Event Summary | Looking Deeper: The Enduring Role of Legacy Semiconductors
To discuss the critical role of legacy semiconductors, the dangerous lack of capacity to manufacture them domestically, and the geopolitical impacts of legacy production, the Wilson Center brought together panelists from government and industry for the third and final edition of Looking Deeper.
“Semiconductors have been dubbed the oil of the 21st century because they underly so much of our economy,” said Andreas Schumacher, executive vice president of Strategy, Mergers & Acquisitions at Infineon Technologies.
The CHIPS and Science Act of 2022 authorized $280 billion towards boosting semiconductor research and manufacturing in the United States, the bulk of which is to be spent on R&D for leading-edge technologies. While exciting innovations, like producing chips as small as 3 nm, have been at the forefront of the semiconductor conversation, older, larger semiconductors are already ubiquitous in daily life and integral to the economy.
Legacy semiconductors, sometimes called “mature” or “advanced” nodes, are typically defined at the 28 nm and above level, and they’re a key component in automobiles, smartphones, medical devices, and more. To discuss the critical role of legacy semiconductors, the dangerous lack of capacity to manufacture them domestically, and the geopolitical impacts of legacy production, the Wilson Center brought together panelists from government and industry for the third and final edition of Looking Deeper.
Why “Legacy” is a Misnomer
The label “legacy semiconductors” seems to imply that these nodes are going out of fashion, that newer, “bleeding-edge” technologies will take their place. In reality, these semiconductors play important and enduring roles in energy production, memory storage, sensors, and more, as shown by Infineon’s Semiconductor Tree. Schumaker expressed that despite the “legacy,” moniker, none of the branches are “withering away,” that there are “super exciting, advanced developments in all those branches, towards the leaves.”
The term “legacy semiconductor” encompasses a broad range of technologies that vary greatly in their specialization, build, and price. The average smartphone has more than a thousand semiconductors, each of which costs just cents to make, while highly specialized nodes, like the radiation-hardened semiconductors used in airplanes and satellites, are thousands of dollars. Across all applications for legacy semiconductors, the Honorable Nazak Nikakhtar, former assistant secretary for Industry and Analysis at the Department of Commerce and partner at Wiley Law, noted that these chips make up 95% of the commercial market. Beyond their economic importance, legacy chips also impact national security; “of the Department of Defense’s national security, mission-critical, pentagon-style capabilities, about 99.5% depend on legacy chips,” reported Nikakhtar. While labels like “legacy” and “mature” suggest that advanced semiconductors are past their prime, their pervasiveness as commodities and in national security capabilities prove their enduring importance.
The Most Complex Facilities in the World
Building domestic manufacturing capacity for semiconductors is a key goal of the CHIPS Act, one that comes with a number of challenges. Mark Garvey, president of Global Business Unit for Advanced Technology Facilities at Exyte Asia-Pacific, explained that semiconductor fabrication plants, called fabs, “are basically the most sophisticated facilities on the planet” because of all the gases, chemicals, and controlled environments required in the manufacturing process. A large proportion of semiconductors used in the United States are manufactured overseas, especially in countries like China, Taiwan, and Singapore. According to Garvey, timelines for permitting a fab in the East are roughly half of what they are in the West. Garvey accounted for this by pointing out that in Asia, “governments actively support the permitting process to be a green lane functionality. They want to facilitate the investment.” He also noted that the familiarity these governments have with the permitting process for fabs is an advantage over the West. Lack of familiarity, combined with rightful caution concerning the potentially dangerous chemicals fabs handle, can greatly delay the permitting process.
Once permits are complete, it is time to build the fab. Like permitting, timelines for fab construction in Asia are more compressed. Garvey revealed that it takes 26 months to go from the first concrete pour to a finished clean room in the United States, while the same process takes just 12-13 months in Taiwan. Additionally, Garvey shared that the scale of fabs has grown to almost three times what it was just 15 years ago, and at the peak of manpower demand, 5,000-7,000 workers are needed during construction. Again, many Asian countries have an advantage due to more relaxed labor laws and greater labor availability. Though the CHIPS Act allocates billions of dollars to incentivize reshoring semiconductor manufacturing, boosting domestic capacity requires policymakers to address the many challenges in permitting and constructing fabs in the United States.
Short-Term Pain, Long-Term Gain
The market for semiconductors is growing each year, and while the relative shares held by the United States and its allies are declining, China’s stake continues to grow.
Nikakhtar was concerned about the growth in China’s semiconductor capacity compared to its global competitors; she explained that “the more trade we do with China, the more we are allowing China's market distortions to permeate throughout the economy.” While many policies have focused on stopping tech transfer related to leading-edge technology and innovation, Nikakhtar argued the United States has ceded the realm of legacy chips, enabling China to build over capacity and drown US industries. She also commented that “if we’re buying chips from China, our capital goes to China.” While China has the second largest GDP in the world, it also has one lowest Gross National Incomes (GNIs), meaning that when capital goes to China, the revenue does not trickle down to workers, instead, it pays company executives and funds the Chinese government.
To block China from depressing global prices and monopolizing the revenue from legacy semiconductors, revenue that companies rely on to build next-gen technology, the U.S. must reduce its dependence on Chinese chips and integrate the supply chain with its allies. Nikakhtar said this process is sure to cause short-term pain, but enduring the adjustment period is necessary to see long-term benefits: "our actual GDP growth, our wages, our innovation capabilities, all improve substantially when we are trading with market economies.”
Nikakhtar contended that Western world has underestimated China’s capabilities for too long in thinking that innovation will always win the day, that they will always be able to “run faster.” As Nikakhtar explained, building a resilient supply chain in the United States and ensuring that companies are bringing in enough revenue to fund innovation requires the understanding that China was always running faster, they just started further behind.
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