Global Needs and Incentives

While the COVID-19 pandemic is responsible for a multitude of issues within the global supply chain and unprecedented escalation, the semiconductor industry was struggling to match supply to demand long before March 2020. As technology and automation replace antiquated products and processes, semiconductors are integral to everything we do.

The initial issue facing the semiconductor industry is a supply gap spurred by the need for three different types of semiconductors. The leading-edge digital semiconductor fabs make chips for mobile devices and modern computers. Next, legacy digital technology fabs make chips for less intensive applications such as those used in automobiles. Last are analog chip fabs which are commonly used in radios. Each chip type serves a different need and production capacity at one facility may not be able to backfill another type, thus creating the supply gap and driving expansion and growth in each type.

Taiwan currently leads the world in production of chips, holding 65% of the market share as of 2021 Q4. South Korea is second at 15%, the United States rounds out the top three with 7% and China comes in a close fourth at 6%.¹ It is important to note that we don’t produce any of the leading-edge chips domestically and our market share has been steadily falling for 30 years. In 1990, the U.S. produced 37%.² Since then, foreign governments have offered subsidies and incentives the U.S. has not, tipping the advantage overseas. This is problematic as we depend on a global supply chain often negatively impacted by international conflict and geopolitical challenges. Foreign chips used for military applications also pose a national security threat.

Q4 2021 Chip Production Market Share

1. Taiwan 65%
2. South Korea 15%
3. United States 7%
4. China 6%

 

In response, the U.S. is attempting to pass legislation geared toward increasing domestic production: CHIPS (Creating Helpful Incentives to Produce Semiconductors) for America Act, America COMPETES (Creating Opportunities to Meaningfully Promote Excellence in Technology) Act and the FABS (Facilitating American-Built Semiconductors) Act. The CHIPS act passed in late July 2022, but the others are awaiting passage. Construction spending on new fabs in the U.S. is projected to grow from $18B in 2018 to almost $30B in 2023.³

Despite these efforts, the U.S. could be playing catch-up for decades due to overseas enticements. Taiwanese subsidies for fabrication facilities include 50% for land costs, 45% for construction and facilities and 25% for equipment costs in addition to R&D investments and other incentives. South Korea’s and Singapore’s semiconductor subsidies reduce the cost of facility ownership by 25-30%. Europe also passed their own version of the CHIPS act and aims to control 20% of the global chip production by 2023.3 In China, government and non-government support for the semiconductor industry is estimated to be as high as $200B between 2015 and 2025.

While the American CHIPS act promises to provide more than $52B in incentives, the incentives issued by these foreign governments will likely continue to leave the U.S. at a disadvantage.

Manufacturer Investments Drive Domestic Production

Despite attractive offers from overseas, many American tech manufacturers are moving forward with plans to increase domestic production. In November of last year, Samsung announced a $17B semiconductor fab in Taylor, Texas for processors to support mobile, 5G, high-performance computing and artificial intelligence. That same month, Texas Instruments announced it would spend $30B for a new plant in Sherman, Texas. Cree plans to spend $1B to expand an existing North Carolina facility.

In June, Intel announced plans to invest $20B building two new fabs in Ohio. To support development of the new site, Intel pledged an additional $100M toward partnerships with local universities to build a pipeline of worker talent and bolster research programs in the region.

Compounding Issues

With plans in place to expand fabs and alleviate the pinched global supply chain, providing the engineering resources to design, the labor to build, and then the technical staff to operate the fabs is the next obstacle. The recently-passed CHIPS act provides funding to increase STEM education as well as specific training centers for semiconductor design and fabrication.

The U.S. is currently the leader in R&D and chip design in the world with Intel and AMD dominating personal computer CPU market. However, since 1990, enrollment of American students in semiconductor related programs has remained flat, while international student enrollment has tripled. These graduates are then drawn to southeast Asia where more opportunity to work within fabs exists.

Executive Order 14017 (enacted to alleviating supply chain issues and different from the CHIPS act), makes recommendations to address the labor shortages we are seeing. The report indicates labor has been driven down rather than focusing on it as an investment and suggests hiring mandates from apprenticeship programs, implementing labor agreements, and increasing wages through collective bargaining. Just as described with fab construction, manufacturers and their vendors must make investments today in labor to even hope to stay competitive and retain market share.

How We Meet These Needs

At a domestic level, JE Dunn is rapidly growing its reputation in the semiconductor space by bringing new and innovative solutions to our clients. We begin with a Preconstruction team that has a different composition than most commercial construction firms.

We seek out a diverse pool of STEM graduates and train specifically for the highly technical nature of this type of work. By having Subject Matter Experts (SMEs) on the preconstruction side, we define systems and components to a granular level from the outset. We also create extremely detailed estimates when only conceptual level information exists. We then use this level of understanding to guide and evaluate design development for completeness and accuracy.

These methodologies produce much greater certainty of results and satisfy the rapidly changing and technical demands of these facilities for all parties rather than utilizing traditional high-level parametric estimating practices. Our team also integrates with a team of Design Managers early on who have come from design firms and now are able to help drive the development of design to the correct level which supports procurement and installation needs.

As our projects grow larger and supply chain issues impact our ability to obtain materials and equipment on time, the strategy has shifted from coordinating “Just-in-Time” deliveries to a “Get-it-Early” mentality. JE Dunn has pivoted to managing warehouses with staff to receive and track inventories. This has allowed us to identify deliveries at risk much earlier than standard practices. We have a team of procurement specialists who focus on tracking and expediting the securing of materials in order to alleviate potential project delays. This team has developed a repeatable and scalable way to evaluate and onboard key suppliers, execute national agreements, track and expedite submittals, ensure shipping and delivery dates, and implement customized solutions that best fit the Owner’s needs.

With only half of the 8 million skilled-labor jobs that were lost during the pandemic being filled, a severe marketplace shortage remains. As the trade partner community now has more work than it can support, they can pick and choose who they want to work with. To make JE Dunn projects more attractive and easier for trades to engage with, we extract and share granular data and metrics from our estimates to support trade partner workflows. We supply manpower curves, project valuations, and cashflow curves for every trade bid package. This can save significant time and effort from when we first engage trade partners to when they actively start planning their project approach.
These strategies add value and “go the extra mile” to support our clients and partners. By contributing excellence and innovation at every level, we offer solutions which help secure economic independence and national security.

Sources:

1. Tecvalue.com
2. Intel.com
3. Semi.org
4. Washingtonpost.com
5. Whitehouse.gov