Save Our Semiconductors

U.S. chipmakers say they need help to stay — about $1 billion per fab. Worth it?

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Kevin Cooley for TIME / Redux

Nano-scale chips are being developed at SUNY-Albany's labs.

Nestled in a red-pine forest 25 miles (40 km) north of Albany, N.Y., close to where Wernher von Braun experimented with rocket fuels, a new $5.5 billion computer-chip-fabrication plant—deploying physics far more sophisticated than that used in rockets—is being built. The fab will be a critical locomotive for the local economy. It is also good news for the U.S. semiconductor industry, which is the primary fount of the economy's productivity gains--and all the gadgetry we consider critical to modern life.

The fab is being built by GlobalFoundries, a joint venture led by Advanced Micro Devices (AMD), which spun off its manufacturing arm to focus on chip design. Handsomely bankrolled by the Abu Dhabi government--$10 billion so far, for a 68% stake--the new company has acquired Singapore's Chartered Semiconductor and also includes AMD's fab in Dresden, Germany. With these assembled fabs, GlobalFoundries is readying to face off with contract manufacturing giant TSMC in Taiwan.

The GlobalFoundries development represents the largest greenfield chip-manufacturing investment in the U.S. in years and offers at least a pause in the seemingly inexorable trend of manufacturing migrating overseas. Intel has also thrown down some chips: the company announced on Oct. 19 that it would spend $6 billion to $8 billion upgrading U.S. fabs and building a new R&D fab in Oregon.

The U.S. share of global chip-production capacity, once 100%, has been sliding for years: from 25% in 2005 to 14% in 2009. This hasn't seemed a problem because U.S. firms still retain a nearly 50% global market share (in sales), and roughly 70% of U.S.-designed chips are still made at home. This generated $48 billion last year, making the semiconductor industry a contender for the country's top industrial exporter, along with aircraft makers.

Much of that is due to Intel, which has managed to retain 75% of its production in the U.S., even though 75% of its revenue comes from overseas. Its new U.S. plant is specifically aimed at catching up in chips for smart mobile devices, a sector whose importance Intel has admitted it was slow to grasp.

But even this historical grounding in the U.S. is beginning to erode. In recent years, Intel has opened plants in Ireland and Israel, and its newest plant will open in Dalian, China, Oct. 26. "We're the last one standing in the United States," Intel CEO Paul Otellini told an audience at the Council on Foreign Relations (CFR) in October. "No one else has built a new factory in five or 10 years. Everyone is building it either offshore or through joint ventures somewhere else. And if this is the most important technology of the 21st century—semiconductors—and the first derivative is negative relative to building new factories here, it ain't good."

The industry now has its hand out, warning that unless the U.S. is willing to underwrite new fabs, the move overseas will accelerate. From 75% to 80% of new equipment is headed overseas, warns George Scalise, president of the Semiconductor Industry Association. Of the 27 fabs that closed last year, 15 were in the U.S.

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