominate the global microchip market for decades to come.
In addition to strengthening its manufacturing capacity, the United States is looking to strengthen its regional supply chains for key components, including microchips. Mexico is known for its manufacturing capabilities, often seen as a low-cost, labor-intensive production hub. Mexico’s proximity to the United States also makes it extremely attractive for developing activities.
This October, the Taiwanese company Foxconn announced plans to open a factory for mass production of Nvidia Blackwell superchips in Mexico. The facility is expected to be the largest in the world for bundling Nvidia’s GB200 superchips, which are a vital component of Nvidia’s next-generation Blackwell family of computing platforms. The plant is expected to be built in Guadalajara. Foxconn already has a significant manufacturing presence in Mexico and has invested over 500 million dollars in manufacturing in the state of Chihuahua in the north of the country.
While Asia is expected to continue to dominate the microchip manufacturing space for several decades, significant investment has been seen in the development of North America as a microchip manufacturing hub. Large investments in the US and Mexico, supported by favorable government policies, are driving the region forward in microchip manufacturing and will support the development of an advanced chip manufacturing sector in the coming years.
By Felicity Bradstock for Oilprice.com
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