Bob Gleichauf, EVP, Global Technology at In-Q-Tel, in a recently released position paper on the Chips and Science Act of 2022, explains why the legislation needs a “check engine light” to indicate problems and anticipate challenges, as well as maximize taxpayer return on their CHIPS investment.
The passage of the CHIPS Act last summer was a step in the right direction for reestablishing U.S. leadership in semiconductors. But to keep it humming along, what CHIPS needs now is a check engine light. In a car, that light serves as a warning that there might be problems with an engine and for a mechanic to take a closer look before it becomes serious. CHIPS needs a similar mechanism that can more quickly identify unanticipated problems and shifts in markets, supply chains, and new applications so they can be fixed quickly to keep the CHIPS engine running smoothly.
The main area of concern is that semiconductors are just one part of a larger, even more complex, and multifaceted microelectronics ecosystem. So if we want to get the most out of this landmark legislation, we need to engage not just the makers of semiconductors but also the buyers who reside outside the industry and embrace the fact that midcourse corrections may be required as this process unfolds over the next decade.
The Executive Order that set up the CHIPS Implementation Steering Council back in August was followed by the establishment of a Department of Commerce Industrial Advisory Committee (IAC), which included a wide range of experts from industry, academia, and national labs. While the collective level of expertise and experience is impressive, these committee members came largely from the supply side of the semiconductor ecosystem. However, for this IAC to be truly effective, they need to consider engaging experts from the demand side of the equation — companies in clean energy, entertainment, healthcare, manufacturing, and transportation — that all use semiconductors. While adding more members from the demand side won’t make the steering council clairvoyant, it will make for better interactions with stakeholders and more productive outcomes over the life of the CHIPS act. According to an analysis from McKinsey, the automotive, wireless, and computing markets currently account for roughly three-quarters of the global semiconductor market value. Yet currently only one of the 24 IAC members is a buyer from the demand side — The Ford Motor Company.
While the volume of semiconductors purchased by the automotive sector is substantial, it’s still just a fraction of the overall market and one which tends to focus on older designs and commodity memory chips. But it’s at this point of intersection between these three sectors where some of the most cutting-edge developments may reshape manufacturing requirements in unexpected and powerful ways. For the automotive industry, the biggest source of new needs could come more from applications such as Android Auto and Apple CarPlay rather than from the manufacturers themselves.
That’s why it needs to have more representation from these other areas of the tech industry, especially the startup community. As policymakers think through the implementation of CHIPS, they should resist the temptation to focus purely on established semiconductor consumers and should also consider the growth potential of startups and emerging technologies. Major companies that are now household names like NVIDIA, Broadcom, Marvell, and MediaTek were once small, unknown ventures that worked closely with foundry partners (particularly TSMC) and now account for a substantial share of global wafer capacity. CHIPS needs to be prepared to ensure that the next NVIDIA is home-grown and will be able to thrive in the future marketplace.
The timing is ripe for this check engine light adjustment to CHIPS. VC-backed semiconductor startups have seen a record $6.4B in funding in 2021, which is more than double the $3B in 2020 according to CrunchBase news. In many ways, CHIPS is a venture fund and the VC rule of thumb is that out of every ten investments only one or two have a major impact, three or four generate a return on investment, and the rest fail. An associated phenomenon is known as the “pivot,” where a struggling startup shifts its focus in response to potential customer/demand-side feedback. Noteworthy examples include PayPal, which started out in software security before becoming a major player in digital payments; Twitter, which originally was meant to promote podcasts; and YouTube, which was aimed at revolutionizing online dating.
While these big pivots are harder to accomplish in the semiconductor space, they do occur in their own unique ways. Some recent examples include the rapid rise in specialized chips focused on AI, crypto, and quantum computing. These are not simply larger or more efficient versions of existing semiconductors but totally new designs that incorporate alternate architectures, materials, and power management. While it remains to be seen when the next generation of biological, optical, and quantum processors will migrate from labs to fabrication, existing CMOS fabrication will certainly play much less of a role than we have today.
So even though picking winners in this race is hard, expanding CHIP’s IAC to include input from
experts on the demand side will at least provide some useful balance and perspective. In an ideal world, the IAC should become a collection of parallel and occasionally intersecting feedback loops between stakeholders not only in government, industry, and academia but also consumers and market-makers. The last thing we want to do is inadvertently rebuild the U.S. semiconductor ecosystem based on what we know today instead of what we predict that we will need tomorrow.
So to ensure a diverse membership on the IAC, the Department of Commerce should add more representation from these top three major semiconductor market verticals of automotive, wireless, and startups. They need to work hard to make sure that their efforts are guided by all the players in this space, from large corporations to venture-backed startups. This is the only way CHIPS will be effective in its mission to reestablish the U.S. semiconductor industry as a world leader.
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