Semiconductors: U.S. Industry, Global Competition, and Federal Policy
Congressional research reportOct 26, 2020
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Semiconductors: U.S. Industry, Global
Competition, and Federal Policy
October 26, 2020
Congressional Research Service
https://crsreports.congress.gov
R46581
SUMMARY
Semiconductors: U.S. Industry, Global
Competition, and Federal Policy
Semiconductors, tiny electronic devices based primarily on silicon or germanium, enable nearly
all industrial activities, including systems that undergird U.S. technological competitiveness and
national security. Many policymakers see U.S. strength in semiconductor technology and
fabrication as vital to U.S. economic and national security interests. The U.S. semiconductor
industry dominates many parts of the semiconductor supply chain, such as chip design.
Semiconductors are also a top U.S. export. Semiconductor design and manufacturing is a global
enterprise with materials, design, fabrication, assembly, testing, and packaging operating across
national borders. Six U.S.-headquartered or foreign-owned semiconductor companies currently
operate 20 fabrication facilities, or fabs, in the United States. In 2019, U.S.-based semiconductor
manufacturing directly employed 184,600 workers at an average wage of $166,400.
R46581
October 26, 2020
Michaela D. Platzer
Specialist in Industrial
Organization and Business
John F. Sargent Jr.
Specialist in Science and
Technology Policy
Karen M. Sutter
Specialist in Asian Trade
and Finance
Some U.S.-headquartered semiconductor firms that design and manufacture in the United States
also have built fabrication facilities overseas. Similarly, U.S.-headquartered design firms that do
not own or operate their own fabrication facilities contract with foreign firms located overseas to
manufacture their designs. Much of this overseas capacity is in Taiwan, South Korea, and Japan,
and increasingly in China. Some Members of Congress and other policymakers are concerned that only a small share of the
world’s most advanced semiconductor fabrication production capacity is in the United States. Other have become
increasingly concerned about the concentration of production in East Asia and related vulnerability of semiconductor supply
chains in the event of a trade dispute or military conflict and other risks such as product tampering and intellectual property
theft.
Some Members of Congress and other U.S. policymakers have expressed concerns about the economic and military
implications of a loss of U.S. leadership in semiconductors. China’s state-led efforts to develop an indigenous vertically
integrated semiconductor industry are unprecedented in scope and scale. Many policymakers are concerned that these efforts,
if successful, could significantly shift global semiconductor production and related design and research capabilities to China,
undermining U.S. and other foreign firms’ leading positions. Although China’s current share of the global industry is still
relatively small and its companies produce mostly low-end chips, China’s industrial policies aim to establish global
dominance in semiconductor design and production by 2030. Moreover, Chinese semiconductor competencies could support
a range of technology advancements, including military applications. Another issue for policymakers is how to address
competing interests: China is an important market for U.S. semiconductor firms but U.S. and foreign industry are helping to
advance China’s capabilities. China’s government outlays (an estimated $150 billion to date) and its role as a central
production point for global consumer electronics are generating strong incentives and pressures on U.S. and foreign firms to
focus on China. The Chinese government views access to foreign capabilities in the near term as a key pathway to accelerate
China’s indigenous development. Also of concern to many are China’s state-led efforts to acquire companies and access
semiconductor technology through both licit and illicit means; targeted intellectual property (IP) theft; and technologytransfer pressures.
Issues before Congress include the appropriate role of government in assisting U.S. industry; how best to focus federal
financial assistance; the amount of funding each proposed activity would need to accomplish its goals for sustaining U.S.
semiconductor competitiveness; how to coordinate and integrate federal activities internally and with initiatives of the U.S.
semiconductor and related industries; and how to address China’s ambitious industrial plans, trade practices of concern, and
the role of U.S. firms in China’s emerging semiconductor market. Legislation has been introduced in the 116th Congress to
increase federal funding for semiconductor research and development efforts; collaboration between government, industry,
and academic partners; and tax credits, grants, and other incentives to spur U.S. production. Two bills under consideration are
the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act (S. 3933/H.R. 7178) and the American
Foundries Act (AFA) of 2020 (S. 4130). Some of the provisions of these acts have been included in other bills.
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Semiconductors: U.S. Industry, Global Competition, and Federal Policy
Contents
Introduction ..................................................................................................................................... 1
Semiconductor Industry Basics ....................................................................................................... 2
Semiconductor History and Technological Challenges ............................................................. 4
Wafer Size ........................................................................................................................... 5
Feature Size......................................................................................................................... 6
The Global Semiconductor Industry ............................................................................................... 6
Semiconductor Market Segments .................................................................................................... 8
Global Semiconductor Production .................................................................................................. 9
Materials Used for Wafer Manufacturing................................................................................ 10
Design; Fabrication; and Assembly, Testing, and Packaging ................................................... 11
Design ............................................................................................................................... 12
Fabrication: Facilities (Foundries) .................................................................................... 14
Fabrication: Equipment and Other Suppliers .................................................................... 15
Assembly, Testing, and Packaging .................................................................................... 17
Key Parts of the Global Semiconductor Supply Chain ........................................................... 17
Global Semiconductor Fabrication Capacity .......................................................................... 18
The U.S. Semiconductor Manufacturing Industry......................................................................... 18
Industry R&D Spending .......................................................................................................... 19
Semiconductor Manufacturing Jobs ........................................................................................ 19
Semiconductor Production in the United States ...................................................................... 20
The Global Semiconductor Landscape .......................................................................................... 23
East Asia .................................................................................................................................. 24
China ....................................................................................................................................... 26
U.S. Controls on Semiconductors ..................................................................................... 31
Europe ..................................................................................................................................... 34
The Federal Role in Semiconductors ............................................................................................ 35
Current Federal R&D Efforts to Develop Potential Technology Alternatives and
Supplements to Semiconductors .......................................................................................... 36
National Security Concerns ........................................................................................................... 39
DOD Trusted Foundry Program .............................................................................................. 40
Current Semiconductor-Related Legislation ................................................................................. 43
Concluding Observations .............................................................................................................. 44
Figures
Figure 1. Semiconductors: An Enabling Technology ...................................................................... 3
Figure 2. Evolution of Silicon Wafer Size ....................................................................................... 5
Figure 3. Worldwide and U.S. Semiconductor Industry Sales ........................................................ 7
Figure 4. Global Semiconductor Industry Market Share, by Sales, 2019 ....................................... 7
Figure 5. Typical Global Semiconductor Production Pattern ........................................................ 10
Figure 6. Integrated Circuit End-Use Markets and Estimated Growth Rates................................ 13
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Semiconductors: U.S. Industry, Global Competition, and Federal Policy
Figure 7. U.S. Exports to China, Share of U.S. Exports to the World of Semiconductor
Fabrication Equipment ............................................................................................................... 16
Figure 8. Revenue for Value Chain Segments by Headquarters Location, 2018........................... 17
Figure 9. Semiconductor Industry Market Share, by Sales, 2019 ................................................. 24
Tables
Table 1. Semiconductor Fabrication Capacity ............................................................................... 18
Table 2. Top 10 States in Semiconductor Manufacturing Employment ........................................ 20
Table 3. 300mm (12-inch) Semiconductor Fabs in the United States, 2019 ................................. 22
Table 4. Worldwide 300mm Semiconductor Fab Count................................................................ 26
Table 5. Examples of Abandoned or Blocked Chinese Semiconductor Transactions ................... 32
Table B-1. The Top 15 Semiconductor Suppliers Worldwide ....................................................... 50
Appendixes
Appendix A. History of the Federal Role in Semiconductor Development and
Competition ................................................................................................................................ 47
Appendix B. Top 15 Semiconductor Suppliers Worldwide ........................................................... 50
Appendix C. Semiconductor-Related Legislation in the 116th Congress ...................................... 51
Contacts
Author Information........................................................................................................................ 53
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Semiconductors: U.S. Industry, Global Competition, and Federal Policy
Introduction
Semiconductors, tiny electronic devices based primarily on silicon or germanium, are a uniquely
important enabling technology. They are fundamental to nearly all modern industrial and national
security activities, and they are essential building blocks of other emerging technologies, such as
artificial intelligence, autonomous systems, 5G communications, and quantum computing. For
more than six decades, consistent growth in semiconductor capabilities and performance and
concurrent cost reductions have boosted U.S. economic output and productivity and enabled new
products, services, and industries.
Since the immediate post-World War II era, the United States has been a global leader in the
research, development, design, and manufacture of semiconductors. The United States remains a
leader in semiconductor research and development (R&D), chip design, and some aspects of
semiconductor manufacturing, but a complex mix of both U.S. and foreign companies makes up
the semiconductor supply chain, including fabrication facilities, or fabs. Nevertheless, in 2019,
the United States accounted for 11% of global semiconductor fabrication capacity, down from
13% in 2015, continuing a long-term decline from around 40% in 1990.1
Many policymakers see the competitiveness of the U.S. semiconductor industry, including
domestic production of semiconductors and the retention of manufacturing knowledge, human
expertise, and hands-on experience, as vital to U.S. economic and national security interests.2
Several factors contribute to congressional concerns about the competitiveness of the U.S.
semiconductor industry:
Sustaining the ability of the industry to continually improve semiconductor
performance while decreasing cost through technological innovation.
Because semiconductors are integral components in almost all industrial activity
and fundamental to several emerging technologies, their performance and price
affect multiple sectors and the broader U.S. economy.
Retaining and growing high-skilled and high-paying semiconductor industry
jobs in the United States. Semiconductor manufacturing jobs in the United
States pay twice that of the average U.S. manufacturing job.
The movement of many U.S. firms toward a “fabless” business model. In this
model, fabless semiconductor and related firms focus on R&D and design
capabilities, while contracting with outside, mostly foreign, fabrication
companies.3 This fabless trend has contributed to a concentration of global chip
production among a handful of firms operating fabs in East Asia.
U.S. reliance on global supply chains and production concentrated in East
Asia and vulnerability to disruption or denial due to trade disputes or
1 By 2019, Taiwan, South Korea, and Japan accounted for two-thirds of the world’s semiconductor fabrication capacity,
and China for 12% of global fabrication.
2 Executive Office of the President, President’s Council of Advisors on Science and Technology, Report to the
President: Ensuring Long-Term U.S. Leadership in Semiconductors, January 2017, at
https://obamawhitehouse.archives.gov/sites/default/files/microsites/ostp/PCAST/pcast_ensuring_longterm_us_leadership_in_semiconductors.pdf. Also, see Senate floor debate on the National Defense Authorization Act
for Fiscal Year 2021, Congressional Record, vol. 166, part 128 (July 21, 2020), p. S. 4325.
3 Beginning in the 1980s, some semiconductor companies began to contract for their fabrication needs rather than
maintaining their own fabrication facilities. These firms became known as “fabless” firms. Also, some companies such
as Apple that are not classified as semiconductor companies design their own semiconductor chips and contract for
their manufacturing.
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military conflict. Manufacturing disruptions during the Coronavirus Disease
2019 (COVID-19) pandemic have exacerbated this concern. Successive
presidential administrations and many in Congress have asserted the need to
retain and expand advanced domestic semiconductor fabrication plants.
China’s emerging strength in semiconductors supported through a state-led
effort to establish itself as a global leader across the supply chain by 2030.
Although China’s wafer fabrication is at least a generation behind the global
industry in technology, it appears to be catching up through foreign technology
acquisition, collaboration, and transfer. This includes the use of joint ventures,
licensing agreements, U.S.-led open source technology platforms for chip design,
as well as the hiring of foreign talent and the purchase of U.S. equipment and
software tools.
Assuring access to secure semiconductors for military systems. Through its
Trusted Foundry program, the Department of Defense (DOD) has, for over a
decade, relied on a single U.S.-based foundry to supply secure, leading-edge
semiconductors. Concerns about the sustainability and adequacy of this approach
has generated interest in alternatives, including access to a broader range of
commercial, state-of-the-art design and fabrication capabilities.
Although some countries, including the United States, support their domestic semiconductor
industry, the scope and scale of China’s state-led efforts are unprecedented. China’s approach has
the potential to shift global semiconductor production and related design and research capabilities
to China, a development that could affect the competitiveness of U.S. firms. China’s efforts are
also of concern to many policymakers because they undermine global rules (e.g., state financing
of industry and acquisitions, forced technology transfer, and intellectual property theft). While
some aspects of the China semiconductor challenge are unique, the U.S. response to the challenge
posed by the Japanese government and its semiconductor industry in the 1980s offers context. For
a discussion of the federal policies and investments at that time, including a multiyear, $1.7
billion federal investment in SEMATECH, an industry consortium of U.S. semiconductor firms,
see Appendix A.
This report discusses the technical challenges the semiconductor industry faces, domestic and
global supply chains, secure and trusted production of semiconductors for national security, and
federal policies. This report also discusses current legislation to address these concerns, including
federal assistance for the domestic semiconductor industry and funding for research and
development (R&D) activities.
Semiconductor Industry Basics
A semiconductor (also known simply as an integrated circuit, a microelectronic chip, or a
computer chip) is a tiny electronic device (generally smaller than a postage stamp) composed of
billions of components that store, move, and process data.4 All of these functions are made
possible by the unique properties of semiconducting materials, such as silicon and germanium,
which allow for the precise control of the flow of electrical current. Semiconductors are used for
many purposes in many types of products—for example, to run software applications and to
4 Organisation for Economic Co-operation and Development (OECD), Measuring Distortions in International Markets:
The Semiconductor Value Chain, November 21, 2019, p. 12, at https://www.oecd-ilibrary.org/trade/measuringdistortions-in-international-markets_8fe4491d-en. A semiconductor is a name given to materials with unique electrical
properties falling between a conductor and an insulator; products made from these materials are also referred to as
semiconductors.
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temporarily store documents. Semiconductors provide data storage and communication
capabilities of countless other products, including mobile phones, gaming systems, aircraft
avionics, industrial machinery, and military equipment and weapons. Many products with roots in
mechanical systems—such as manufacturing equipment—heavily depend on chip-based
electronics. Modern automobiles illustrate the ubiquitous role of semiconductors in devices that
were once only mechanical and chemical in function. According to one analysis, some hybrid
electric automobiles may now contain as many as 3,500 semiconductors.5 Semiconductor chips
are fundamental to emerging technological applications such as artificial intelligence, cloud
computing, 5G, the Internet-of-Things (IoT), and large-scale data processing and analytics and
supercomputing.6 (See Figure 1.)
Figure 1. Semiconductors: An Enabling Technology
Source: Alex Capri, “Semiconductors at the Heart of the U.S.-China Tech War: How a New Era of TechnoNationalism is Shaking Up Semiconductor Value Chains,” Hinrich Foundation, January 2020, p. 13.
5 David Coffin, Sarah Oliver, and John VerWey, Building Vehicle Autonomy: Sensors, Semiconductors, Software, and
U.S. Competitiveness, United States International Trade Commission (USITC), Working Paper ID-063, January 2020,
p. 8, at https://www.usitc.gov/publications/332/working_papers/autonomous_vehicle_working_paper_01072020_508_compliant.pdf; and Amanda Lawrence and John VerWey, The Automotive Semiconductor Market—Key
Determinants of U.S. Firm Competitiveness, USITC, Executive Briefings on Trade, May 2019, at
https://www.usitc.gov/publications/332/executive_briefings/
ebot_amanda_lawrence_john_verwey_the_automotive_semiconductor_market_pdf.pdf.
6 See CRS In Focus IF10608, Overview of Artificial Intelligence, by Laurie A. Harris; CRS Report R46119, Cloud
Computing: Background, Status of Adoption by Federal Agencies, and Congressional Action, by Patricia Moloney
Figliola; CRS Report R45485, Fifth-Generation (5G) Telecommunications Technologies: Issues for Congress, by Jill
C. Gallagher and Michael E. DeVine; CRS In Focus IF11239, The Internet of Things (IoT): An Overview, by Patricia
Moloney Figliola; and CRS Report RL33586, The Federal Networking and Information Technology Research and
Development Program: Background, Funding, and Activities, by Patricia Moloney Figliola.
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Semiconductor History and Technological Challenges
The federal government played a central role in the development of semiconductors and has
engaged in efforts to bolster the competitiveness of the U.S. semiconductor industry and to
address unfair trade practices. Early computers (in the 1940s and 1950s) relied on thousands of
vacuum tubes, crystal diodes, relays, resistors, and capacitors to perform simple calculations.
The federal government, academia, and U.S.
industry undertook efforts to reduce and
simplify the number of these devices.
Military applications played a significant
role in the research that led to the
development of semiconductor technology.
The invention of the transistor, a simple
semiconductor device capable of regulating
the flow of electricity, was followed by the
development of the integrated circuit (IC) in
1958. ICs allowed thousands of resistors,
capacitors, inductors, and transistors to be
“printed” and connected on a single piece of
semiconductor material, so that they
functioned as a single integrated device. In
addition to funding academic and industrial
research, the federal government played a
central role in the commercialization of the
technology through purchases of
semiconductors for a variety of military,
space, and civilian applications.
Key Semiconductor Dimensions: Feature
Size and Wafer Size
This report refers frequently to two key dimensions
related to semiconductors. One, feature size, relates to
the performance of a semiconductor (generally the
smaller the feature, the greater the chip performance) and
the other, wafer size, which relates to the efficiency of
semiconductor fabrication (in general, the larger the
wafer, the lower the production cost per wafer).
Feature size describes the size of the transistor gate
length as measured in billionths of a meter, or nanometers
(nm). Feature size is often referred to as the
semiconductor technology node, which is used to identify
the technology generation of a chip. The extraordinary
advances in chip processing power have resulted primarily
from continued reductions in the size of the features that
can be printed on a chip. Generally, the smaller the
feature size, the more powerful the chip, as more
transistors can be placed on an area of the same size. This
also results in increased processing power per dollar.
Many semiconductors manufactured in 2019 were
produced at the 14nm and 10nm nodes. Some
manufacturers are producing at 7nm and 5nm nodes, with
efforts to manufacture at 2nm and 1nm.
Wafer size refers to the diameter of a wafer measured
in millimeters (mm). Wafers used in semiconductor
fabrication are usually made from thin slices of pure
silicon, which serve as the substrate on which
semiconductors are manufactured through
microfabrication processing steps, such as doping, etching,
thin-film deposition, and photolithography. The diameter
of a wafer determines its surface area, which in turn
determines how many chips can be made on it. A larger
wafer diameter allows more amortization of fixed costs,
resulting in a lower cost per chip. The performance of a
semiconductor is independent of wafer size. Since 2002,
the largest wafers in full production have been 300
millimeters in diameter.
The semiconductor industry has a rapid
internal product development cycle, first
described by the former CEO and cofounder of Intel Corporation, Gordon
Moore, in 1965.7 Moore’s Law, which is
actually an observation about the pace of
development and reduction in chip cost, has
held true for decades. It states that the
number of transistors that can be costeffectively included on a dense integrated
circuit will double about every 18 months to
two years, making semiconductors smaller,
faster, and cheaper.8 This observation has held true for decades. The effects of Moore’s Law are
evident in short product life-cycles, requiring semiconductor manufacturers to maintain high
7 Gordon E. Moore, “Cramming More Components onto Integrated Circuits,” Electronics, vol. 38, no. 8 (April 19,
1965). Also see Gordon E. Moore, Proceedings of the IEEE, vol. 86, no. 1 (January 1998), at
https://www.cs.utexas.edu/~fussell/courses/cs352h/papers/moore.pdf.
8 Dylan Tweney, “April 19, 1965: How Do You Like It? Moore, Moore, Moore,” Wired, April 19, 2010, and David
Rotman, “We’re Not Prepared for the End of Moore’s Law,” MIT Technology Review, February 24, 2020, at
https://www.technologyreview.com/2020/02/24/905789/were-not-prepared-for-the-end-of-moores-law/.
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levels of research and investment spending. The increased power and decreased cost of
semiconductors predicted by Moore’s Law has created and revolutionized entire industries; a
2015 study estimated that advanced semiconductors played a critical role in enabling innovations
that generated at least $3 trillion in incremental gross domestic product over the previous two
decades.9
Semiconductor factories, also referred to as fabs or foundries, are often characterized by the size
of the wafer that chips are printed on and the size of the transistor gate length printed on each
chip (see box). Only a small number of firms have the capital to produce the most advanced
semiconductors with reduced feature size, as the fabrication of each new generation of
semiconductors requires more costly equipment and capital-intensive processes.10 Leading-edge
semiconductor manufacturers have to make concurrent R&D investments in development and
support of multiple generations of chip technology.
Wafer Size
Semiconductor production lines primarily use 300-millimeter (mm) diameter wafers, also referred
to as a 12-inch line (see Figure 2). In contrast, production lines built in the 1980s and 1990s used
6- and 8-inch (also referred to as 200mm diameter) wafers, and some older production lines still
use 4-inch diameter wafers. As wafer diameter increases, more chips can be made from a single
wafer, allowing the fixed costs of processing a wafer to be spread over a larger number of chips,
thereby improving production efficiency and lowering the unit cost of the chips.11 A 300mm
wafer can yield more than 2,400 ICs, compared to the 1,000 ICs that can be made from a 200mm
wafer.12
Figure 2. Evolution of Silicon Wafer Size
Source: CRS, modified from Evan Ramstad, “Why Computer-Chip Factories from the 1980s Are Still Going
Strong in Bloomington,” StarTribune, June 8, 2019.
9 IHS (now IHS Markit), Celebrating the 50th Anniversary of Moore’s Law, 2015, p. 9, at
https://technology.informa.com/api/binary/532884.
10 Rock’s Law, which is sometimes referred to as Moore’s second law, predicts that the cost of building next generation
semiconductor chip fabrication plants will double every four years. John VerWey, The Health and Competitiveness of
the U.S. Semiconductor Manufacturing Equipment Industry, USITC, Journal of International Commerce and
Economics, July 2019, Office of Industries, Working Paper ID-058, p. 17, at https://www.usitc.gov/publications/332/
working_papers/id_058_the_health_and_competitiveness_of_the_sme_industry_final_070219checked.pdf.
11 OECD, Measuring Distortions in International Markets: The Semiconductor Value Chain, November 21, 2019, p.
20.
12 Angelo Zino and Jia Yi Young, Semiconductors and Semiconductor Equipment, CFRA, May 2020, p. 37.
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Each reduction in feature size is considered a move to a new generation of manufacturing
technology. Some features of chips are now under 10nm,13 a few chip producers have reached
5nm.14 Some companies have announced plans to move to even smaller nodes.
Most semiconductors are made using 300mm wafers. Efforts to develop 450mm wafers have
proven unsuccessful so far. The impetus for moving to larger wafers is the potential for decreased
costs resulting from the production of more chips from a single wafer over the same time period.
Delays in an industry shift to 450mm appear to be attributable to several factors: the challenge of
getting equipment manufacturers, chip fabricators, and other elements of the supply chain to
move forward together in such a shift; the potentially higher cost of new fabrication facilities and
manufacturing equipment; and the industries’ current investments (i.e., sunk costs) in existing
facilities. Another factor in the decision to move to 450mm is the complexity of timing to align
best with broader market conditions. One high-profile industry consortium formed in 2011 to
develop 450mm wafer production—the Global 450 Consortium, whose founders included Intel,
Samsung, GlobalFoundries, TSMC, IBM, and the College of Nanoscale Science and Engineering
at the State University of New York Polytechnic Institute—disbanded in 2017.15
Feature Size
The most advanced chips today may have more than a trillion transistors. This miniaturization has
led to feature sizes so small that performance can be impeded by electrons jumping out of their
barriers (known as “leakage current”) due to a phenomenon known as quantum tunneling.
Reducing leakage current to allow even tighter packing of transistors is a focus of semiconductor
research.16
The Global Semiconductor Industry
U.S.-headquartered semiconductor firms were responsible for the largest share (47%) of the $412
billion global market in 2019, as measured by sales.17 Although their sales are higher now than in
2012, U.S.-headquartered companies’ aggregate share of global sales has been falling, from
51.8% in 2012 to 46.8% in 2019 (see Figure 3). These data are based on the headquarters
13 According to a U.S. International Trade Commission (USITC) analysis, currently “leading-edge chips” are those
with a feature size of 14nm or below (for comparison, a human hair is about 75,000nm in diameter). The USITC also
points out over the last two decades more companies are focused on producing “state of practice” chips with a feature
size of 32nm-65nm and “legacy chips” with a feature size from 65nm to 10,000nm. See John VerWey, Chinese
Semiconductor Industrial Policy: Past and Present, USITC, Journal of International Commerce and Economics, July
2019, p. 4, at https://www.usitc.gov/publications/332/journals/
chinese_semiconductor_industrial_policy_past_and_present_jice_july_2019.pdf.
14 Samsung, “Samsung Electronics Announces Second Quarter 2020 Results,” press release, July 30, 2020,
https://news.samsung.com/global/samsung-electronics-announces-second-quarter-2020-results; TSMC, website, “5nm
Technology,” at https://www.tsmc.com/english/dedicatedFoundry/technology/5nm.htm.
15 Joel Hruska, “450mm Silicon Wafers Aren’t Happening Any Time Soon as Major Consortium Collapses,”
ExtremeTech, January 13, 2017, at https://www.extremetech.com/computing/242699-450mm-silicon-wafers-arenthappening-time-soon-major-consortium-collapses.
16 For differing opinions on the future prospects of silicon-based semiconductors, see “The Impact of Moore’s Law
Ending,” Semiconductor Engineering, October 29, 2018, at https://semiengineering.com/the-impact-of-moores-lawending/, and Bret Swanson, Moore’s Law at 50: The Performance and Prospects of the Exponential Economy,
American Enterprise Institute, November 2015, pp. 14-15, at https://www.innovationnj.net/news/moores-law-at-50-theperformance-and-prospects-of-the-exponential-economy.
17 Global and U.S. industry sales represent sales of chips to a downstream customer or end-user.
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location of the companies that that design and own the chips, which is not necessarily the
company that physically produces the chip.
Figure 3. Worldwide and U.S. Semiconductor Industry Sales
Source: Semiconductor Industry Association (SIA), 2020 Databook, p. 11.
Figure 4 shows global semiconductor market share in 2019, based on headquarters location. By
this metric, the United States leads, followed by South Korea (19%), Japan (10%), Europe (10%),
Taiwan (6%), and China (5%).18 Semiconductor industry experts anticipate the U.S. share of
worldwide sales to remain below 50% in 2020.
Figure 4. Global Semiconductor Industry Market Share, by Sales, 2019
Source: SIA, 2020 State of the U.S. Semiconductor Industry, p. 7.
Notes: Sales based on the location of company headquarters.
As shown in Appendix B, six of the 15 largest semiconductor firms worldwide by sales in 2019
are headquartered in the United States: Intel, Micron Technology, Broadcom, Qualcomm, Texas
Instruments, and Nvidia.19 Not all of these firms own manufacturing facilities.20 They draw on an
extensive base of suppliers located in many countries. The Semiconductor Industry Association
18 Semiconductor Industry Association (SIA), 2020 Factbook, April 23, 2020, p. 3, at https://www.semiconductors.org/
the-2020-sia-factbook-your-source-for-semiconductor-industry-data/.
19 IC Insights, “Intel to Reclaim Number One Semiconductor Supplier Ranking in 2019,” November 18, 2019, at
https://www.icinsights.com/news/bulletins/Intel-To-Reclaim-Number-One-Semiconductor-Supplier-Ranking-In2019—/.
20 Additionally, some companies, such as Apple Inc., design semiconductors for their own use but contract for their
manufacturing. Such firms are generally not classified as semiconductor manufacturers in government or industry data.
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(SIA), the principal industry trade group, reported in 2016 that one large U.S.-based
semiconductor firm had more than 16,000 suppliers worldwide, of which 7,300 were located in
the United States.21 In addition, in 2020, there are signs of additional industry consolidation
across national borders and industry segments.
Semiconductor Market Segments
Semiconductors can be classified into four major product groups, mainly based on their function:
microprocessors and logic devices; memory; analog; and optoelectronics, sensors, and discretes.
Some of these products have broad functionality; others are designed for specific uses. According
to SIA, the first two product groups account for two-thirds of global sales.
1. Microprocessors and logic devices are used for the interchange and
manipulation of data in computers, communication devices, and consumer
electronics.22 They perform a wide variety of tasks, such as running a word
processing program or a video game. Microprocessors and logic devices
accounted for 42% ($171 billion) of total semiconductor sales.23
2. Memory devices are used to store information. This segment includes dynamic
random access memory (DRAM), a common and inexpensive type of memory
used for the temporary storage of information in computers, smartphones, tablets,
and flash memory, which retains data even when power is shut off. Memory
devices accounted for 25% ($106 billion) of semiconductor sales.
3. Analog devices are used to translate analog signals, such as light, touch, and
voice, into digital signals. For example, they are used to convert the analog sound
of a musical performance into a digital recording stored online or on a compact
disc. Analog devices accounted for about 13% ($54 billion) of semiconductor
sales.
4. Optoelectronics, sensors, and discretes (commonly referred to as O-S-D).
Optoelectornics and sensors are mainly used for generating or sensing light, for
example, in traffic lights or cameras. Discretes—such as transistors, diodes, and
resistors—contain only one device per chip and are designed to perform a single
electrical function.24
Many chip manufacturers specialize in specific types of semiconductors. For example, the
primary market for U.S.-based Intel Corporation, the largest global semiconductor manufacturer
by sales in 2019 (see Appendix B), is microprocessors for the personal computer industry.
Microprocessors are more difficult to manufacture, more technologically advanced, and more
expensive than other semiconductor products. Intel’s main competition in microprocessors is its
considerably smaller rival, U.S.-headquartered Advanced Micro Devices (AMD).25
21 SIA, Beyond Borders: The Global Semiconductor Value Chain, May 2016, p. 3, at https://www.semiconductors.org/
wp-content/uploads/2018/06/SIA-Beyond-Borders-Report-FINAL-June-7.pdf.
22 Angelo Zino and Jia Yi Young, Industry Surveys Semiconductors and Semiconductor Equipment, CFRA, May 2020,
p. 35.
23 CRS combined the global semiconductor sales data for microprocessors and logic devices (an older category of chips
that are now widely considered a type of microprocessor) as reported in SIA’s annual Factbook. Global semiconductor
sales figures are from the World Semiconductor Trade Statistics.
24 SIA, 2020 Factbook, April 23, 2020, p. 11.
25 Investopedia, “Who are Intel’s (INTC) Main Competitors?,” March 31, 2020, at https://www.investopedia.com/ask/
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South Korean manufacturers Samsung and SK Hynix and U.S.-based Micron together accounted
for 95% of global DRAM sales in 2019.26 Micron was the fifth-largest semiconductor company in
the world by sales in 2019 (see Appendix B). In recent years, these companies’ heavy
dependence on the DRAM market has been a challenge, as memory chips are considered
commodities with little differentiation among them and typically with smaller profit margins than
microprocessors.27 In addition, DRAMs have been marked by boom and bust cycles, which have
at times led to dramatic reductions in prices due to weak demand or excess capacity. 28
Although semiconductor sales are dominated by large companies, a number of small
semiconductor firms focus on specialized needs. According to some industry experts, small
semiconductor firms can compete effectively with larger ones by producing specialized chips for
particular market niches or by developing new applications for their customers.29 For example,
Skywater Technology, a firm that Cypress Semiconductor spun off in 2017, and that Infineon
acquired in 2020, operates a single small fab in Minnesota.30 It is currently the only U.S.-owned
pure-play semiconductor foundry31 in the country, and operates as a trusted manufacturer (see
“DOD Trusted Foundry Program”) for the military’s microelectronics program.32 The Department
of Defense announced that it would invest up to $170 million to increase Skywater’s production
of semiconductors designed with security-related aims, such as the ability to withstand radiation
in space.33
Global Semiconductor Production
As semiconductors become smaller and are more densely packed with transistors, the complexity
of manufacturing increases. Figure 5 depicts a simplified graphic of the semiconductor
production process that captures the main parts of the production stream.
answers/120114/who-are-intels-intc-main-competitors.asp.
26 Statistica, DRAM Chip Market Share by Manufacturer Worldwide from 2011 to 2019, March 3, 2020, at
https://www.statista.com/statistics/271726/global-market-share-held-by-dram-chip-vendors-since-2010/.
27 Angelo Zino and Jia Yi Young, Industry Surveys Semiconductors and Semiconductor Equipment, CFRA, May 2020,
pp. 41-42.
28 “Micron, Samsung, and SK Hynix: The DRAM Oligopoly,” Seeking Alpha, May 12, 2020, at
https://seekingalpha.com/article/4346547-micron-samsung-and-sk-hynix-dram-oligopoly.
29 First Research, Semiconductor and Other Electronic Component Manufacturing, April 27, 2020, at
http://www.firstresearch.com/Industry-Research/Semiconductor-and-Other-Electronic-ComponentManufacturing.html.
30 Cypress Semiconductor, “Cypress Closes Sale of Minnesota Wafer Fabrication Facility,” press release, March 1,
2017, at https://www.cypress.com/news/cypress-closes-sale-minnesota-wafer-fabrication-facility; and Infineon,
“Infineon Technologies AG Completes Acquisition of Cypress Semiconductor Corporation, press release, April 16,
2020, at https://www.infineon.com/cms/en/about-infineon/press/press-releases/2020/INFXX202004-049.html.
31 A pure-play semiconductor company engages in contract manufacturing of semiconductors for design firms, but
produces no (or few) products of its own design.
32 Samuel K. Moore, “The Foundry at the Heart of DARPA’s Plan to Let Old Fabs Beat New Ones,” IEEE Spectrum,
August 6, 2018, at https://spectrum.ieee.org/nanoclast/semiconductors/processors/the-foundry-at-the-heart-of-darpasplan-to-let-old-fabs-beat-new-ones.
33 Carrigan Miller, “Behind Skywater’s Chip-Plant Expansion, a $170M Pentagon Deal,” Minneapolis/St. Paul
Business Journal, October 21, 2019, at https://www.bizjournals.com/twincities/news/2019/10/21/behind-skywaterschip-plant-expansion-a-170m.html.
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Figure 5. Typical Global Semiconductor Production Pattern
Source: CRS, adapted from information provided by SIA.
Materials Used for Wafer Manufacturing
Silicon is still the most widely used basic material on which semiconductors are fabricated. Five
firms account for 90% of the world’s silicon wafer production; two Japanese firms, Shin-Etsu and
Sumco, account for around 60%.34 Silicon wafers are manufactured in a number of countries
around the world, including the United States, Japan, Taiwan, Malaysia, and the United Kingdom.
In addition to silicon-based semiconductors, chips referred to as “III-V” semiconductors are cut
from wafers made from a combination of one or more elements each from groups III and V on the
periodic table, such as gallium arsenide (GaAs), silicon carbide (SiC), and gallium nitride
(GaN).35 These materials are most often used in the manufacture of photovoltaics (e.g., solar
cells), light-emitting diodes (LEDs), sensors, optoelectronics, and other products.
III-V semiconductors are generally characterized by a wide bandgap,36 which offers a variety of
improved performance characteristics over silicon. According to the U.S. Department of Energy
(DOE):
34 Siltronic, Siltroni-A Leading Producer of Silicon Wafer, Factbook, Investor Relations, August 2020, p. 4, at
https://www.siltronic.com/en/investors/reports-and-presentations.html.
35 A more recent numbering system for element groups in the periodic table, recommended by the International Union
of Pure and Applied Chemistry (IUPAC), labels groups III and V as groups 13 and 15, but the term “III-V” is most
widely used for this class of semiconductor materials.
36 The bandgap is the energy difference between the valence band and the conduction band of a solid material. No
electronic state can exist between these bands. Wide bandgap materials permit devices to operate at much higher
voltages, frequencies, and temperatures.
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Wide bandgap semiconductor materials allow power electronic components to be smaller,
faster, more reliable, and more efficient than their silicon-based counterparts. These
capabilities make it possible to reduce weight, volume, and life-cycle costs in a wide range
of power applications. Harnessing these capabilities can lead to dramatic energy savings in
industrial processing and consumer appliances, accelerate widespread use of electric
vehicles and fuel cells, and help integrate renewable energy onto the electric grid. 37
Other advantages of III-V semiconductors, which vary among the different types, include
radiation resistance (especially important to the defense, space, and nuclear energy sectors);
operation at higher voltages, frequencies, and temperatures; higher processing speeds; faster
switching speeds with lower transition losses; higher power density; and higher material
strength.38
The DOE Office of Energy Efficiency and Renewable Energy supports research on III-V
semiconductors, and sponsors the PowerAmerica Manufacturing USA institute (see “Current
Federal R&D Efforts” for more information on PowerAmerica).
Design; Fabrication; and Assembly, Testing, and Packaging
Semiconductor manufacturing has three distinct components. Some companies specialize in a
particular component, while others engage in two or three.
1. Design, in which companies conceive new products and specifications to meet
customer needs and reduce these ideas to particular logic and circuit designs for
manufacture;
2. Front-end fabrication, in which fabs are used to manufacture semiconductors
by etching microscopic electronic circuits onto wafers of silicon (or, less
commonly, other materials); and
3. Back-end assembly, testing, and packaging (ATP), in which wafers are sliced
into individual semiconductors, encased in plastic, and put through a qualitycontrol process.
Front-end fabrication and back-end ATP both require highly specialized machinery. SIA estimates
that 90% of the value of a semiconductor chip is split evenly between the design and fabrication
stages, while the remaining 10% is added during the ATP stage.39
Companies that design semiconductors may or may not have their own foundries to make chips.
An integrated device manufacturer (IDM) conducts chip design, fabrication, and ATP in-house.
IDMs include Intel, Samsung, SK Hynix, Micron, Texas Instruments, Toshiba, Sony,
STMicroelectronics, Infineon, and NXP. Some IDMs also provide contract fabrication services
for other firms. A fabless firm, by contrast, engages solely in chip design and partners with a
37 DOE, Office of Energy Efficiency and Renewable Energy, Advanced Manufacturing Office, “Wide Bandgap
Semiconductors: Pursuing the Promise,” at https://www1.eere.energy.gov/manufacturing/rd/pdfs/
wide_bandgap_semiconductors_factsheet.pdf.
38 DOE, Office of Energy Efficiency and Renewable Energy, Advanced Manufacturing Office, “Wide Bandgap
Semiconductors: Pursuing the Promise”; Applied Materials, “Wide Band Gap—The Revolution in Power
Semiconductors,” at http://www.appliedmaterials.com/nanochip/nanochip-fab-solutions/april-2019/wide-band-gap; and
Texas Instruments, “Advantages of Wide Band Gap Materials in Power Electronics—Part 1,” at https://e2e.ti.com/
blogs_/b/powerhouse/archive/2016/05/24/advantages-of-wide-band-gap-materials-in-power-electronics-part-1.
39 John VerWey, Global Value Chains: Explaining U.S. Bilateral Trade Deficits in Semiconductors, USITC, Executive
Briefing on Trade, March 2018, p. 1, at https://www.usitc.gov/publications/332/executive_briefings/ebotsemiconductor_gvc_final.pdf.
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contract foundry (a foundry that typically has limited or no semiconductor design capability) to
manufacture a design into chips. “Fab-lite” semiconductor companies, such as Infineon, maintain
some in-house fabrication production, but contract a significant amount of chip production to
outside foundries.
Design
According to the research firm Trendforce, seven of the top 10 fabless semiconductor design
firms, by revenue, are headquartered in the United States—including the top three (Broadcom,
Qualcomm, and Nvidia); three are headquartered in Taiwan.40 In 2020, Nvidia bid to acquire
ARM—a United Kingdom-headquartered company acquired by Japan’s SoftBank in September
2016—potentially adding to U.S.-headquartered design capabilities.41
Fabless semiconductor firms generally have higher and less volatile profit margins than
semiconductor manufacturers with integrated operations.42 Among the risks faced by fabless
firms are quality control and ensuring timely production when demand for outside foundries’
capacity is strong. The number of fabless design companies is increasing as some IDMs choose to
become fabless and new companies enter the market.43 For some U.S. policymakers, the reliance
of U.S. fabless firms on merchant foundries in East Asia to produce chips has raised national
security concerns (such as increased risks of concentration by geography and among a small
number of companies, the possibility of intellectual property loss due to the need to share details
of chip design and production with foundries, assured access to production capacity, and control
of product integrity), especially as it relates to leading-edge, 7nm-and-below chip production.
According to a report produced for the U.S. Air Force in 2019, “Close to 90% of all high-volume,
leading-edge IC production will soon be based in Taiwan, [China], and South Korea, with the
U.S. share of global IC fab capacity falling to 8% by 2022, down from 40% in the 1990s.”44
There is competition in semiconductor design focused on unique functions. These include chip
design for personal computers (including memory chips), video and graphic processing and
display, servers, tablets, cellphones, automobiles, digital televisions, set-top boxes, game
consoles, medical devices, wearable systems, wireless networks, military systems, and other
industrial applications. Some of these chips may also incorporate artificial intelligence to varying
degrees.
Figure 6, produced by market research firm IC Insights in 2017, shows estimated 2017 revenues
for selected IC end-use markets, the share of global revenues for each in 2017 (on the y-axis), and
the projected compound annual growth rate for revenues from 2016 to 2021 (on the x-axis). ICs
for cell phones and personal computers (PCs) were the two largest segments, together accounting
for more than 40% of global IC revenues. The two segments with the fastest projected compound
40 TrendForce, “Global Top 10 IC Designers’ 2019 Revenues Drop by 4.1% YoY, as Industry Growth to Face
Challenges from Covid-19 Pandemic in 2020, Says TrendForce,” press release, March 17, 2020, at
https://press.trendforce.com/node/view/3341.html.
41 Nvidia, Nvidia to Acquire ARM for $40 Billion, Creating World’s Premiere Computing Company for the Age of AI,
September 13, 2020, at https://nvidianews.nvidia.com/news/nvidia-to-acquire-arm-for-40-billion-creating-worldspremier-computing-company-for-the-age-of-ai.
42 Angelo Zino and Jien Loon Choong, Semiconductors and Semiconductor Equipment, CFRA Industry Surveys
November 2019, p. 31.
43 Angelo Zino and Jia Yi Young, Semiconductors and Semiconductor Equipment, CFRA, May 2020, p. 25.
44 Rick Switzer, U.S. National Security Implications of Microelectronics Supply Chain Concentrations in Taiwan,
South Korea, and the People’s Republic of China, p. 4, September 2019, as prepared for the U.S. Air Force, Office of
Commercial and Economic Analysis.
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annual growth rate (CAGR) for revenues during the 2016 to 2021 period were automotive (13.4%
CAGR) and IoT (13.2% CAGR). The CAGR for all IC revenues for this period was 7.9%,
growing from $297.7 billion in 2016 to a projected $434.5 billion in 2021.45 Likely areas of
growth beyond 2021 include automotive and IoT. These market shares and growth rates pertain
only to a portion of the entire IC market.
Figure 6. Integrated Circuit End-Use Markets and Estimated Growth Rates
Dollars in billions
Source: IC Insights, Research Bulletin, Automotive and IoT Will Drive IC Growth Through 2021, December 6, 2017,
provided to CRS by IC Insights in email communication, August 27, 2020.
Notes: Data for 2017 based on estimated sales. Compound annual growth rates (CAGR) for 2016-2021 based
on 2016 sales and projected sales for 2021.
Beyond fabless design firms and IDMs, competitors in these markets include companies in other
industries. Facebook designs chips optimized for the types of content it stores and processes on its
servers. Apple develops chips for the iPhone and the iPad. Automakers are working with partners
to develop chips that support electric and hybrid-electric vehicles, as well as to support
autonomous driving functions. In each case, the physical production of the custom-designed chips
is performed by contract foundries.
Semiconductor designers often rely on other companies for IP cores46 and electronic design
automation (EDA) software.47 Designers work with foundries to ensure that their designs can be
reliably manufactured.48 Fabless firms work in close coordination with contract fabs. For
example:
45 IC Insights, Research Bulletin, Automotive and IoT Will Drive IC Growth Through 2021, December 6, 2017,
provided to CRS by IC Insights in email communication, August 27, 2020.
46 An intellectual property (IP) core is a reusable component of design logic with a defined interface and behavior. Arm
Holdings is the largest company that sells and licenses IP cores. Nvidia is in talks to acquire ARM. (George Leopold,
“Nvidia Said to be Close on Arm Deal,” HPC Wire, August 3, 2020, at https://www.hpcwire.com/2020/08/03/nvidiasaid-to-be-close-on-arm-deal/.)
47 EDA firms make the specialized software that is used to design all semiconductor devices. The three largest EDA
companies are Cadence (U.S.), Synopsys (U.S.), and Mentor Graphics (Germany).
48 McKinsey & Company, Semiconductor Design and Manufacturing: Achieving Leading-Edge Capabilities, August
20, 2020, p. 4, at https://www.mckinsey.com/industries/advanced-electronics/our-insights/semiconductor-design-andmanufacturing-achieving-leading-edge-capabilities.
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Xilinx [a fabless firm] and UMC [a contract fab] pioneered the “virtual IDM” relationship,
where the fabless company has full access to the process technology and is an active
development partner. Xilinx and UMC worked together to develop the process technology,
create test chips, and so on. In fact, Xilinx had a whole floor of one of UMC’s buildings
for their own employees.49
This relationship involves high levels of cooperation and information sharing which can
potentially increase the risk of IP loss. A variety of tools (e.g., contracts, non-disclosure
agreements, encryption) are used to prevent the unauthorized sharing of this information.
Fabrication: Facilities (Foundries)
Semiconductor foundries, which conduct the front-end manufacturing process, are capitalintensive operations. High capital costs create barriers to entry. Although estimates vary, industry
experts say that a new semiconductor factory, much of which may be obsolete after five or six
years, now costs at least $7 billion to build, with some asserting that an advanced chip fab can
cost as much as $20 billion.50 According to SIA, the majority of initial fab construction costs is in
the production of semiconductor manufacturing equipment, with some pieces costing more than
$100 million each.51
Because semiconductor manufacturers have high fixed costs and continuing requirements for
factory improvements, they require high capacity utilization to remain profitable. Moreover, fabs
generally require retooling every few years, again involving significant costs. Between 2010 and
2018, the U.S. semiconductor manufacturing industry’s domestic expenditures for new plants and
equipment ranged from $11 billion to $22 billion.52 Capital expenditures approached 20% of the
value of industry shipments in 2018, compared to approximately 4% for the manufacturing sector
as a whole.53
Other challenges for the industry include the rapid obsolescence of chips in inventory as
improved designs displace existing products, potentially leaving producers with unsalable
inventories and financial losses, as well as the high cost of R&D associated with the development
of next generation chips (see “Industry R&D Spending”).
TSMC, headquartered in Taiwan, operates the world’s largest foundry and is the world’s largest
contract chipmaker.54 TSMC is one of only three manufacturers in the world that fabricate the
49 Daniel Nenni and Paul McLellan, Fabless: The Transformation of the Semiconductor Industry, 2019 Revised
Edition, p. 60, SemiWiki.com.
50 James A. Lewis, Learning the Superior Techniques of the Barbarians: China’s Pursuit of Semiconductor
Independence, Center for Strategic and International Studies, January 2019, p. 11, at https://csisprod.s3.amazonaws.com/s3fs-public/publication/190115_Lewis_Semiconductor_v6.pdf.
51 Conversation between CRS and SIA, June 5, 2020.
52 Capital expenditures based on NAICS 3344 (semiconductors and other electronic component manufacturing) from
the U.S. Census Bureau’s Annual Capital Expenditures Survey, at http://www.census.gov/programs-surveys/aces.html.
53 Industry shipments based on NAICS 3344 from Annual Survey of Manufactures: Summary Statistics for Industry
Groups and Industries in the U.S.: 2018, at https://www.census.gov/programs-surveys/asm/data/tables.html. Capital
expenditures are taken from the U.S. Census Bureau’s Annual Capital Expenditures Survey, at http://www.census.gov/
programs-surveys/aces.html.
54 TSMC makes tailor-made products for clients, unlike companies such as Samsung and Intel, which reserve a
segment of their fabrication production for their own products. TSMC is an important source of semiconductor chips
for a number of U.S. and Chinese tech firms, including Apple, Qualcomm, Broadcom, Nvidia, Huawei, and Xilinx.
TSMC also makes high-performance chips designed by Xilinx for U.S. military equipment, which in turn are used in
F-35 fighter jets and satellites.
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most advanced semiconductor chips—those containing transistors of 10nm or smaller. The other
two are Samsung and Intel. TSMC recently announced that it intends to build a $12 billion
semiconductor fabrication plant in Arizona, where it initially plans to manufacture 5nm-class
chips.55 The Arizona facility would be TSMC’s second manufacturing site in the United States;
the company operates an older 200mm fab in Camas, WA, where it primarily manufactures flash
memory.56 It also has design centers in Austin, TX, and San Jose, CA.57 The majority of TSMC’s
production is in Taiwan, where it operates three 300mm fabs capable of producing more than
100,000 printed wafers per month58 at the 90nm to 7nm nodes.59 The company also has a fab in
Nanjing, China.
If TSMC proceeds with its announced plan to build a fab in Arizona, the wafers it produces are
expected to be at least 7% more expensive to manufacture than if they were made in Taiwan or
China, according to one assessment of the project. The differential is attributed to the planned
facility’s relatively small capacity as well as to higher construction, labor, and utility costs.60
Some in Congress have raised questions about this project, flagging potential national security
concerns about reliance on a foreign-headquartered producer, and potentially yet-to-be-disclosed
tax breaks, licensures, and other incentives offered as an inducement to construct the new TSMC
plant in the United States.61
Fabrication: Equipment and Other Suppliers
Key suppliers to foundries include the makers of the equipment, tools, and software used in the
fabrication of semiconductors, as well as wafer producers. In the fabrication process,62 which may
take two months, designs are placed on a wafer of silicon (or other material) in a sequence of
more than 250 photographic and chemical processing steps using equipment produced by a small
number of manufacturers. Five equipment suppliers accounted for more than three-fourths of
worldwide sales in 2018.63 Of the five, Applied Materials, Lam Research Corporation, and KLA
Corporation are headquartered in the United States. The other two are the Dutch company
ASML64 and the Japanese firm Tokyo Electronics. Chinese companies make about 2% of the
55 TSMC says it expects to start construction in 2021, with production to begin in 2024. (TSMC, “TSMC Announces
Intention to Build and Operate an Advanced Semiconductor Fab in the United States,” press release, May 15, 2020,
https://www.tsmc.com/tsmcdotcom/PRListingNewsArchivesAction.do?action=detail&newsid=THGOANPGTH.)
56 Joel Hruska, “TSMC Will Build 5NM Chip Foundry in Arizona,” ExtremeTech, May 18, 2020, at
https://www.extremetech.com/computing/310646-tsmc-will-build-5nm-chip-foundry-in-arizona.
57 For the locations of TSMC fabs, see https://www.tsmc.com/english/contact_us.htm#TSMC_fabs.
58 TSMC, TSMC Annual Report 2019, p. 77, at https://www.tsmc.com/english/investorRelations/annual_reports.htm.
Some say “gigafab” sites reduce construction costs by about 25% versus building a single stand-alone fab.
59 TSMC, GIGAFAB Facilities, at https://www.tsmc.com/english/dedicatedFoundry/manufacturing/gigafab.htm.
60 Scotten Jones, “Cost Analysis of the Proposed TSMC US Fab,” SemiWiki.com, May 15, 2020, at
https://semiwiki.com/semiconductor-manufacturers/tsmc/285846-cost-analysis-of-the-proposed-tsmc-us-fab/.
61 Letter from The Honorable Charles E. Schumer, United States Senator; The Honorable Patrick Leahy, United States
Senator; and Jack Reed, United States Senator, to The Honorable Wilbur Ross and The Honorable Mark Esper,
Secretary of Commerce and Secretary of Defense, May 19, 2020.
62 Angelo Zino and Jia Yi Young, Semiconductors and Semiconductor Equipment, CFRA, May 2020, pp. 35-36. The
slicing of wafers to create semiconductors takes place in highly automated clean rooms, which must be kept free of all
airborne matter, because the circuitry on a chip is so small that even microscopic particles can make it unusable.
Human presence is minimized in the clean room, and production workers wear “bunny suits” that cover the entire body.
63 Statista, Global Market Share Held by Semiconductor Equipment Manufacturers from 1Q’17 to 2018, March 2,
2020, at https://www.statista.com/statistics/267392/market-share-of-semiconductor-equipment-manufacturers/.
64 ASML is the sole provider of the most advanced photolithography technology—extreme ultraviolet
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world’s semiconductor fabrication and test equipment.65 Chinese semiconductor companies are
mostly dependent on U.S. and other non-Chinese suppliers at this time and some industry experts
assess that China is unlikely to have a viable indigenous equipment industry for at least a decade
due to technical gaps.66 Conversely, the three leading U.S.-headquartered semiconductor
equipment firms depend on overseas sales, including sales to China, for roughly 90% of their
revenue.67
Since the introduction of China’s semiconductor policy in 2014, U.S. exports of semiconductor
equipment to China have increased three-fold (see Figure 7). China’s access to U.S.
semiconductor equipment has become a focus of U.S. government attention because it is seen to
contribute importantly to the development of China’s semiconductor industry. Since May 2020,
the Department of Commerce (DOC) has amended rules to restrict the sale of chips that are
fabricated using any U.S. design software or technology, which includes EDA software tools and
equipment used in overseas fabs, to Huawei Technologies Co. and its affiliates.68 This restriction
does not currently apply to other Chinese firms, however.
Figure 7. U.S. Exports to China, Share of U.S. Exports to the World of
Semiconductor Fabrication Equipment
Source: CRS, compiled from U.S. Census Bureau data.
Notes: Data for North American Industry Classification System (NAICS) Code 333242 (semiconductor
machinery manufacturing).
photolithography—used to make state-of-the-art 5nm node chips, a technology not yet in mass production.
65 Saif M. Kahn and Carrick Flynn, Maintaining China’s Dependence on Democracies for Advanced Computer Chips,
Brookings Institution in collaboration with Center for Security and Emerging Technology, April 2020, p. 4, at
https://www.brookings.edu/research/maintaining-chinas-dependence-on-democracies-for-advanced-computer-chips/.
66 Saif M. Khan, Maintaining the AI Chip Competitive Advantage of the United States and its Allies, Center for Security
and Emerging Technology, CSET Issue Brief, December 2019, p. 4.
67 John VerWey, The Health and Competitiveness of the U.S. Semiconductor Manufacturing Equipment Industry,
USITC, Working Paper ID-058, July 2019, p. 5.
68 Bureau of Industry and Security (BIS), “Commerce Addresses Huawei’s Efforts to Undermine Entity List, Restricts
Products Designed and Produced with U.S. Technologies,” press release, May 15, 2020, at https://www.commerce.gov/
news/press-releases/2020/05/commerce-addresses-huaweis-efforts-undermine-entity-list-restricts; and BIS, interim
final rule and request for comments, “Export Administration Regulations: Amendments to General Prohibition Three
(Foreign-Produced Direct Product Rule) and the Entity List,” 85 Federal Register 29849, May 19, 2020, at
https://www.federalregister.gov/documents/2020/05/19/2020-10856/export-administration-regulations-amendments-togeneral-prohibition-three-foreign-produced-direct.
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Assembly, Testing, and Packaging
In back-end production, chips are assembled into finished semiconductor components and tested
to verify that they function as intended, prior to assembly and packaging for incorporation into
finished products (e.g., smartphones). This stage of the manufacturing process is the most laborintensive and is often performed in countries where wages are comparatively low, such as
Malaysia, Vietnam, and the Philippines. Back-end production is frequently outsourced to
specialist packaging companies. It was the first function to be outsourced because it had been the
lowest value additive stage of semiconductor production. More recently, ATP has become more
advanced and sensitive in the semiconductor supply chain with increased functionality embedded
in chips.69
Key Parts of the Global Semiconductor Supply Chain
Figure 8 illustrates the share of revenues accounted for by companies headquartered in each
location for four different segments: IDMs, fabless firms, contract foundries, and outsourced ATP.
U.S.-based firms lead in IDM and fabless firm revenues, while Taiwanese firms lead in contract
foundry and outsourced ATP revenues.
IDMs: U.S.-based firms account for 51% of total global IDM revenues, followed by firms based
in South Korea (28%), Japan (11%), Europe (7%), Taiwan (2%), and Singapore (1%).
Fabless Firms: U.S.-based firms account for 62% of total global fabless firm revenues, followed
by Taiwan (18%), China (10%), Singapore (7%), Europe (2%), and Japan (1%).70
Contract Foundries: Taiwan-based firms account for 73% of total global contract foundry
revenues, followed by firms based in the United States (10%), China (7%), South Korea (6%),
Japan (2%), and Singapore (2%).
Outsourced ATP: Firms based in Taiwan account for 54% of total outsourced ATP revenues,
followed by firms based in the United States (17%), China (12%), Singapore (12%), and Japan
(5%).71
Figure 8. Revenue for Value Chain Segments by Headquarters Location, 2018
Source: CRS, from data presented in Seamus Grimes and Debin Du, “China’s Emerging Role in the Global
Semiconductor Value Chain,” Telecommunications Policy, April 18, 2020, https://www.sciencedirect.com/science/
article/pii/S0308596120300513.
69 John VerWey, Global Value Chains: Explaining U.S. Bilateral Trade Deficits in Semiconductors, USITC, Executive
Briefing on Trade, p. 2, March 2018.
70 It is unclear from the source data as to whether the value of chips designed by non-semiconductor firms (e.g., Apple)
are included in these calculations.
71 Seamus Grimes and Debin Du, “China’s Emerging Role in the Global Semiconductor Value Chain,”
Telecommunications Policy, April 18, 2020, https://www.sciencedirect.com/science/article/pii/S0308596120300513.
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Notes: The source document uses the term Outsourced Semiconductor Assembly Test (OSAT); CRS uses the
term Outsourced ATP consistent with the earlier taxonomy.
Global Semiconductor Fabrication Capacity
While actual production outputs are proprietary and generally confidential, production capacities
are well known and used as the primary metric for assessing where semiconductors are made.72
Close to 90% of worldwide 300mm equivalent fab capacity is now located outside the United
States (see Table 1).
In 2019, North America (primarily the United States) ranked fifth in semiconductor fabrication
capacity, accounting for 11% of worldwide capacity, down from 13% in 2015.73 South Korea
ranked first, followed by Taiwan, Japan, and China; China’s share grew from 8% in 2015 to 12%
in 2019.74 (See Table 1.) It is important to note that this ranking does not consider the technical
characteristics of each country’s semiconductor production; a wafer used to produce oldgeneration memory chips counts the same as one used to make a leading-edge semiconductor.
Table 1. Semiconductor Fabrication Capacity
300mm Equivalent Wafer Capacity by Country/Region, 2015 and 2019
Country/Region
2015
2019
South Korea
26%
28%
Taiwan
24%
22%
Japan
18%
16%
China
8%
12%
North America
13%
11%
Europe
3%
3%
Rest of World (ROW)
9%
7%
Source: IC Insights, Global Wafer Capacity 2020-2024.
The U.S. Semiconductor Manufacturing Industry
Nationally, about 730 firms located in the United States were involved in semiconductor and
related device manufacturing in 2017, based on the latest data available, down from about 820
firms in 2013.75 This reduction in the number of firms appears to be due in large part to industry
consolidation. The U.S. semiconductor industry’s contribution to the U.S. economy measured by
value added was $29.9 billion in 2018, accounting for approximately 1% of U.S. manufacturing
72 Some consulting firms may offer this data for a fee.
73 Rankings based on 300mm equivalent wafer capacity. Data from fabs using other than 300mm wafers has been
normalized to allow for comparison. Data based on physical location of fabrication facility, not location of company
headquarters.
74 IC Insights, Global Wafer Capacity 2020-2024, February 13, 2020, p. 1, at https://www.icinsights.com/services/
global-wafer-capacity/report-contents/.
75 U.S. Census Bureau, Statistics of U.S. Businesses, 2017 and 2013, based on semiconductor and related device
manufacturing, which is captured in the North American Industry Classification System (NAICS) code 334413, at
http://www.census.gov/econ/susb/.
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value added.76 Manufacturers continue to produce more powerful chips with greater functionality
while reducing the cost per unit of computing power.
Industry R&D Spending
The need for large investments in developing new manufacturing technologies and chip designs
means that semiconductor companies spend far more on research and development than
manufacturers in general. In 2016, R&D as a share of domestic sales was 11.6% for U.S.
semiconductor manufacturers and 20.3% for semiconductor machinery manufacturers,77
compared to 5.4% for all U.S. manufacturing industries. Intel, the largest U.S.-based chipmaker,
spent $13.4 billion on R&D in 2019, an amount equal to 19% of worldwide sales.78 According to
SIA, industry-wide investment rates in R&D have ranged between 15% and 20% of sales over the
past decade, and they have remained consistently high regardless of annual trends in sales.79
Due to their heavy R&D spending, semiconductor companies regularly rank among the top U.S.
corporate patent recipients, measured by number of patents granted. In 2019, this list included
Intel (3,020), Qualcomm (2,348), and Micron Technology (1,266).80
Semiconductor Manufacturing Jobs
In the United States, three states (California, Texas, and Oregon) together account for more than
half of the sector’s employment.81 California accounted for more than one-fifth of all domestic
semiconductor manufacturing jobs in 2019 (for other states in the top 10, see Table 2).82
According to the U.S. Bureau of Labor Statistics (BLS), the semiconductor and related device
manufacturing industry located in the United States, regardless of ownership, directly employed
184,600 workers in 2019, 107,500 fewer jobs (-37%) than in 2001. In part, this employment
decline may be attributable to a combination of automation and offshoring away from the United
States and towards the Asia-Pacific region.83 However, the BLS employment estimate is not
comprehensive. It does not include workers employed by the growing number of fabless
semiconductor establishments, which are treated for statistical purposes as part of the wholesale
trade sector rather than the manufacturing sector. Neither the BLS estimate nor the SIA estimate
76An industry’s value added measures its contribution to the economy. Industry value added based on NAICS 334413 is
from the U.S. Census Bureau’s Annual Survey of Manufacturers.
77 NSF, “Domestic R&D Paid by the Company and Others and Performed by the Company as a Percentage of
Domestic Net Sales, by Industry and Company Size: 2016,” Table 18, Business Research and Development Innovation:
2016, May 13, 2019, at https://ncses.nsf.gov/pubs/nsf19318/#&.
78
Securities and Exchange Commission (SEC), EDGAR System, Intel Corporation, 10-K filing, January 24, 2020, at
https://www.sec.gov/Archives/edgar/data/50863/000005086320000011/a12282019q410kdocumentcourte.pdf.
79 SIA, 2020 Factbook, April 23, 2020, pp. 17-18.
80 U.S. Patent and Trademark Office, All Technologies Report, granted January 1, 1995-December 31, 2019, March
2020, at https://www.uspto.gov/web/offices/ac/ido/oeip/taf/h_at.htm.
81 See SIA’s website for a U.S. map showing the locations of commercial semiconductor manufacturing facilities, at
https://www.semiconductors.org/semiconductors-101/industry-impact/.
82 CRS review of state employment data are from the BLS Quarterly Census of Employment and Wages (QCEW)
program.
83 CRS analysis of employment data from the BLS QCEW for NAICS code 334413, at https://data.bls.gov/cew/apps/
table_maker/v4/table_maker.htm#type=0&year=2019&qtr=A&own=5&ind=334413&supp=0. 2019 data are
preliminary.
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counts workers in other industries who may be engaged in designing semiconductors for their
own firm’s use.
Semiconductor production represented 1.4% of total U.S. manufacturing employment in 2019.
The semiconductor manufacturing workforce earned an average of $166,400 in 2019, more than
twice the average for all U.S. manufacturing workers ($69,928).84
Table 2. Top 10 States in Semiconductor Manufacturing Employment
2019 Semiconductor
Manufacturing
Employment
% of U.S.
Semiconductor
Manufacturing
Employment Total
California
42,211
23%
Texas
29,218
16%
Oregon
26,894
15%
Arizona
19,272
10%
Florida
8,613
5%
Idaho
8,214
4%
Massachusetts
8,114
4%
New York
6,822
4%
North Carolina
5,283
3%
Washington
3,320
2%
Top 10 States Total
157,961
86%
United States Total
184,632
100%
Source: CRS analysis of data from U.S. Bureau of Labor Statistics (BLS), Quarterly Census of Employment and
Wages, accessed July 2020.
Notes: Semiconductor manufacturing employment data cover NAICS codes 334413 (semiconductor and related
device manufacturing).
Another 22,753 workers, earning an average pay of $161,339, were engaged in 2019 in the
manufacturing of equipment used to make semiconductors.85 The equipment industry has added
more than 7,000 jobs since 2011 due to strong growth in revenue, which rose from $13.7 billion
in 2011 to $20.2 billion in 2019.86
Semiconductor Production in the United States
Six semiconductor companies currently manufacture 300mm silicon wafers at 20 fabs in the
United States (Table 3). These fabs are located in eight states, with the largest number in Texas
84 CRS analysis of average wage data are from the BLS QCEW program.
85 CRS analysis of BLS QCEW data for NAICS code 333242 (semiconductor machinery manufacturing), at
https://data.bls.gov/cew/apps/table_maker/v4/table_maker.htm#type=0&year=2019&qtr=A&own=5&ind=333242&
supp=0.
86 Griffin Holcomb, Semiconductor Machinery Manufacturing in the US, IBISWorld, Electric Connection:
Advancement in Technology Have Boosted Industry Performance, August 2020, p. 50, at https://www.ibisworld.com/
united-states/market-research-reports/semiconductor-machinery-manufacturing-industry/.
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(5), Oregon (4), and New York (3). U.S.-headquartered semiconductor companies conduct more
than half of their front-end wafer processing operations in the United States.
To attract, grow, and retain semiconductor manufacturing, the federal government and some U.S.
states offer tax incentives, grants, low-cost loans, free land, and other incentives that influence
corporate decisions on where to build capacity. These policies help to defray the billions of
dollars of a plant’s cost over its useful life. Such policies remain controversial.
A recent example of state support is a $500 million grant from New York’s Empire State
Development Corporation to Cree Inc. to build a $1 billion silicon carbide wafer factory in
Marcy, NY, along with $100 million to prepare the site for construction.87 New York has also
agreed to provide up to $17.5 million in grants for ON Semiconductor’s purchase of the
GlobalFoundries factory in East Fishkill, NY, as well as $22.5 million in tax credits. 88
Controversy has arisen over federal and state subsidies for TSMC’s planned new facility in
Arizona, intended to offset the higher costs of building and operating a fab in the United States.89
U.S.-headquartered semiconductor manufacturers have both domestic and global production
facilities.
Intel fabricates more than half of its wafers in the United States at facilities in
Arizona, New Mexico, and Oregon. It also operates fabs in Ireland, Israel, and
China.90
Micron Technology has fabs in Idaho, Utah, and Virginia, as well as in
Singapore, Japan, and Taiwan.91
Texas Instruments operates fabs in Texas and Maine, and it is constructing a new
fab in Richardson, TX. The company also has manufacturing facilities in China,
Taiwan, Malaysia, and the Philippines.92
GlobalFoundries, a company based in California and owned by Abu Dhabi’s
sovereign wealth fund, has acquired U.S.-based fabs formerly owned by AMD
87 Liz Young, “State Approves $500 Million Grant to Cree for Upstate Factory,” Albany Business Review, November
22, 2019, at https://www.bizjournals.com/albany/news/2019/11/22/esd-cree-factory-marcy-utica-grant.html. Also see
New York State, “Governor Cuomo Announces $1 Billion Public-Private Partnership with Cree Creating World’s
Largest Silicon Carbide Device Facility at the March Nanocenter,” press release, September 23, 2019, at
https://www.governor.ny.gov/news/governor-cuomo-announces-1-billion-public-private-partnership-cree-creatingworlds-largest.
88 ON Semiconductor, “ON Semiconductor and GlobalFoundries Partner to Transfer Ownership of East Fishkill, NY
300mm Facility,” press release, April 22, 2019, at https://www.globalfoundries.com/news-events/press-releases/
semiconductor-and-globalfoundries-partner-transfer-ownership-east; and Governor Andrew M. Cuomo, “Governor
Cuomo Announces Agreement with ON Semiconductor to Acquire and Preserve GlobalFoundries Fabrication Plant in
Hudson Valley,” press release, April 22, 2019, at https://www.governor.ny.gov/news/governor-cuomo-announcesagreement-semiconductor-acquire-and-preserve-globalfoundries.
89 Debby Wu, “TSMC Scores Subsidies and Picks Sites for $12 Billion U.S. Plant,” Bloomberg, June 8, 2020, at
https://www.bloomberg.com/news/articles/2020-06-09/tsmc-confident-of-replacing-any-huawei-orders-lost-to-u-scurbs.
90 Securities and Exchange Commission, EDGAR System, Intel Corporation, 10-K filing, at https://www.sec.gov/ix?
doc=/Archives/edgar/data/50863/000005086320000011/a12282019q4-10kdocument.htm. See also Intel, “Helping
Maintain Industry Leadership and Driving Innovation,” at https://www.intel.com/content/www/us/en/architecture-andtechnology/global-manufacturing.html.
91 Micron Technology, 10-K Annual Report, October 17, 2019, p. 27, at http://investors.micron.com/.
92 Texas Instruments, 2019 Annual Report, pp. 6 and 13, at https://investor.ti.com/financial-information/earningsannual-reports. Also see Peter Clarke, “TI Tips Site for Next 300mm Analog Wafer Fab,” eeNews, April 22, 2019, at
https://www.eenewsanalog.com/news/ti-tips-site-next-300mm-analog-wafer-fab.
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and IBM Corporation. In addition, the company operates fabs in Germany and
Singapore; in 2019, it halted plans for its $10 billion 12nm logic fab in Chengdu,
China.93
Some firms and fabs produce semiconductors at various feature sizes, also known as technology
nodes. For example, Intel produces at the 65nm node down to the 7nm node and Global
Foundries produces at the 90nm node down to the 12nm node.
Table 3. 300mm (12-inch) Semiconductor Fabs in the United States, 2019
Company
Number of Fabs
Location
Products
GlobalFoundries
2
Malta, NY
Foundry/Dedicated
GlobalFoundries
1
East Fishkill, NY
Foundry/Dedicated
Intel Corporation
2
Chandler, AZ
Logic/Microprocessor Unit (MPU)
Intel Corporation
4
Hillsboro, OR
Logic/MPU
Intel Corporation
2
Albuquerque, NM
Logic/MPU
Micron Technology
1
Boise, ID
R&D/Pilot Projects
Micron Technology
1
Lehi, UT
Memory/Flash
Micron Technology
2
Manassas, VA
Memory/DRAM
Samsung
2
Austin, TX
Foundry/IDM
Skorpios
1
Austin, TX
Fab/Pilot
Texas Instruments
1
Richardson, TX
Analog/Linear
Texas Instruments
1
Dallas, TX
Analog/Mixed Signal
Source: CRS, with data provided by Semiconductor Equipment and Materials International (SEMI) a trade group
that represents global semiconductor equipment and material suppliers, on May 6, 2020, from its priority Fab
Construction Monitor database.
U.S. semiconductor manufacturing capacity has been stable for many years, but most new and
advanced capacity is located overseas. Due, in large part, to Chinese government investments,
over half of new fabs to be opened over the next several years are projected to be in China.
According to the industry group Semiconductor Equipment and Materials International (SEMI),
construction is planned to begin on 27 new fab projects in 2020 and 2021. Of these, 3 are to be
located in the United States, while 14 are to be located in China. The other projects are to be
located in Taiwan (5), Southeast Asia (2), Europe (2), and South Korea (1).94
93 Sidney Leng, “US Semiconductor Giant Shuts China Factory Hailed as a Miracle, in Blow to Beijing’s Chip Plans,”
South China Morning Post, May 20, 2020, at https://www.scmp.com/economy/china-economy/article/3085230/ussemiconductor-giant-shuts-china-factory-hailed-miracle.
94 Email communication between CRS and SEMI, May 6, 2020.
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The Global Semiconductor Landscape
The semiconductor industry is highly globalized. Global trade in semiconductors and electronics
involves cross-border design and manufacturing processes. The rise of the fabless semiconductor
production model has accelerated the outsourcing of production, often to offshore foundries.
Negotiation of the World Trade Organization (WTO) International Trade Agreement (ITA) in
1996, and the addition of ITA II in
2015, have brought semiconductorSemiconductors and Intellectual Property
related tariffs close to zero in many
Semiconductor R&D investments provide competitive
countries, further facilitating the
advantage by enabling the production of more powerful and
globalization of the supply chain.95
functional chips and by reducing their costs. The knowledge
Trade data provide a partial picture of
the manufacturing process, and can
overstate or understate the roles of
different countries in the
semiconductor supply chain. For
example, during the production
process, chips are frequently imported,
processed in some way, and then reexported several times before being
incorporated into a final product. In
2019, more than 40% of U.S.
semiconductor imports were then reexported.96 Thus, while Malaysia
accounted for more than 40% of U.S.
semiconductor imports in 2019,
Malaysia’s contribution to those
products is primarily post-production
assembly, packaging, and testing of
semiconductors made in other
countries.
Because of limitations in the ability of
trade data to capture the complexity of
the supply chain, the U.S. industry uses
global sales as a metric for market
share. According to SIA, U.S.headquartered companies accounted
for 47% of global sales in 2019;
foreign markets accounted for 82% of
generated by these investments is protected as intellectual
property rights (IPR), which includes patents, copyrights, and
trade secrets, among other things.
IPR is central to the value and operation of semiconductor
companies. Patents, for example, allow the owner to produce
unique products or use unique manufacturing processes, or to
license their use to others for compensation. Thus,
semiconductor companies seek to protect their IPR from
countries, companies, and others that would improperly or
illegally acquire and use it. IPR also incentivizes further
investments in R&D that enable continuing improvements.
IPR enforcement is a particular challenge for the
semiconductor industry because of the global nature of the
supply chain and companies’ dependence on global compliance
with IP laws and practices. Trade tools to protect IP and
address patent infringement include the WTO and World
Intellectual Property Organization provisions and
commitments, as well as U.S. trade law, including Section 301
of the Trade Act of 1974 and Section 337 of the Tariff Act of
1930. The U.S. government has also negotiated specific IP
commitments and protections in its free trade agreements.
However, international enforcement efforts can be uncertain,
costly, and time consuming.
In addition, much of a semiconductor company’s tacit
knowledge resides in its employees, who may be subject to the
recruitment efforts of other companies and countries.
Counterfeit chips are also a recognized problem in the
semiconductor industry. The consequences of a counterfeit
semiconductor can cause costly failures in a wide range of
consumer, health, transportation, and military systems.
For further information, see CRS Report RL34292, Intellectual Property
Rights and International Trade, by Shayerah Ilias Akhtar, Ian F. Fergusson,
and Liana Wong.
95 In July 2015, the WTO expanded the Information Technology Agreement (ITA), first signed in 1996, which has
more than 80 signatories, including the United States. Beginning on July 1, 2016, the signatories agreed to immediately
eliminate some tariffs and then phase out others by January 2024, on 201 information technology products not included
in the original 1996 ITA. China is a signatory to both agreements, but still has high tariffs on certain products. Mexico,
a substantial location for electronics assembly that incorporates finished semiconductors in electronic goods, is not
party to the agreements.
96 Re-exports refer to export of goods that were originally imported but then minimally processed before being
exported.
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these sales.97 The U.S. Bureau of Economic Analysis reports that approximately 75% of the
production by foreign affiliates of U.S. parents in the semiconductor industry is sold outside of
the United States.98
Figure 9 shows market share by the location of company headquarters for each major
semiconductor market.
Figure 9. Semiconductor Industry Market Share, by Sales, 2019
Source: CRS, based on SIA, 2020 State of the U.S. Semiconductor Industry, p. 8.
The following sections discuss semiconductor activities around the world.
East Asia
Semiconductor fabrication is concentrated in Japan, South Korea, Taiwan, and Singapore; China
is discussed later in this report. In addition to locally owned companies, some U.S.-headquartered
firms operate fabs in the region. For example, Micron operates three major plants in Singapore
along with a fab in Taiwan and one in Japan.99
Since the early 1990s, Japan-headquartered companies’ share of the global semiconductor market
has fallen significantly. Several Japan-headquartered companies have closed fabs in Japan, and
some have gone bankrupt. In 2019, only two Japanese chipmakers—Kioxia (formerly Toshiba)100
and Sony—ranked among the top 15 semiconductor firms worldwide as ranked by sales (see
Appendix B).
As the market positions of Japanese companies have declined, companies based elsewhere in East
Asia have become prominent global manufacturers, mostly in the DRAM segment of the market.
South Korea’s Samsung Electronics and SK Hynix were the second- and fourth-largest
semiconductor companies in the world in 2019. According to data from Statistica, an industry
statistics portal, Samsung held 43.5% of the global DRAM market in 2019, followed by SK
97 SIA, Trade, at https://www.semiconductors.org/policies/trade/. Also see SIA, Beyond Borders: The Global
Semiconductor Value Chain, June 15, 2018.
98 Bureau of Economic Analysis (BEA), U.S. Direct Investment Abroad, Activities of U.S. Multinational Enterprises,
2017 preliminary statistics (accessed July 30, 2020). Table II.H.2, at https://www.bea.gov/worldwide-activities-usmultinational-enterprises-preliminary-2017-statistics.
99 Micron, 10-K Annual Report, October 17, 2019, p. 27, at http://investors.micron.com/.
100 In 2018, Toshiba was sold to Bain consortium, which includes SK Hynix, Apple, Dell, Seagate, and Kingston. Its
name was changed to Kioxia.
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Hynix at 29.2%. U.S.-headquartered Micron held 22.3% of the market.101 To preserve its global
competitiveness, especially with respect to TSMC and Intel, Samsung has begun building a
leading-edge production line in South Korea to produce chips at 5nm and below.102 The growth of
the South Korean semiconductor industry has been nurtured by government funding and the
financial backing of some of the large, family-controlled industrial conglomerates known as
chaebols that play a central role in South Korea’s economy.103 To bolster its fabless sector, in
2019, the South Korean government announced that it would invest approximately $860 million
by 2030 in the production of next-generation semiconductors for future industries.104
Taiwan has become the world’s leading location for semiconductor foundry manufacturing (as
discussed in the section “Fabrication: Facilities (Foundries).” Taiwan’s semiconductor foundry
industry is dominated by two contract manufacturers, TSMC and UMC.105 In 2019, TSMC had
about three times the production capacity of UMC.106 Both TSMC and UMC were established
and directly funded by the Taiwanese government in the 1980s through a variety of grants, lowinterest loans, and other subsidies, although both are organized as private enterprises.107 This
concentration of semiconductor manufacturing has become a concern to some U.S. policymakers
due to the risks associated with potential supply disruptions due to trade, geopolitical, and other
considerations. In August 2020, TSMC announced a 2nm R&D center and confirmed plans for a
3nm foundry in Taiwan.108 TSMC has said that some of its research will focus on material
alternatives to silicon.109 The Taiwan government is likely supporting these investments as part of
broader efforts to promote advanced technology R&D and manufacturing in Taiwan.110 By
structuring the investment as an R&D center, TSMC would qualify for government support.111
Singapore has also developed a government-supported semiconductor industry by providing
public funds and tax incentives to firms constructing fabs there. Unlike Japan, South Korea, and
Taiwan, Singapore’s strategy has been to build a semiconductor industry through foreign direct
101 Statistica, The Statistics Portal, “Global DRAM Chip Vendors’ Market Share 2011-2019,” March 3, 2020, at
https://www.statista.com/statistics/271726/global-market-share-held-by-dram-chip-vendors-since-2010/.
102 Samsung, “Samsung Electronics Expands Its Foundry Capacity with a New Production Line in Pyeongtaek, Korea,”
press release, May 21, 2020, at https://news.samsung.com/global/samsung-electronics-expands-its-foundry-capacitywith-a-new-production-line-in-pyeongtaek-korea.
103 Eleanor Albert, South Korea’s Chaebol Challenge, Council on Foreign Relations, May 4, 2018, at
https://www.cfr.org/backgrounder/south-koreas-chaebol-challenge.
104 South Korea, “Remarks by President Moon Jae-in at Ceremony to Unveil System Semiconductor Vision,” press
release, April 30, 2019, at https://english1.president.go.kr/BriefingSpeeches/Speeches/590.
105 Taiwan Semiconductor Industry Association, Overview of Taiwan Semiconductor Industry, 2019, p. 9, at
https://www.tsia.org.tw/EN/PublOverview?nodeID=60.
106 IC Insights, “Five Semiconductor Companies Hold 53% of Global Wafer Capacity,” press release, February 13,
2020, at https://www.icinsights.com/news/bulletins/Five-Semiconductor-Companies-Hold-53-Of-Global-WaferCapacity/.
107 Tain-Jy Chen, Taiwan’s Industrial Policy Since 1990, Department of Economics, National Taiwan University, April
2014, p. 9.
108 Lisa Wang, “TSMC Developing 2 nm Tech at New R&D Center,” Taipei Times, August 26, 2020, at
https://taipeitimes.com/News/front/archives/2020/08/26/2003742295.
109 Ramish Zafar, “TSMC Rejects Production in US and Starts Research on Materials Beyond Silicon,” WCCF Tech,
November 3, 2019, at https://wccftech.com/tsmc-us-manufacturing-silicon/.
110 See CRS In Focus IF10256, U.S.-Taiwan Trade Relations, by Karen M. Sutter.
111 Ministry of Economic Affairs, Taiwan, Taiwan Key Innovative Industry: Semiconductors, March 2018, at
https://www.roc-taiwan.org/uploads/sites/30/2018/03/Semiconductors.pdf. Taiwan’s Advanced Technology Research
Plan offers to cover 40% to 50% of total development funding for new technology not yet mature in Taiwan that will
generate strategic products, services, or industries.
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investment by global companies, such as Micron and GlobalFoundries.112 It has no indigenous
semiconductor firm.
China
China accounts for 60% of global demand for semiconductors—in large part due to the
concentration of global consumer electronics production there—but it has played a limited role to
date in chip production.113 More than 90% of the semiconductors China uses are either imported
or made domestically by foreign chipmakers.114 In 2019, 24 of the 126 300mm wafer fabrication
plants in operation worldwide were located in China, according to SEMI (see Table 4).115
Chinese-headquartered companies’ IC products are generally less technologically advanced than
those of companies headquartered in other countries, whereas the most advanced fab production
in China is performed by non-Chinese firms.116 Intel, Samsung, and TSMC are among the major
global semiconductor firms that operate fabrication facilities in China.117
Chinese firms, such as Semiconductor Manufacturing International Corporation (SMIC), appear
to be advancing their capabilities in part due to collaboration with foreign companies. China
continues to attract global industry collaboration with the pull of government financing, leading
to the expansion of China’s fabrication capacity. Market research firm IC Insights forecasts that at
least half of semiconductor production in China in 2023 will come from foreign-controlled fabs,
with the balance coming from Chinese fabs.118
Table 4. Worldwide 300mm Semiconductor Fab Count
Number of Operating Fabs by Country or Region
Country/Region
2015
2017
2019
Taiwan
29
34
36
United States
18
20
20
South Korea
13
17
19
Japan
10
11
13
112 John A. Matthew, “A Silicon Island of the East: Creating a Semiconductor Industry in Singapore,” California
Management Review, vol. 41, no. 2 (Winter 1999), at https://journals.sagepub.com/doi/pdf/10.2307/41165986.
113 “China’s Semiconductor Industry: 60% of the Global Semiconductor Consumption,” Daxue Consulting, March 26,
2020, at https://daxueconsulting.com/chinas-semiconductor-industry/; Yi-ting Wang, “Chip War: Taiwan’s Role in
China’s Semiconductor Industry Policy” (Dissertation, University of Trier, 2019), p. 4, at https://cdn.website-editor.net/
b6f182e46cf54e88940dc05258b375a9/files/uploaded/CGI2_Wang_2019_Chip%2520War.pdf; and Mark Lapedus,
“China: Fab Boom or Bust?,” Semiengineering,” March 16, 2017, at https://semiengineering.com/china-fab-boom-orbust/.
114 Matthew Fluco, Betting All the Chips: China Seeks to Build a World-Class Semiconductor Industry, CKGSB
Knowledge, November 29, 2018, at https://knowledge.ckgsb.edu.cn/2018/11/29/technology/china-semiconductorindustry/.
115 SEMI is an industry association of materials, design, equipment, software, devices, and services companies
supplying the semiconductor industry. The organization was formerly known as Semiconductor Equipment and
Materials International. SEMI, “Count of Facilities in Operation,” provided to CRS on May 1, 2020.
116 Sisi Chen, Integrated Circuit Manufacturing in China, IBISWorld, Industry Report 5043, July 2019, p. 18, at
https://www.ibisworld.com/china/market-research-reports/integrated-circuit-manufacturing-industry/.
117 John VerWey, Chinese Semiconductor Industrial Policy: Prospects for Future Success, USITC, August 2019, p. 21.
118 David Manners, “China IC Production Growing 15% CAGR 2018-2023,” February 8, 2019, at
https://www.electronicsweekly.com/news/business/china-ic-production-growing-15-cagr-2018-2023-2019-02/.
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Country/Region
2015
2017
2019
China
8
12
24
Europe & Mideast
7
8
8
Southeast Asia
5
7
6
Total
90
109
126
Source: SEMI Worldwide Fab Forecast, May 2020.
Two decades ago, China designated semiconductors as a strategic sector, committing to develop a
vertically integrated domestic semiconductor industry through policies such as government
subsidies and tax incentives.119 Since 2006, the Chinese government has advanced more
ambitious policies to reduce its reliance on foreign technology and become self-sufficient in
strategic emerging industries as part of a broader effort to develop its economy. It seeks to
accomplish this primarily by acquiring intellectual property and know-how from foreign
competitors in support of the stated goal of eventually trying to displace them.120
In June 2014, the Chinese government published an ambitious plan, Guidelines to Promote
National Integrated Circuit Industry Development, “with the goal of establishing a world-leading
semiconductor industry in all areas of the integrated circuit supply chain by 2030.”121 The
document included measures to support an aggressive growth strategy, with the goal of meeting
70% of China’s semiconductor demand from domestic production by 2025.122 In 2019, China
revised the goal upward, setting an objective of expanding its domestic production of
semiconductors (including from foreign firms in China) to meet 80% of domestic demand by
2030, as part of its Made in China 2025 industrial strategy.123 In August 2020, the Chinese
government updated its semiconductor policy to emphasize foreign academic and industry
collaboration (including domestic and overseas R&D centers), expanding China’s role in
developing international rules for protection of intellectual property, advancing Chinese
standards, use of antitrust authorities, and priority financing vehicles (e.g., local governments,
insurance and asset management companies, corporate bond issuances, and stock market
listings).124 According to the Office of the United States Trade Representative, “China’s strategy
calls for creating a closed-loop semiconductor manufacturing ecosystem with self-sufficiency at
every stage of the manufacturing process—from IC design and manufacturing to packaging and
testing, and the production of related materials and equipment.”125
119 Alexander Chipman Koty, “Chips All In: Investing in China’s Semiconductor Industry,” China Briefing, March 2,
2016, at https://www.china-briefing.com/news/chips-all-in-investing-in-chinas-semiconductor-industry/.
120 Cong Cao, Richard P. Suttmeier, and Denis Fred Simon, “China’s 15-Year Science and Technology Plan,” Physics
Today, 59 (12), 2006.
121 International Trade Administration (ITA), 2015 Top Markets Report: Semiconductors and Semiconductor
Manufacturing Equipment, A Market Assessment Tool for U.S. Exporters, July 2015, p. 13, at https://legacy.trade.gov/
topmarkets/semiconductors.asp.
122 “Chips on their Shoulders,” The Economist, January 23, 2016, at https://www.economist.com/business/2016/01/23/
chips-on-their-shoulders.
123 Made in China 2025 is a highly detailed 10-year “guide for China’s manufacturing strategy” to “transform China
into the global manufacturing leader before the centennial of the founding of New China.” The report identifies scores
of principles, policies, and programs China believes will enable the achievement of the goals outlined in the report.
124 China State Council, “Notice on Issuing Several Policies to Promote the High-Quality Development of the
Integrated Circuit Industry and the Software Industry in the New Period,” Guofa (2020) 8, August 4, 2020.
125 Office of the United States Trade Representative (USTR), Section 301 Report, March 22, 2018, p. 113, at
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China’s semiconductor policies feature a substantial government role in directing and financing
Chinese businesses to obtain foreign intellectual property related to semiconductors. The Chinese
government uses production targets; subsidies; tax preferences; trade and investment barriers
(including pressure to engage in joint ventures); and discriminatory antitrust, IP, procurement, and
standards practices.126 The policies seek to leverage China’s central role in global
microelectronics manufacturing and potential as a semiconductor production hub to pressure
foreign companies to localize production, share technology, and partner with the Chinese
government and affiliated entities.
To implement its semiconductor plan, China created a government fund—the China Integrated
Circuit Investment Industry Fund (CICIIF)—to channel an estimated $150 billion in state funding
in support of domestic industry, overseas acquisitions, and the purchase of foreign semiconductor
equipment.127 In October 2019, China announced the creation of a second semiconductor fund
with an estimated capitalization of $28.9 billion.128 The fund or its affiliates often take direct
equity stakes and board positions in the companies they finance.129 The fund also provides state
subsidies to import equipment and software tools, which can constitute up to half of a foundry’s
capital expenditures.130 In 2018, SMIC, China’s largest IC foundry, announced plans to establish
a $255 million fund to make equity investments in semiconductors and related industries.131 In
May 2020, SMIC received an investment worth $2.2 billion from Chinese state investors.132
In 2019, the Organisation for Economic Co-operation and Development (OECD) found that
Chinese semiconductor companies overwhelmingly benefitted from below-market government
equity injections, as compared to other global firms.133 The OECD concluded that the state role is
https://ustr.gov/sites/default/files/Section%20301%20FINAL.PDF.
126 See, for example, China’s State Council, “Guideline for the Promotion of the Development of the National
Integrated Circuit Industry,” June 2014; China’s State Council, “Notice on Issuing Several Policies to Promote the
High-Quality Development of the Integrated Circuit Industry and the Software Industry in the New Period,” Guofa
(2020) 8, August 4, 2020; Center for International Governance Innovation, “Beyond ‘Forced’ Technology Transfers
Analysis of and Recommendations on Intangible Economy Governance in China,” CIGI Papers No. 239, March 2020,
at https://www.cigionline.org/sites/default/files/documents/no239_2.pdf; John VerWey, “Chinese Semiconductor
Industrial Policy: Past and Present,” USITC, Journal of International Commerce and Economics, July 2019; and U.S.
Chamber of Commerce, Made in China 2025: Global Ambitions Built on Local Protections, 2017, at
https://www.uschamber.com/sites/default/files/final_made_in_china_2025_report_full.pdf.
127 Christopher Thomas, A New World Under Construction: China and Semiconductors, McKinsey & Company,
November 2015, at http://www.mckinsey.com/global-themes/asia-pacific/a-new-world-under-construction-china-andsemiconductors.
128 Yoko Kubota, “China Sets up New $29 Billion Semiconductor Fund,” Wall Street Journal, October 25, 2019, at
https://www.wsj.com/articles/china-sets-up-new-29-billion-semiconductor-fund-11572034480.
129 Tianlei Huang, “Government-Guided Funds in China: Financing Vehicles for State Industrial Policy,” China
Economic Watch, Peterson Institute for International Economics, June 17, 2019, at https://www.piie.com/blogs/chinaeconomic-watch/government-guided-funds-china-financing-vehicles-state-industrial-policy#_ftn2.
130 OECD, Trade and Agricultural Directorate, Trade Committee, “Measuring Distortions in International Markets: The
Semiconductor Value Chain,” November 21, 2019, pp. 94-95.
131 Yimian Wu, “China State-Owned CICIIF to Launch $255M Semiconductor Fund with Foundry,” China Money
Network, at https://www.chinamoneynetwork.com/2018/05/07/china-state-owned-ciciif-to-launch-255msemiconductor-fund-with-foundry.
132 Josh Horwitz, “China Semiconductor Fab SMIC Gets $2.2 bln Investment from Gov’t Funds amid Global Chip
Spat,” Reuters, May 18, 2020, at https://www.reuters.com/article/china-semiconductor-smic/china-semiconductor-fabsmic-gets-22-bln-investment-from-govt-funds-amid-global-chip-spat-idUSL4N2D019Y.
133 According to the OECD, “In particular, below-market equity in the sense of this report poses a formidable challenge
to notification mechanisms given its lack of an internationally accepted definition (much less an estimation method).
The consequences extend beyond trade and competition, however, as the lack of transparency on financial support
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more pervasive in China’s semiconductor industry than formal ownership reflects because of the
opaque nature of shareholding and funding.134
Although China-headquartered manufacturers have made technological advances, they remain
dependent in critical ways on foreign technology, know-how (such as foreign talent and
collaboration), and global markets (such as acquisitions and foreign presence).135 The market
research company IC Insights predicts that China’s domestic semiconductor production could
meet 20% of China’s demand by 2025—about one-third of the government’s 70% target—and
that at least half of this domestic production would come from foreign-operated facilities.136
China’s current market position has prompted some in industry to downplay the potential
competitive threat that China poses and argue against further restrictions on U.S. semiconductor
firms’ activities in China.137 Its continued dependence on foreign technology has also drawn
attention to the ways in which U.S. industry ties are building China’s capabilities.138
China has looked to joint ventures and foreign acquisitions to further its position in
semiconductors. Leading U.S. technology firms with semiconductor-related expertise have
partnered with or have invested in Chinese state firms tied to China’s national semiconductor
plan.139 In fabrication, in 2015, Qualcomm and IMEC140 established a joint R&D venture with
SMIC and Huawei to support the Chinese firms’ efforts to make 14nm logic chips.141 Foreign
acquisitions have positioned China in the advanced packaging market, including a 2015 CICIIFfunded acquisition of Singapore-based STATS ChipPac.142 In 2016, China-headquartered
Nantong Fujitsu took an 85% equity stake in AMD’s packing and testing businesses in Malaysia
and China. In 2015, Beijing E-Town Capital, a CICIIF shareholder, acquired U.S.-headquartered
Mattson Technology, gaining specialized capabilities in etchers and rapid thermal processing
undermines government accountability and public oversight.” (OECD (2019), “Measuring Distortions in International
Markets: The Semiconductor Value Chain,” OECD Trade Policy Papers, No. 234, p. 104, OECD Publishing, Paris, at
https://doi.org/10.1787/8fe4491d-en.)
134 OECD (2019), “Measuring Distortions in International Markets: The Semiconductor Value Chain,” OECD Trade
Policy Papers, No. 234, OECD Publishing, Paris, at https://doi.org/10.1787/8fe4491d-en.
135 OECD, Trade and Agricultural Directorate, Trade Committee, “Measuring Distortions in International Markets: The
Semiconductor Value Chain,” November 21, 2019, p. 21.
136 IC Insights, “China to Fall Far Short of its “Made-in-China 2025” Goal for IC Devices,” press release, May 21,
2020, at https://www.icinsights.com/news/bulletins/China-To-Fall-Far-Short-Of-Its-MadeinChina-2025-Goal-For-ICDevices/.
137 See, for example, Antonio Varas and Raj Varadarajan, “How Restricting Trade with China Could End U.S.
Semiconductor Leadership,” Boston Consulting Group, March 9, 2020.
138 Saif M. Khan, Maintaining the AI Chip Competitive Advantage of the United States and its Allies, Center for
Security and Emerging Technology, CSET Issue Brief, December 2019, p. 4.
139 John VerWey, Chinese Semiconductor Industrial Policy: Past and Present, USITC, Journal of International
Commerce and Economics, July 2019, at https://www.usitc.gov/publications/332/journals/
chinese_semiconductor_industrial_policy_past_and_present_jice_july_2019.pdf.
140 IMEC is the Belgium-based Interuniversity Microelectronics Centre, an international research and development
organization focused on nanoelectronics and digital technologies.
141 “SMIC, Huawei, Imec, and Qualcomm in Joint Investment on SMIC’s New Research and Development Company,”
SMIC, PRNewswire, June 23, 2016, at https://www.prnewswire.com/news-releases/smic-huawei-imec-and-qualcommin-joint-investment-on-smics-new-research-and-development-company-300103277.html.
142 Securities and Exchange Commission, EDGAR System, Semiconductor Manufacturing International Corporation,
“Inside Information Announcement: Co-Investment Agreement and Investment Exit Agreement in Relation to
Proposed Acquisition,” December 22, 2014, at https://www.sec.gov/Archives/edgar/data/1267482/
000130901415000021/exhibit1.htm; and Mark Lapedus, “Consolidation Hits OSAT Biz,” Semiconductor Engineering,
February 18, 2016, at https://semiengineering.com/consolidation-hits-osat-biz/.
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equipment and strip tools used in semiconductor production.143 In 2015, a CICIIF consortium
acquired Integrated Silicon Solutions, Inc., and gained specialized chip expertise.144
For the last several years, the U.S. government has responded to U.S. industry’s concerns by
stepping up efforts to counter China’s state-led industrial policies and certain trade and
investment practices. Among other trade actions, the Trump Administration imposed tariffs on
China under Section 301 of the Trade Act of 1974 (19 USC §§2411-2420) after finding that
China’s policies and practices related to forced technology transfer requirements, cyber-enabled
theft of U.S. intellectual property and trade secrets, discriminatory and nonmarket licensing
practices, and state-funded strategic acquisition of U.S. assets were unreasonable or
discriminatory.145
In April 2018, the Trump Administration announced $50 billion in tariffs on products related to
China’s plans to develop indigenous industries, including semiconductors, under its flagship
Made in China 2025 initiative.146 The Trump Administration has imposed an additional three
rounds of tariffs; China has responded in kind with tariffs on U.S. goods. Under the Section 301
tariffs, a chip finished in China is subject to a U.S. import tariff of 25%, even if its components
are made in the United States. Based on data compiled by SIA, close to a third of the Section 301
tariffs affect the semiconductor industry. In January 2020, the U.S. and Chinese governments
signed a phase one trade deal to begin to address some concerns about protection of U.S.-based
firms’ intellectual property, but the agreement left most systemic concerns related to industrial
policies and technology transfer to future talks.147
Moreover, the Department of Justice has moved to counter China’s IP theft in semiconductors. In
2018, the Department of Justice charged a Chinese state-owned company, Fujian Jinhua
Integrated Circuit, allegedly in concert with the Taiwan company United Microelectronics
Company (UMC), for stealing technology for the manufacture of DRAM chips from Micron
Technology.148 In June 2020, a Taiwan court found three past and current UMC engineers guilty
of stealing Micron’s trade secrets. The engineers received sentences of 4.5 to 6.5 years and were
fined between $135,000 and $200,000 each; the court fined UMC $3.4 million. UMC has said
143 Securities and Exchange Commission, EDGAR System, at https://www.sec.gov/Archives/edgar/data/928421/
000119312515392660/d46587dex992.htm; “Mattson Technology, Inc. Announces Completion of Acquisition by
Beijing E-Town Dragon Semiconductor Industry Investment Center,” Yahoo! Finance, https://finance.yahoo.com/
news/mattson-technology-inc-announces-completion-131206198.html.
144 “GigaDevice to Merge with ISSI, Say Sources,” China Flash Market, November 22, 2016, at
https://en.chinaflashmarket.com/news/view?id=10677.
145 See CRS In Focus IF11346, Section 301 of the Trade Act of 1974, by Andres B. Schwarzenberg.
146 USTR, “Under Section 301 Action, USTR Releases Proposed Tariff List on Chinese Products,” press release, April
3, 2018, at https://ustr.gov/about-us/policy-offices/press-office/press-releases/2018/april/under-section-301-action-ustr.
147 For further information, see CRS Insight IN11208, U.S. Signs Phase One Trade Deal with China, by Karen M.
Sutter.
148 Department of Justice, “PRC State-Owned Company, Taiwan Company, and Three Individuals Charged with
Economic Espionage,” press release, November 1, 2018, at https://www.justice.gov/opa/pr/prc-state-owned-companytaiwan-company-and-three-individuals-charged-economic-espionage. The Department of Justice also announced a new
initiative aimed at countering intellectual property theft from China. For more information, see “Attorney General Jeff
Sessions Announces New Initiative to Combat Chinese Economic Espionage,” press release, November 1, 2018, at
https://www.justice.gov/opa/speech/attorney-general-jeff-sessions-announces-new-initiative-combat-chineseeconomic-espionage.
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that it is appealing the ruling.149 The Department of Commerce sanctioned Fujian Jinhua by
restricting its access to U.S. technology through U.S. export controls (discussed below).150
U.S. Controls on Semiconductors
In response to China’s efforts to acquire U.S. advanced technologies and companies, the Trump
Administration together with Congress has moved to tighten foreign investment reviews and
licensing of dual-use technologies to China.
Reviews of Foreign Investments
Since 2015, the U.S. government’s Committee on Foreign Investment in the United States
(CFIUS) 151 has increased scrutiny of Chinese firms’ bids to acquire leading U.S. semiconductor
firms. Additionally, in 2018, Congress worked with the Trump Administration to strengthen
CFIUS’ foreign investment review authorities with the passage of the Foreign Investment Risk
Review and Modernization Act (FIRRMA, P.L. 115-232), which strengthened CFIUS’ foreign
investment review authorities.152
There are several public examples of Chinese semiconductor transactions being blocked or being
withdrawn after scrutiny by the U.S. government. (See Table 5.) In 2015, Tsinghua Unigroup, a
Chinese state-controlled firm, proposed to acquire Micron Technology for $23 billion.153 The
proposed acquisition raised concerns among some Members of Congress and within the Obama
Administration. The prospect of intense scrutiny of the transaction and the potential for CFIUS to
recommend that the transaction be blocked on national security grounds likely resulted in the
acquisition bid being abandoned. In 2016, state-backed Chinese investors abandoned a bid to buy
one of America’s oldest semiconductor manufacturers, Fairchild Semiconductor, and a unit of
Tsinghua terminated a plan to buy 15% of Western Digital, which makes hard disk drives.154 In
149 Debby Wu, “Engineers Found Guilty of Stealing Micron Secrets for China,” Bloomberg, June 12, 2020, at
https://www.msn.com/en-us/news/technology/engineers-found-guilty-of-stealing-micron-secrets-for-china/arBB15oeqQ; UMC, press release, “UMC to Appeal the Court Decision on the Micron Case,” June 12, 2020, at
https://www.umc.com/en/News/press_release/Content/corporate/20200612.
150 Department of Commerce, “Addition of Fujian Jinhua Integrated Circuit Company, Ltd. (Jinhua) to the Entity List,”
press release, October 29, 2018 (effective October 30, 2018), https://www.commerce.gov/news/press-releases/2018/10/
addition-fujian-jinhua-integrated-circuit-company-ltd-jinhua-entity-list.
151 The Committee on Foreign Investment in the United States (CFIUS) is an interagency body composed of nine
Cabinet members, two ex-officio members, and other members as appointed by the President, that assists the President
in reviewing the national security aspects of foreign direct investment in the U.S. economy. CFIUS is authorized to
conduct national security reviews of foreign acquisitions of U.S.-based firms under section 721 of the Defense
Production Act of 1950. The President has the authority to suspend or block foreign mergers and acquisitions involving
U.S.-based firms if they present credible threats to national security, which include the loss of reliable suppliers of
defense-related goods and services. The CFIUS process is legally bound by strict confidentiality requirements, and it
does not always disclose whether a notice has been filed or the results of any filing. However, it does provide a
confidential report to Congress upon the conclusion of its review. For more information on CFIUS, see CRS Report
RL33388, The Committee on Foreign Investment in the United States (CFIUS), by James K. Jackson.
152 For more information, see CRS Report R41916, The U.S. Export Control System and the Export Control Reform
Initiative, by Ian F. Fergusson and Paul K. Kerr; CRS In Focus IF10952, CFIUS Reform Under FIRRMA, by James K.
Jackson and Cathleen D. Cimino-Isaacs; and CRS Report RL33388, The Committee on Foreign Investment in the
United States (CFIUS), by James K. Jackson.
153 Allison Gatlin, “Micron Snubs Tsinghua, Favors Another Chinese Partnership: Analyst,” Investor’s Business Daily,
February 16, 2016, at http://www.investors.com/news/technology/micron-snubs-tsinghua-favoring-another-chinesepartnership-analyst/.
154 James Fontanella-Khan, “Fairchild Rejects $2.6bn Chinese Offer,” Financial Times, February 16, 2016. Joshua
Jamerson and Eva Dou, “Chinese Firm Ends Investment in Western Digital, Complicating SanDisk Tie-Up,” Wall
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2016, the Obama Administration blocked an affiliate of CICIIF from acquiring Aixtron, a leading
producer of advanced semiconductor manufacturing equipment and processes.155 In 2017, the
Trump Administration blocked the acquisition of Lattice Semiconductor, a leader in the design of
field-programmable gate array (FPGA) chips,156 by a Chinese government-backed private equity
fund based on a recommendation from CFIUS that found the transaction posed a national security
risk.157 The proposed sale of Xcerra, a semiconductor testing company, to a Chinese state-backed
semiconductor investment fund was withdrawn due to the anticipation of a CFIUS
recommendation to the President to block the deal.158
Table 5. Examples of Abandoned or Blocked Chinese Semiconductor Transactions
Year
Buyer
Target
Transaction Value
Status
2015
Tsinghua Unigroup
Micron Technologies
$23 billion
Abandoned
2016
China Resources Holdings
Fairchild Semiconductor
$2.6 billion
Abandoned
2016
Tsinghua Holdings
Western Digital Corporation
$3.78 billion
Abandoned
2016
Fujian Grand Chip
Investment Fund
Aixtron
$723 million
Blocked
2017
Canyon Bridge
Lattice Semiconductor
$1.3 billion
Blocked
2018
Hubei Xinyan
Xcerra
$580 million
Abandoned
Source: Compiled by CRS from public reporting.
Notes: Each of the buyers in this table is supported by CICIIF.
Licensing of Dual-Use Technologies
The United States uses export controls to prevent China from acquiring leading-edge technology
that may be used for military as well as commercial purposes, including semiconductors. Export
controls restrict and require licenses for the transfer of controlled technologies.159 The Trump
Street Journal, February 23, 2016.
155 Presidential Order, Regarding the Proposed Acquisition of a Controlling Interest in Aixtron SE by Grand Chip
Investment GMBH, December 2, 2016, at https://obamawhitehouse.archives.gov/the-press-office/2016/12/02/
presidential-order-regarding-proposed-acquisition-controlling-interest.
156 FPGAs are designed to allow post-manufacture programming or reprogramming of a chip for customized
applications. The benefits of FPGAs include greater flexibility, ability to more quickly meet market needs, faster and
parallel processing of signals, re-programmability, and ability for remote programming.
157 U.S. Department of Treasury, “Statement on the President’s Decision Regarding Lattice Semiconductor
Corporation,” press release, September 17, 2017, at https://www.treasury.gov/press-center/press-releases/Pages/
sm0157.aspx.
158 Securities and Exchange Commission, EDGAR System, Xcerra Corporation, 8-K filing, February 22, 2018, at
https://www.sec.gov/Archives/edgar/data/357020/000119312518054209/d533034d8k.htm.
159 The United States has imposed controls on exports from China related to semiconductors and semiconductor
manufacturing equipment in various forms since the Cold War. The U.S. Department of Commerce’s BIS and the
Department of State’s Directorate of Defense Trade Controls (DDTC) are the two primary agencies that administer
export controls. They focus on dual-use technologies, including semiconductor goods, which can potentially have both
commercial and military applications. In addition, DOD’s Defense Technology Security Administration (DTSA)
coordinates the technical and national security review of direct commercial sales export licenses and commodity
justification requests, including reviewing and commenting on proposed and final rule changes on export controls from
the Departments of Commerce and State. Also see CRS Report R41916, The U.S. Export Control System and the
Export Control Reform Initiative, by Ian F. Fergusson and Paul K. Kerr, and CRS In Focus IF11627, U.S. Export
Control Reforms and China: Issues for Congress, by Ian F. Fergusson and Karen M. Sutter.
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Administration has strengthened U.S. export controls to address growing concerns about the
potential national security ramifications of China’s industrial and military policies in advanced
and emerging technologies, including semiconductor-related technology. In 2018, Congress
passed the Export Control Reform Act (ECRA, P.L. 115-232) in part to tighten dual-use
technology exports to China and in response to China’s military-civil fusion program, which is
blurring distinctions between military and civilian end-use and end-users in trade.160 As part of
the efforts to tighten strategic trade with military-tied entities in China, in September 2020 the
U.S. Department of Defense proposed adding SMIC to the Commerce Department Bureau of
Industry and Security (BIS) Entity List due to its work with the Chinese military.161
The Trump Administration has also sought to curtail technology exports to Chinese companies of
concern, such as Huawei. Since May 2020, BIS has amended rules to restrict Huawei
Technologies Co. and its affiliates’ ability to acquire chips from any source using U.S. design
software or enabling equipment.162 These restrictions affected TSMC’s sales to China’s Huawei;
Huawei accounts for about 14% of TSMC’s revenue. There has been growing public attention
and consideration among U.S. policymakers about the role of U.S. semiconductor fabrication
machines and tools in building China’s domestic production capacity. (For more information on
U.S. semiconductor machinery exports to China, see Figure 7.) BIS has specifically identified
semiconductor fabrication equipment and semiconductors as subjects of further interest for future
controls. While some industry analysts assert that U.S. restrictions could reinforce the Chinese
government’s commitment to develop “semiconductor independence,” others note that China’s
efforts are already deeply rooted.163
China is seeking to fill technology gaps and using new pathways as acquisitions and technology
transfer come under greater U.S. and foreign government scrutiny. For example, China’s policies
encourage the return of Chinese expatriates, the hiring of specialized foreign industry talent, and
cross-border exchanges of personnel. Many of China’s top technology firms have U.S. R&D
centers in Silicon Valley and Seattle that partner with universities and hire local technology
talent.164 China also is stepping up its participation in U.S.-led open source technology platforms,
such as RISC-V, as an alternative way to access U.S. semiconductor expertise.165 These platforms
160 “Bureaucracy and Counterstrategy: Meeting the China Challenge,” remarks by Christopher Ashley Ford, Assistant
Secretary, Bureau of International Security and Nonproliferation, U.S. Department of State, September 11, 2019.
161 The Entity List identifies persons involved, or with the potential to be involved, in activities contrary to U.S.
national security or foreign policy interests. BIS typically requires a license for U.S. shipments of Export
Administration Regulations (EAR) items to those on the Entity List. BIS presumes denial for some parties, but still can
approve licenses on a case-by-case basis.
162 BIS, “Commerce Addresses Huawei’s Efforts to Undermine Entity List, Restricts Products Designed and Produced
with U.S. Technologies,” press release, May 15, 2020, at https://www.commerce.gov/news/press-releases/2020/05/
commerce-addresses-huaweis-efforts-undermine-entity-list-restricts; and BIS, interim final rule and request for
comments, “Export Administration Regulations: Amendments to General Prohibition Three (Foreign-Produced Direct
Product Rule) and the Entity List,” 85 Federal Register 29849, May 19, 2020, at https://www.federalregister.gov/
documents/2020/05/19/2020-10856/export-administration-regulations-amendments-to-general-prohibition-threeforeign-produced-direct.
163 James Andrew Lewis, “Managing Semiconductor Exports to China,” Commentary, Center for Strategic and
International Studies, May 5, 2020; Saif M. Khan, “Maintaining the AI Chip Advantage of the United States and its
Allies,” CSET Issue Brief, Center for Security and Emerging Technology (CSET), December 2019; and Saif M. Khan,
“U.S. Semiconductor Exports to China: Current Policies and Trends,” CSET Issue Brief, October 2020.
164 Thilo Hanneman, Daniel H. Rosen, Cassie Gao, and Adam Lysenko, “Two-Way Street: US-China Investment
Trends-2020 Update,” Rhodium Group, May 11, 2020; Michael Brown and Pavneet Singh, “China’s Technology
Transfer Strategy,” Defense Innovation Unit Experimental (DIUx), January 2018.
165 Runhua Zhao, “Briefing: China Sets up Domestic Chip Alliance,” Xinhua News Agency, November 9, 2018; “China
Mobile Deepens O-RAN Research, Showcasing Significant Achievements at MWC2019,” PRNewswire, February 26,
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offer Chinese firms and government institutes access to top U.S. technology talent to train and
troubleshoot on particular projects.166 For example, in 2019, Pingtouge, the chip subsidiary of
Chinese company Alibaba, released its first processors—Xuantie 910 and Hanguang 800—that
relied on foreign technology and expertise shared through RISC-V to develop the chips.167
Europe
European-headquartered semiconductor firms accounted for about 10% (~$40 billion) of global
semiconductor sales in 2019 (see Figure 4). Three firms based in the European Union—
STMicroeletronics, Infineon Technologies, and NXP Semiconductors—ranked among the world’s
top 15 semiconductor firms by sales in 2019 (see Appendix B).168
European-headquartered semiconductor companies tend to specialize in niche markets, including
the automotive industry, energy applications, and industrial automation; these firms do little
production of computer- and consumer-related chips.169 Some European companies are
considered strong in chip architecture, mobile telecommunications and industrial applications,
and security chips (e.g., passports, IDs, and smartphones), a market dominated by NXP, Infineon,
and STMicroelectronics.170 Europe’s share of global revenues for fabless firms is small (2%).
In May 2013, the European Commission (EC) announced an initiative aimed at increasing
Europe’s share of global semiconductor manufacturing by providing $11.3 billion (€10 billion) in
public and private funding for R&D activities in an effort to induce about $113 billion (€100
billion) in industry investment in manufacturing.171 The initiative called for a multipronged
approach that included easing access to capital financing by qualified companies; pooling
European Union (EU), national, and regional subsidies to enable larger-scale projects; and
improving worker training.172 The Commission’s goal was for European firms to account for 20%
2019.
166 The nature of open source allows participants in one country to gain from the technological expertise that resides in
another country. Proponents of open source technology highlight its ability to speed technology development, ensure
interoperability, and increase security by identifying and resolving problems more quickly. Critics highlight that open
technology platforms explicitly threaten the core IP that has been developed by leading U.S. software and hardware
companies. Others argue that open technology platforms are rapidly developing in a direction that could be used to
exploit gray areas or gaps in U.S. export control authorities. See Caroline Meinhardt, “Open Source of Trouble:
China’s Efforts to Decouple from Foreign IT Technologies,” Mercator Institute for China Studies, March 18, 2020.
167 Josh Horwitz, “Alibaba’s Chip Division Releases First Core Processor,” Reuters, July 26, 2019, at
https://www.reuters.com/article/us-alibaba-chip-design/alibabas-chip-division-releases-first-core-processor-ipidUSKCN1UL0W6; Fangyu Cai, “Alibaba Open Sources Its MCU to Boost AI Research,” Synched, October 10, 2019,
at https://syncedreview.com/2019/10/23/alibaba-open-sources-its-mcu-to-boost-ai-research/; Arjun Kharpal, “Alibaba
Unveils Its First AI Chip as China Pushes for Its Own Semiconductor Technology,” CNBC, September 25, 2019, at
https://www.cnbc.com/2019/09/25/alibaba-unveils-its-first-ai-chip-called-the-hanguang-800.html.
168 In 2018, Qualcomm, NXP’s rival, proposed a takeover of NXP, a move that it has since abandoned.
169 Page Tanner, “Germany to Drive Growth in European Semiconductor Market,” Market Realist, December 24, 2015,
at http://marketrealist.com/2015/12/germany-drive-growth-european-semiconductor-industry/.
170 “Semiconductors: European Chip Industry Aims to Get Back on the Map,” Handelsblatt, April 30, 2018, at
https://www.handelsblatt.com/today/companies/semiconductors-european-chip-industry-aims-to-get-back-on-the-map/
23582014.html.
171 European Commission, “Commission Proposes New European Industrial Strategy for Electronics—Better Targeted
Support to Mobilize 100 Billion Euro in New Private Investments,” press release, May 23, 2013, at
https://ec.europa.eu/commission/presscorner/detail/en/IP_13_455.
172 The initiative was named 10/100/20 from its three main goals. SEMI, Supporting Competitive Semiconductor
Advanced Manufacturing, February 24, 2014, at http://www.semi.org/eu/sites/semi.org/files/docs/
SEMI%20Europe%20News-Feb%2024%202014.pdf. Also see European Commission, “Electronics Strategy for
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of global chip manufacturing by 2020. The years-long program may have helped prevent
Europe’s market share in wafer fabrication from declining. European-based fabs accounted for
3% of global 300mm wafer fabrication production capacity in 2019, the same share as in 2015
(see Table 1).173 Bosch and Infineon, among the most important suppliers of automotive
semiconductors, are each constructing a new 300mm fab in Europe.174
The European Commission and European governments continue to seek ways to bolster Europe’s
microelectronics sector. A 2018 report, Rebooting Electronics Value Chains in Europe, prepared
by Europe’s semiconductor companies for the Commission, recommended that the EU provide
additional funds for public-private partnerships in microelectronics manufacturing and other
electronics components and systems.175 France, Germany, Italy, and the United Kingdom176
received Commission approval at the end of 2018 for a $2 billion (€1.7 billion) joint
microelectronics project177 aimed at encouraging investments in internet-connected devices and
connected car technologies; this effort is scheduled for completion by 2024.178 The Commission
anticipates that this investment will stimulate roughly $6.7 billion (€6 billion) in private
investment.
The Federal Role in Semiconductors
The federal government has played a major role in supporting the U.S. semiconductor industry
since the late 1940s. That role, however, has changed considerably over time. In the early years,
federal support for the nascent industry included research funding; support for the development of
increasingly powerful computers; and serving as an early adopter of semiconductor-enabled
technologies, creating a market through defense and space-related acquisitions. From the late
1980s through the mid-1990s, the federal role centered on reversing a perceived loss of U.S.
competitiveness in the semiconductor sector relative to foreign firms through the initiation and
funding of an industry research consortium. More recently, the federal role has focused on
support for research to extend the life of current semiconductor technologies and to develop the
scientific and technological underpinnings for successor technologies. A history of the federal
role is provided in Appendix A; current research and development efforts are described below.
Europe,” at https://ec.europa.eu/digital-single-market/en/electronics-strategy-europe.
173 IC Insights, Global Wafer Capacity 2016-2020, IC Insights, at http://www.icinsights.com/services/global-wafercapacity/report-contents/.
174 Bosch, Factsheet: 300 mm Wafer Fab in Dresden, September 30, 2019, at https://www.bosch-presse.de/pressportal/
de/en/300-mm-wafer-fab-in-dresden-200769.html, and Infineon Technologies AG, “Infineon Prepares for Long-Term
Growth and Invests €1.6 Billion in New 300-Millimeter Chip Factory in Austria,” press release, May 18, 2018, at
https://www.infineon.com/cms/en/about-infineon/press/press-releases/2018/INFXX201805-054.html.
175 European Commission, Boosting Electronics Value Chains in Europe, A Report to Commissioner Gabriel, June 19,
2018, p. 12, at https://ec.europa.eu/digital-single-market/en/renewed-electronics-strategy-europe. Eleven companies
and research bodies endorsed the report.
176 The United Kingdom’s participation in the microelectronics project at the end of the Brexit transition period, likely
to last until December 31, 2020, is unclear. See CRS Report R45944, Brexit: Status and Outlook, coordinated by Derek
E. Mix.
177 The European Commission needs to be notified and approve state aid (a subsidy or any other aid) for projects by
Member States, especially those that target a particular sector prior to its initiation.
178 Foo Yun Chee, “EU Okays $2 Billion Microelectronics Project by France, Germany, Italy, UK,” Reuters, December
18, 2018. Also see European Commission, “State Aid: Commission Approves Plan by France, Germany, Italy, and the
UK to give €1.75 Billion Public Support to Joint Research and Innovation Project in Microelectronics,” press release,
December 18, 2018.
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Current Federal R&D Efforts to Develop Potential Technology
Alternatives and Supplements to Semiconductors
Since the 1950s, semiconductors used for computer processing and memory storage have been
based primarily on silicon. A major area of research has focused on a successor to complementary
metal-oxide-semiconductor (CMOS) technology, which has been the basis of semiconductor
manufacturing for half a century.179 Research and development leading to a continual reduction in
the size of components on each chip has enabled CMOS-based semiconductors to become more
powerful, more energy-efficient, and less expensive. However, it is widely believed that “as the
dimensions of critical elements of devices approach atomic size, quantum tunneling and other
quantum effects [will] degrade and ultimately prohibit further miniaturization of conventional
devices.”180 This has spurred other federal efforts to develop alternative approaches to computing
to ensure the United States continues to enjoy the economic, competitiveness, and national
security benefits of a robust domestic computing industry.
A number of technologies currently being explored may serve as complements or alternatives to
today’s silicon-based semiconductors. If successful, one or more of these technologies could have
disruptive effects, positive or negative, on the semiconductor industry. Many of these emerging
technologies rely on semiconductor hardware and continuing advances in semiconductor
innovation. Among the technologies under development are quantum computing, optical
computing, spintronic transistors, integrated photonics, and neuromorphic (brain-like) computing.
Some of these technologies could, theoretically, offer vastly greater storage, processing, and
transmission capabilities than current semiconductor technology.181 China and other countries are
also targeting these emerging technology fields.
The efforts underway face substantial technological obstacles to their realization. For example,
physicists have been talking about the potential of quantum computing for more than 30 years,
but the technology is still not ready for wide commercial use.182
National Strategic Computing Initiative. In July 2015, President Obama issued an executive
order establishing the National Strategic Computing Initiative (NSCI) “to create a cohesive,
multi-agency strategic vision and federal investment strategy, executed in collaboration with
industry and academia, to maximize the benefits of HPC [high performance computing] for the
United States.” A key objective of the NSCI is to establish, “over the next 15 years, a viable path
forward for future HPC systems even after the limits of current semiconductor technology are
reached.”183 The executive order designated the DOE, the National Science Foundation (NSF),
and DOD as the lead agencies, and designated the Intelligence Advanced Research Projects
179 CMOS technology became the dominant technology for producing integrated circuits in the 1980s. Its low power
consumption, low heat waste, and high noise immunity allow CMOS to integrate a high density of logic functions on a
chip.
180 National Science and Technology Council (NSTC), Subcommittee on Nanoscale Science, Engineering, and
Technology (NSET), The National Nanotechnology Initiative: Supplement to the President’s FY2017 Budget, p. 17, at
http://www.nano.gov/sites/default/files/pub_resource/nni_fy17_budget_supplement.pdf.
181 Conceptually, quantum computing relies on quantum phenomena to expand the number of states in which data can
be encoded and stored; optical computing relies on light, rather than electric current, to perform calculations; and
neuromorphic computing relies on mimicking the architecture and processing used by biological nervous systems.
182 Amit Katwala, “Quantum Computers Will Change the World (If They Work),” Wired, March 5, 2020, at
https://www.wired.co.uk/article/quantum-computing-explained.
183 Executive Order 13702, “Creating a National Strategic Computing Initiative,” 80 Federal Register 46177-46180,
July 29, 2015.
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Activity (IARPA) and National Institute of Standards and Technology (NIST) as foundational
R&D agencies.
The NSCI has continued during the Trump Administration. In June 2019, the White House Office
of Science and Technology Policy established a Fast Track Action Committee on Strategic
Computing under the National Science and Technology Council (NSTC) Subcommittee on
Networking and Information Technology Research and Development (NITRD).184 In November
2019, the NSTC released the report National Strategic Computing Initiative Update: Pioneering
the Future of Computing. The report takes an expansive approach to computing that goes beyond
semiconductor manufacturing, examining steps to realize:
a computing ecosystem that combines heterogeneous computing systems (from extremescale to edge-centered systems and beyond) with the networking, hardware, software, data,
and expertise required to support national security and defense as well as U.S. scientific,
engineering, and economic leadership.185
With respect to computing hardware, the report’s recommendations for federal actions include:
providing long-term support for basic science and technology of computation to
explore fundamental scientific and technical limits to computing to maximize the
benefits of novel computational hardware, software, architectures, and new
computing paradigms;
providing support for the rapid translation to practice of basic R&D and
technology;
ensuring adequate investments in infrastructure such as foundries, testbeds,
experimental systems, and prototypes, as well as in relevant domains such as
materials science, microwave engineering, and supply chains; and
aligning U.S. future computing initiatives with other major national initiatives.186
National Quantum Initiative. Quantum computing is one potential alternative to CMOS-based
semiconductor technology. Quantum information science is believed to have the potential to
provide computing capabilities for certain types of applications (e.g., code-breaking) that are far
beyond what is possible with the most advanced technologies available today. Quantum science,
generally, is the study of the smallest particles of matter and energy; quantum information science
builds on quantum science principles to obtain and process information in ways that cannot be
achieved based on classical physics principles.187 The implications of the potential emergence of
quantum computing on the semiconductor industry are unclear.
184 For additional information on the Office of Science and Technology Policy and the National Science and
Technology Council, see CRS Report R43935, Office of Science and Technology Policy (OSTP): History and
Overview, by John F. Sargent Jr. and Dana A. Shea.
185 Executive Office of the President, National Science and Technology Council, Fast Track Action Committee on
Strategic Computing, National Strategic Computing Initiative Update: Pioneering the Future of Computing, November
2019, p. iv, at https://www.nitrd.gov/pubs/National-Strategic-Computing-Initiative-Update-2019.pdf.
186 Ibid., pp. 3-8.
187 Whereas classical computing uses “bits” for data processing, quantum computing uses qubits. The practical
difference between a bit and a qubit is that a bit can only exist in one of two states at a time, usually represented by a 1
and a 0, whereas a qubit can exist in both states at one time. This is a phenomenon called “superposition” and it is what
allows the power of a quantum computer to grow exponentially with the addition of each bit. Two bits in a classical
computer provides four possible combinations—00, 01, 11, and 10, but only one combination at a time. Two bits in a
quantum computer provides for the same four possibilities, but, because of superposition, the qubits can represent all
four states at the same time, making the quantum computer four times as powerful as the classical computer. So, adding
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In 2018, Congress enacted the National Quantum Initiative Act (P.L. 115-368), which directed the
President to establish a National Quantum Initiative Program to, among other things, “establish
the goals, priorities, and metrics for a 10-year plan to accelerate development of quantum
information science and technology applications in the United States.” On August 30, 2019,
President Trump established the National Quantum Initiative Advisory Committee (Presidential
Executive Order 13885), in accordance with the act.188 The advisory committee is composed of
the Director of OSTP and up to 22 committee members from industry, universities, federal
laboratories, and other federal government agencies appointed by the Secretary of Energy. The
committee is to be co-chaired by the Director of OSTP and another committee member
designated by the Secretary of Energy. In September 2018, the DOE and NSF announced awards
of roughly $249 million to 188 research projects related to quantum information science.
Government QIS basic research is also conducted by DOD, NIST, and the intelligence
community.189
Electronics Resurgence Initiative (ERI). Launched by the Defense Advanced Research Projects
Agency (DARPA) in 2017, ERI is a five-year, $1.5 billion DARPA program that seeks to address
“long-foreseen obstacles to Moore’s Law and the challenges impeding 50 years of rapid progress
in electronics advancement.”190 In 2018, DARPA announced a new phase for the ERI that
seeks to … push us toward a domestic semiconductor manufacturing sector that can
implement specialized circuits; demonstrate that those circuits can be trusted through the
supply chain and are built with security in mind; and are ultimately available to both [the
Department of Defense] and commercial sector users.191
ERI Phase II research is focused on four key areas of development: 3D heterogeneous integration,
new materials and devices, specialized functions, and design and security.
PowerAmerica. The Next Generation Power Electronics Manufacturing Innovation Institute is
one of 14 institutes comprising a federal initiative known as Manufacturing USA, which seeks to
bring government, industry, and academic partners together to “increase U.S. manufacturing
competitiveness and promote a robust and sustainable national manufacturing R&D
infrastructure.”192 PowerAmerica is co-funded by federal and nonfederal participants at $70
million each over five years. PowerAmerica R&D and related activities are focused on
accelerating the development and large-scale adoption of wide-bandgap semiconductor
technology in power electronic systems.
Joint University Microelectronics Program (JUMP). This public-private partnership, between
DARPA and Semiconductor Research Corporation, which was launched in 2018, seeks to
a bit to a classical computer increases its power linearly, but adding a qubit to a quantum computer increases its power
exponentially—doubling power with the addition of each qubit. CRS Report R45409, Quantum Information Science:
Applications, Global Research and Development, and Policy Considerations, by Patricia Moloney Figliola.
188 Executive Order 13885, “Establishing the National Quantum Initiative Advisory Committee,” 84 Federal Register
46873, August 30, 2019.
189 For more information on quantum information science, see CRS Report R45409, Quantum Information Science:
Applications, Global Research and Development, and Policy Considerations, by Patricia Moloney Figliola.
190 DARPA, “DARPA Announces Next Phase of Electronics Resurgence Initiative,” press release, November 1, 2018,
at https://www.darpa.mil/news-events/2018-11-01a.
191 Ibid.
192 Manufacturing.gov, “Highlighting Manufacturing USA,” at https://www.manufacturing.gov/. PowerAmerica is one
of six Manufacturing USA institutes funded by DOE. In addition, DOD has funded eight institutes and NIST has
funded one. For more information on the Manufacturing USA institutes, see CRS Report R44371, The National
Network for Manufacturing Innovation, by John F. Sargent Jr.
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increase the performance, efficiency, and overall capabilities of commercial and military
electronics applications.193 Funding for JUMP, a five-year effort, is expected to exceed $150
million, with DARPA providing approximately 40% and consortium partners at six universities
providing approximately 60%.194 JUMP is a successor to the DARPA Semiconductor Technology
Advanced Research Network (STARnet) program, which supported a collaborative network of
research centers focused on “finding paths around the fundamental physical limits threatening the
long-term growth of the microelectronics industry.”195
Two of the JUMP centers focus on topics directly related to semiconductor design and
manufacturing. The Applications and Systems-Driven Center for Energy-Efficient Integrated
Nanotechnologies (ASCENT) studies material and device innovations to overcome the
anticipated limits of current CMOS technology, while the Center for Research on Intelligent
Storage and Processing-in-memory (CRISP) supports research to topple the “memory wall,” a 70year-old technical bottleneck in computer systems that is seen as hindering the use of big data for
technical discovery.196
Nanoelectronics for 2020 and Beyond. This effort is organized under the National
Nanotechnology Initiative (NNI)197 “to discover and use novel nanoscale fabrication processes
and innovative concepts to produce revolutionary materials, devices, systems, and
architectures.”198 The effort’s signature initiative and the NNI’s Nanotechnology-Inspired Grand
Challenge for Future Computing share a focus on next-generation computing technology R&D
that would seek to overcome the anticipated limits of silicon-based semiconductor technology.
The program is supporting DOD research on photonic approaches to quantum information
processing as well as research at the National Institute for Standards and Technology on methods
for improving production yields of electronic devices and to facilitate production processes for
next-generation ultra-thin films.199
National Security Concerns
For decades, many have argued that maintaining a domestic manufacturing capability (or one in
secure allied nations) for the most advanced semiconductor products is necessary for national
security. The Department of Defense has expressed concerns about U.S. dependence on suppliers
of semiconductors located outside the United States, especially suppliers in nations that are
hostile or may become hostile to U.S. interests, a situation which may create vulnerabilities. In
October 2020, Ellen M. Lord, Under Secretary of Defense for Acquisitions and Sustainment,
testified:
193 The Semiconductor Research Corporation is a nonprofit research consortium founded in 1982 that supports
semiconductor-related research and education programs with global operations.
194 DOD, DARPA, “JUMP,” at https://www.darpa.mil/about-us/timeline/jump.
195 Semiconductor Research Corporation, “STARnet Research,” at https://www.src.org/program/starnet.
196 DOD, DARPA, “Joint University Microelectronics Program (JUMP),” at https://www.darpa.mil/program/jointuniversity-microelectronics-program.
197 An NNI signature initiative is a mechanism for combining the expertise, capabilities, and resources of federal
agencies to accelerate research, development, or insertion, and overcome challenges to the application of
nanotechnology-enabled products.
198 NSTC, NSET, The National Nanotechnology Initiative: Supplement to the President’s FY2017 Budget, p. 17, at
http://www.nano.gov/sites/default/files/pub_resource/nni_fy17_budget_supplement.pdf.
199 NSTC, NSET, The National Nanotechnology Initiative: Supplement to the President’s FY2020 Budget, p. 9, at
https://www.nano.gov/sites/default/files/pub_resource/NNI-FY20-Budget-Supplement-Final.pdf.
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Reduced U.S. capability in microelectronics is a particularly troublesome area for the
[Defense Industrial Base]. Government incentives and low labor costs in foreign countries
have been the main drivers for the migration of microelectronics manufacturing,
packaging, and testing to off-shore suppliers. This strains our ability to acquire and sustain
microelectronic components embedded in systems critical to national security and national
defense. Reliance on non-U.S. suppliers for microelectronics leaves DOD vulnerable. The
risks of this reality include: availability of microelectronics in case of embargo; loss of
U.S. intellectual property from offshore dependency; and loss of confidence the technology
will function as intended due to possible malicious activity by foreign fabricators. 200
Another risk of maintaining a domestic semiconductor production capability for critical military
uses is that high costs could result in more expensive weapons systems and be financially
unsustainable. Additionally, military systems may benefit from competition among
semiconductor fabricators; in the absence of such competition, the technology for military
systems may not advance as quickly.201
DOD Trusted Foundry Program
In October 2003, then-Deputy Secretary of Defense Paul Wolfowitz proposed a Defense Trusted
Integrated Circuit Strategy. This strategy argued that the “country needs a defense industrial base
that includes leading edge, trusted commercial suppliers for critical ICs used in sensitive defense
weapons, intelligence, and communications systems.”202
Faced with the globalization of semiconductor manufacturing, which DOD saw (and sees today)
as diminishing its visibility into supply chains and production processes, DOD established the
Trusted Foundry Program (later expanded to encompass other parts of the semiconductor supply
chain in DOD’s trusted supplier program) in 2004. Under this program, the government pays a
fee to companies deemed secure sources to guarantee access to and the reliability of components
important to national defense.203 IBM began working with DOD in 2004 under a 10-year contract
to serve as DOD’s sole provider of leading-edge, secure foundry services. In 2014, however, IBM
announced that GlobalFoundries, owned by Mubadala, an investment company controlled by the
government of Abu Dhabi, would acquire the two IBM facilities covered under the Trusted
Foundry Program contract. These facilities are located in Essex Junction, VT, and East Fishkill,
NY.204
The Committee on Foreign Investment in the United States reviewed the transaction and in July
2015 cleared the acquisition.205 GlobalFoundries then sought accreditation for the two facilities to
200 Testimony of Ellen M. Lord, Under Secretary of Defense for Acquisition and Sustainment, before the U.S.
Congress, Senate Committee on Armed Services, Subcommittee on Readiness and Management Support, Supply Chain
Integrity, 116th Cong., 2nd sess., October 1, 2020, https://www.armed-services.senate.gov/download/lord_-10-01-20.
201 Daniel M. Marrujo, Trusted Foundry Program, Defense Microelectronics Activity (DMEA), October 31, 2012, pp.
11-12.
202 Department of Defense (DOD), Defense Science Board Task Force on High Performance Microchip Supply,
December 2005, pp. 87-88, at https://dsb.cto.mil/reports/2000s/ADA435563.pdf.
203 DOD’s DMEA office administers and manages the trusted foundry and trusted supply programs. DOD Instruction
5200.44, Protection of Mission Critical Functions to Achieve Trusted Systems and Networks, details DMEA’s rules
specific to integrated circuits.
2
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