Chip Sales Remain Strong in Challenging Year

Click the chart above to enlarge. (Source: SIA)

Despite the strong sales in 2020, it was a year filled with truly jarring turbulence.

Early in 2020, we all watched with horror the pandemic take hold globally, taking a huge human toll and turning daily life upside down for everyone. The U.S. economy sputtered, and the supply and demand balance was disrupted for semiconductors across a range of end markets, most notably autos, causing global shortages of some chips that are still being felt early in 2021. The industry continues to work to ramp up production to meet renewed demand, but with production lead times of up to 26 weeks for some chips, it will unfortunately take some time to do so.

Looking ahead to the long-term, rising demand for personal technology and chip-powered devices will cause the semiconductor market to continue to grow in the years ahead. In addition to personal devices and servers, the long-term applications of semiconductors — including AI, 5G, autonomous cars, and clean energy — are quickly gaining steam. In 2021, sales are expected to rise by 8.4%.

Heightened demand should be great news for the country that invented the first integrated circuit and has been on the forefront of advanced chip development ever since. Yet, without bold action on the part of the U.S. government, other nations will be better positioned to take advantage of the coming growth in the semiconductor market. That’s because governments of competing countries have recognized the strategic importance of semiconductors and have been investing boldly in chip manufacturing and research for years. The United States, meanwhile, does not offer significant chip manufacturing incentives, and federal investments in semiconductor research have been flat as a share of GDP.

Building and operating a new semiconductor fab in the U.S. is 25%–50% more expensive than in other countries due largely to government incentives that significantly cut fab construction and operating costs. As a result, without bold action by the U.S. government, producing the chips necessary to meet growing demand is likely to happen abroad. In fact, over the past 30 years the share of global fab capacity in the U.S. has decreased from 37 percent to 12 percent.

The good news is annual defense legislation enacted earlier this year establishes (though does not fund) incentives for domestic semiconductor manufacturing and research. To make the U.S. an attractive manufacturing destination for chip production again, it’s imperative the president and Congress fund federal incentives for domestic semiconductor manufacturing and investments in chip research.

The Semiconductor Industry Association and a coalition of other industry leaders have urged leaders in Washington to do just that. These investments represent an historic opportunity to invigorate American tech manufacturing and advance a critical, homegrown industry at a moment of pivotal growth.

American companies are laying out big, bold objectives for the future. GM will phase out gas-powered vehicles by 2035, and SpaceX announced plans for an all-civilian space flight this year. A future in which most of us drive electric cars and some of us have journeyed to space is built on semiconductors. While the industry has weathered the challenges brought on by the pandemic, the U.S. needs to get serious about incentivizing more domestic manufacturing and R&D to ensure the immense growth in demand for chips and the technologies they power will be met with homegrown chips.

Bold federal investment in domestic chip manufacturing and research is a critical next step toward a future of continued American tech leadership.

— John Neuffer is president and CEO of the Semiconductor Industry Association.