# Semiconductors: U.S. Industry, Global Competition, and Federal Policy > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/crs%3AR46581 ## Record - **Collection:** Congressional research report - **Document type:** CRS Report - **Published:** October 26, 2020 - **Citation:** R46581 ## Text 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. Congressional Research Service 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 Congressional Research Service 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 Congressional Research Service 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. Congressional Research Service 1 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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. Congressional Research Service 2 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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. Congressional Research Service 3 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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/. Congressional Research Service 4 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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. Congressional Research Service 5 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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. Congressional Research Service 6 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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. Congressional Research Service 7 Semiconductors: U.S. Industry, Global Competition, and Federal Policy (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/ Congressional Research Service 8 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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. Congressional Research Service 9 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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. Congressional Research Service 10 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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. Congressional Research Service 11 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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. Congressional Research Service 12 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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. Congressional Research Service 13 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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. Congressional Research Service 14 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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 Congressional Research Service 15 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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. Congressional Research Service 16 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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. Congressional Research Service 17 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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/. Congressional Research Service 18 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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. Congressional Research Service 19 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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/. Congressional Research Service 20 Semiconductors: U.S. Industry, Global Competition, and Federal Policy (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. Congressional Research Service 21 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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. Congressional Research Service 22 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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. Congressional Research Service 23 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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. Congressional Research Service 24 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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. Congressional Research Service 25 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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/. Congressional Research Service 26 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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 Congressional Research Service 27 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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 Congressional Research Service 28 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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/. Congressional Research Service 29 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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. Congressional Research Service 30 Semiconductors: U.S. Industry, Global Competition, and Federal Policy 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 [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/crs%3AR46581. Public record. Not legal advice.