U.S. Trade Group Calls for Up To $30B In Additional Incentives for Chip Designers
Total government and private investment in chip design and R&D need to increase by approximately $20 billion to $30 billion through 2030, SIA says.
If the U.S. is to maintain its leadership position in the semiconductor industry, there must be more public investment in the sector. According to a Semiconductor Industry Association and Boston Consulting Group report, public investment in research and development and chip design needs to increase by approximately $20 billion to $30 billion through 2030.
The report from the Semiconductor Industry Association (SIA) and the Boston Consulting Group (BCG), titled The Growing Challenge of Semiconductor Design Leadership, outlines three key challenges posed to the U.S. semiconductor sector and the opportunities that organizations in the sector can grab.
The U.S. is a semiconductor leader, with most fabricators relying on designs made by U.S. companies. Nearly half of the $556B semiconductor industry’s R&D investment and value add is spent on design-related activities.
On the other hand, cheap manufacturing and unfavorable policies adopted by successive governments have led to America’s share of the global semiconductor manufacturing capacity sliding below 10% globally. “America invented the semiconductor, but today produces about 10 percent of the world’s supply—and none of the most advanced chips. Instead, we rely on East Asia for 75 percent of global production,” the White House said in August.
The introduction of the $52 billion CHIPS and Science Act has already galvanized growth in American semiconductor manufacturing, evident from billions invested in existing and new plants for logic semiconductors, memory hardware and others. However, several industry leaders expressed that the new legislation favors only manufacturing with little to offer to designers.
As such, fabless chip designers, including AMD, Qualcomm, and NVIDIA, were hoping for another legislation called FABS Act that also includes design-related incentives, to no avail. However, the CHIPS Act does have an R&D (and workforce development) incentive component capped at $13.2 billion of the $52 billion bill.
A sliding share in global semiconductor design-related revenue (from over 50% in 2015 to 46% in 2020) necessitates capital investment in U.S.-based chip design (both hardware and software). SIA estimates that the U.S. private sector will invest $400 billion to $500 billion over the next ten years in design-related activities.
Global Semiconductor Market Share | Source: SIA
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“But to maintain leadership over the coming decade, the US needs complementary public-sector investments aimed at addressing the key challenges laid out to strengthen both the domestic semiconductor industry and the country as a whole,” SIA said. A 46% revenue share is nearly 2.5x bigger than any other region, however, it could fall to 36% before 2030, SIA warned if challenges aren’t addressed.
SIA cited three key challenges associated with semiconductor design, viz., rising costs, talent gap, and open access to global markets.
Soaring design costs: According to SIA’s report, semiconductor design costs have increased by 18x since 2006. However, American R&D spending, while the highest in the world, hasn’t risen proportionally. The share of public funding for semiconductor design and R&D is 13% in the U.S., less than the average of 30% across China, Taiwan, Japan, South Korea, and Europe.
“Today, the US private sector invests more in design R&D than any other region’s private sector does, but governments around the world offer significant incentives to attract advanced design, and the US risks falling behind,” the report reads.
A crippling skills shortage: SIA and BCG noted that the U.S. will have a chip design workforce gap of 23,000 by 2030, calculated as the difference between workforce demand (89,000) and supply (66,000).
The net growth of the U.S.-based design workforce will be just above the replacement rate of less than 1% and significantly less than China’s 6% or Europe, Japan, South Korea, and Taiwan’s workforce growth rate of 1% to 3%.
“The public and private sectors must work together to encourage more domestic workers to enter the field of design, as well as to prevent experienced designers from leaving the field or the country,” SIA said.
Possibility of further disruptions: Disruption to global markets, especially those coming under sanctions, is eroding the American semiconductor leadership. “Sales are the ultimate source of funding for investment in R&D, but tariffs, export restrictions, and other factors threaten US semiconductor players’ access to global markets, implicitly putting R&D reinvestment at risk,” SIA added.
As a result, countries are trying to localize sourcing and the semiconductor value chain as much as possible. “There is a real risk that large global markets will become balkanized by subscale local champions, to the detriment of all participants.”
“Secular trends may reverse some elements of globalization, but ensuring that markets remain as open as possible will benefit the US, which gains significantly from free trade and has the most to lose from proliferating restrictions.
Therefore, SIA estimates that a public investment in design and R&D of approximately $20 billion to $30 billion through 2030, including a $15 billion to $20 billion design tax incentive, would help the U.S. retain its top spot and overcome these challenges.
The estimated impact, according to SIA, would be an additional yield of $450 billion as design-related semiconductor revenue in ten years, thereby supporting 23,000 design jobs and 130,000 indirect and induced jobs.
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