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.

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The typical range of financial inducements, from outright grants to tax credits and holidays, trims the cost of building and operating a fab over 10 years by about $1 billion. In a job-short and export-challenged economy, it seems like a no-brainer. But in postbailout America, using federal funds for private industry is not getting a lot of traction.

Big mistake, says William Spencer, an industry veteran and vice chairman of a National Research Council board on science, technology and economic policy. He adds, "The U.S. government is out of step with the rest of the world in government-private partnerships to develop innovations for economic growth and job development, and we are jeopardizing our future in high technology."

Otellini has been making the case for leveling the playing field through public incentives, lower taxes (or tax holidays) and fast-track permitting. Intel's new Chinese plant, he points out, will be its lowest-cost manufacturing site. "It has nothing to do with labor," Otellini told the CFR audience. "It has to do with the capital grants, the equipment grants, the tax holidays that they gave us there."

New York's decision to sweeten GlobalFoundries' plans by $1.2 billion was a decisive factor in winning the investment. And New York's outlay goes beyond the plant. The University at Albany--SUNY's College of Nanoscale Science and Engineering (CNSE), financed with more than $900 million in state seed money, is putting a marker down. The college has attracted $6.5 billion more from major players, including IBM, Applied Materials, Sematech, AMD and GlobalFoundries, which time-share research facilities. The goal is to push beyond current technical boundaries. "We are the last line of defense for the U.S. semiconductor industry," argues Alain Kaloyeros, CNSE's CEO.

There are others in the U.S. industry who contend that this manufacturing migration overseas is a natural progression and not a problem as long as so-called headquarters skills—particularly chip design, where most of the intellectual property is thought to reside—remain in the U.S. Besides, argues Bolaji Ojo, business editor at Electronic Engineering Times, a leading industry publication, "this [migration] of the entire extended supply chain has been going on for 15 to 20 years, and it's not possible at this point to put that back together. It's gone."

For the increasingly fabless U.S. industry, the New York foundry substantially expands the open-to-all-customers capacity for chip designers. "It's also great from a risk-mitigation standpoint," says Norm Armour, vice president and general manager of the New York plant. "When a major earthquake hits Taiwan, guess what. It knocks about 20 wafer fabs off-line for days or weeks." For these reasons GlobalFoundries, which will rely mostly on AMD for the bulk of its initial production, should be able to add customers and keep its capacity utilization high.

Linley Gwennap, president of an independent industry consultancy, says that even when other countries can match U.S. technical skills, integrating them into a globally competitive company is another order of challenge. "We are probably 10 years away from seeing a Chinese or Indian semiconductor company that's really competing against the other leading companies in the world. But there is no question it is going to happen."

By then the U.S. firms expect they'll be on to the next big thing: nano. That means getting smaller, more powerful, with greater functionality, while decreasing power usage. The industry has done a remarkable job of extending Moore's law of doubling chip density and functionality every 18 months. Indeed, bleeding-edge technology is already mind-bogglingly small. Circuitry can be etched on a chip that is 28 nanometers wide (GlobalFoundries' starting point); 5,000 of these could fit into a single strand of human hair.

Getting beyond this, as the industry inevitably will, is an ever tougher and more expensive slog, especially as the physical limits of the current silicon-based technology are reached and the true nano era of single atoms begins. Kaloyeros points out that no rocket could get off the launchpad today without chips. "This is really rocket science squared." It's very likely that CNSE will design such nano chips; what's not so certain is who will make them and where.

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