• Beneficial effects on chip manufacture in the US are growing quickly but rather more slowly in the EU
• The intent is to end western economic and strategic dependence on foreign-made semiconductors
• Politico/economic orthodoxies rule: Tax breaks and subsidies are the US solution. It’s state aid in the EU
• Meanwhile, the policy is pushing the price of helium through the roof – as it were

At the moment in the US, the nation’s huge manufacturing sector is verging on buoyant thanks, in many ways, to the continuing growth of investment in semiconductor technology. Back in August 2022, President Joe Biden signed the “Creating Helpful Incentives to Produce Semiconductors and Science Act” into law. Better known, everywhere, as the Chips Act, the acronymic legislation (and the subsidies it authorised) is boosting the production of semiconductors across the computer and electronics manufacturing sector to the point that it is greater now than at any time over the 20 years prior to the law making it onto the statute books.

The effects of the Act took time to gain momentum. Over the decade covering the years 2011 to 2020, investment in electronics manufacturing construction in the US was about US$6bn per annum but by June this year the so-called ‘realised’ investment made by private capital investors in response to incentives introduced in the Chips Act was $11bn per month. That’s real money that is really being ploughed into businesses, not vague promises about possible investments sometime in the indeterminate future. And here’s another astonishing figure, during 2016 and 2017, total electronics manufacturing construction stood at just 3% of all manufacturing construction in the US. At the end of June this year it was 58%. 

The Chips Act was designed to reduce US economic and strategic dependency on foreign-made chips in general and Chinese semiconductor technology in particular. It also prevents the funding recipients from expanding semiconductor manufacturing overseas either in the People’s Republic of China (PRC) or other countries defined by American law as being threats to US national security. The prohibitions apply to any and all new facilities, unless such facilities do no more than make legacy semiconductors mainly for that country’s market.

The global Covid-19 pandemic massively disrupted the manufacture of microchips, threw the global supply chain into disarray, caused severe shortages and prompted huge price rises to the extent that the US automotive industry, a major indicator of the nation’s economic health, quickly suffered the loss in production of at least 4 million vehicles – and that had a knock-on impact on other companies in the automotive ecosystem and the greater US macro economy.

The semiconductor crisis was not confined solely to the US. Other parts of the world were also badly hit, including the economies of the member states of the European Union (EU) and the UK, which had voted to leave the trading bloc. For example, figures for Germany alone (which also has a strategically and economically important automotive sector) show that in 2021 the country’s gross domestic product (GDP) fell by 1.5%. That equates to some €40bn. The decline was directly attributable to the lack of semiconductors.

Once bitten, twice shy

For both the US and the EU the reaction to the severe shortages was one of “once bitten, twice shy” and both moved in parallel, to ensure that in future the threat to the availability of semiconductors would be at least ameliorated, if not entirely negated. This would be effected via the provision of incentives for public investment in semiconductor development and manufacture and the building of ‘onshore’ chip fabrication facilities. Major funding would also be made available for chip R&D and for bolstering the strength and security of supply chains and the chip ecosystem.

US and EU semiconductor companies have a decades-long history of (sometimes grudging) collaboration on chip R&D in seats of learning, research organisations both academic and governmental, and between commercial enterprises. The shock of what happened during the pandemic together with the ongoing deterioration in geo-political relations between the west and China, Russia and Iran has focused minds on even greater practical collaboration, partnerships and alliances. This is helping to ensure that investments are concentrated on the right areas and not needlessly duplicated on either side of the Atlantic.

The current, unpalatable, reality is that neither the US nor the EU have sufficient ‘onshore’ production facilities to be able to make enough of the advanced 2 and 3 nanometre chips required to provide the performance demanded by the latest developments in AI, 5G, internet of things (IoT), hybrid cloud and autonomous vehicles and, perforce, must rely on what they can get from South Korea and Taiwan. Given tensions between the island Republic of China and the enormous mainland power of the People’s Republic of China, the US and the EU intend to manufacture their own advanced semiconductors and that’s a long-term process that requires sustained heavy investment.

So, there are two pieces of broadly similar legislation in play: The acronym-heavy US Chips Act and the non-acronym EU Chip Act. The US law is centred on big, federal tax incentives to attract new investments in semiconductor manufacture. The EU law is based on the provision of state aid subsidies. Interestingly, and despite the economic and political differences between the two approaches, US-based semiconductor companies can be eligible for funding made via the EU Chips Act and EU companies can get support through the provisions of the US Chips Act. 

Helium supply gets a bit squeaky

Meanwhile, one of the consequences of the US and EU determination to rid themselves of dependency on foreign-made semiconductors by manufacturing themselves is a massive increase in demand for helium. As might be expected, the requirements for the gas, and its price, are going through the roof, which is exactly what helium-filled balloons always try to do.

Colourless and odourless, non-flammable and very stable, helium is the second-most abundant element in the universe (after hydrogen) but is a finite and practically non-replaceable resource on earth. It has a vital role in the manufacture of semiconductors because it is chemically inert and provides very high thermal conductivity. That’s important because chip production is a hot process and requires exceptional cooling. As the demand for chips continues to grow and accelerate globally, the price of helium, which has always been remarkably volatile for an inert gas, is constantly going up. Furthermore, helium supply chains are particularly vulnerable to disruption. 

In response to the changing dynamics of the market, the Cambridge, England-headquartered research house, IDTechEx, has just published a new report “Helium Market 2025-2035: Applications, Alternatives, and Reclamation”. It forecasts the demand for helium in the chip manufacturing industry will increase five-fold by 2035.

Helium is usually, but not always, recovered from natural gas wells and the US is fortunate in that sites in Kansas, Oklahoma and Texas produce large amounts of the gas at concentrations of between 0.3% and 2.7%, which may not seem a lot but has, hitherto, been sufficient for America’s needs. However, those production facilities are now being depleted at a faster rate, hence a surge of interest, and investment, in alternative approaches, including helium reclamation and recycling. 

If you are thinking about doing your party trick of breathing in a lungful of helium from a balloon so you can sound like Mickey Mouse for a while, it might be an idea to do it sooner rather than later. Helium is becoming a precious commodity.

– Martyn Warwick, Editor in Chief, TelecomTV