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May 16, 2024
In the time since this article was first published, McKinsey has continued to explore the topics it covers. Read on for a summary of our latest insights.
America’s CHIPS may be down, but not for long. The world’s biggest economy currently manufactures only about 12 percent of the world’s semiconductors, and none of the most advanced types. Enter the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act, signed into law in August 2022. Pandemic-related supply chain issues—resulting in painful shortages—highlighted just how few semiconductors are produced in the United States. The act allocated more than $75 billion to jumpstart American competitiveness in the semiconductor industry and reduce dependence on foreign suppliers.
Two years on, the government has doled out significant chunks of money. Seventy semiconductor fabrication plants (known as fabs) are currently under construction in Arizona and Texas; dozens more have been announced or are already under way in other states.
And not a moment too soon. Semiconductor demand is skyrocketing, and the industry is booming accordingly. The global market for semiconductors is set to reach about $1 trillion by 2030, driven by demand in wireless communication and computing, automotive, and industrial sectors. Economic data shows that the semiconductor industry is the second-most profitable in the world and accounts for the second-highest amount of R&D spending—contributing to the creation of many highly skilled jobs.
But despite the available investment, the path ahead isn’t free of obstacles. Companies are wary of plunging headfirst into capital-intensive new projects amid current economic uncertainties. Federal eligibility requirements can be elaborate and difficult to navigate. Some fab construction projects have experienced delays related to labor and material shortages and volatile prices for raw materials. Another challenge is meeting clients’ sustainability requirements: only about 60 of approximately 2,000 semiconductor companies have committed to emissions targets.
As semiconductor companies embark on major capital investments in US fabs, they should implement the following practices during planning and construction:
- Creative financing. Government incentives alone aren’t enough to build cutting-edge fabs. Companies should explore alternative funding strategies to fill the gap.
- Modular design and prefabrication. These solutions allow companies to complete certain elements of construction off-site in controlled environments.
- Strategic negotiations, contracting, and procurement. Calibrating these skills can reduce risk. For instance, some companies have added language in contracts that allows them to increase prices if certain commodities become more expensive.
- Project control towers. A centralized hub can help management gain greater visibility into potential obstacles in project areas.
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The Creating Helpful Incentives to Produce Semiconductors and Science Act of 2022 (CHIPS Act), signed into law on August 9, 2022, is designed to boost US competitiveness, innovation, and national security. The law aims to catalyze investments in domestic semiconductor manufacturing capacity. It also seeks to jump-start R&D and commercialization of leading-edge technologies, such as quantum computing, AI, clean energy, and nanotechnology, and create new regional high-tech hubs and a bigger, more inclusive science, technology, engineering, and math (STEM) workforce. Here is a breakdown of the law’s key provisions.
