In response to the US CHIPS and Science Act, Intel, TSMC, Samsung, Micron, and many others have announced plans to build factories but now comes the complicated part. The Biden administration is now in the process of writing administrative rules and regulations to implement the $53 billion law in a way that limits how beneficiaries can use the subsidies for building semiconductor manufacturing in the US. While many US companies like Apple, AMD, NVIDIA, and Qualcomm design their own chips, they all hire TSMC to make them.
The CHIPS Act is also part of a larger effort to partner with Japan, South Korea, and the Netherlands to reign in China’s semiconductor industry. There is a clear throughline from the CHIPS Act to the US sanctions on Huawei and other Chinese companies, which resulted in a significant decline in Huawei’s tablet and smartphone sales over the last several years because of restricted supply of necessary components, particularly advanced chipsets with 5G capabilities.
Taiwan currently accounts for the vast majority of chips manufactured, and as tensions between China and Taiwan grow alongside the nuances of the war in Ukraine, there is concern that China could disrupt chip supplies out of Taiwan by blockading the island, or even attacking. The impact of that would be felt over many years, and the cost would be enormous.
Rebuilding the US technical infrastructure is about more than just chip manufacturing and investing in chip manufacturing is just the start. Chips need to be packaged or integrated into a more complex system that comprises consumer electronics devices and data centers. Naturally, questions arise as to how this will affect the Consumer Electronics (CE) market.
Exhibit 1: Growing Need for Semiconductors in the Expanding Consumer Electronics Market
We do not expect CE vendors to be impacted in the short term, as this act will not affect product development and production any time soon. Neither CE consumer demand nor supply levels will be impacted, as can be seen in the above chart forecasting across our group’s device spectrum. Longer term, we believe this could spur innovation with more money invested in the industry and as more countries seek to offset CHIPS Act funding with their own subsidies. In fact, the European Union passed its own €43 billion European Chips Act at the end of 2022 toward this end and many other countries are no doubt discussing these options as semiconductor independence takes on new importance in the 21st century.
Many of the devices in the markets we follow (e.g., smart doorbells, smart locks, media streamers) in the Consumer Electronics vertical use less sophisticated chips than those focused on in the CHIPS Act. Even in those cases, some of the manufacturing equipment used to make these devices could rely on more sophisticated processors. On top of that, the weakness in the supply chain was fully exposed during the COVID pandemic as localized lockdowns impacted production of laptops and tablets due to shortages of specific components.
Re-globalizing the supply chain will lower the risk of future shortages by diversifying geographic dependencies. A more resilient supply of semiconductors could provide CE manufacturers stability that the semiconductors required for their product roadmaps and could even open up access to more sophisticated chipsets (e.g., more advanced AI capabilities, new form factors) for future products.
Time will tell whether the CHIPS Act and other competing subsidy programs around the world make a difference in Moore’s Law, supply chain flexibility, semiconductor independence, lower prices, or greater innovation. In our view, this is an event that will have payoffs in the end device markets we cover on the ten-year horizon rather than the near-term, but the investment planning, technological roadmaps, and supply chain logistics planning is already well underway.