Semiconductors and the Semiconductor Industry

Semiconductors (also known as integrated circuits, microelectronic chips, or computer chips) are tiny electronic devices (based primarily on silicon or germanium) composed of billions of components that can process, store, sense, and move data or signals. There are a number of types of semiconductor chips—including logic, memory, analog, optoelectronics, sensors, and discretes—each performing different functions and requiring specialized design and manufacturing processes. From 2012 to 2022, global sales of semiconductor chips doubled to $602 billion, accelerated by increasing digitization and connectivity across nearly every industry. Advancing semiconductor performance is vital for enabling fast-growing market demands such as machine learning, vehicle electrification, and high-performance computing, and supporting U.S. national security interests. The semiconductor industry employs a number of strategies to improve the performance and energy efficiency of different types of chips, including creating chips with denser circuits, new architectures, and new materials. For logic chips (e.g., central data processing for computing devices), the manufacturing industry has continuously shrunk the size of key electronic features over the past six decades, using denser circuits to increase computing power. Certain advanced memory chips (e.g., NAND flash for long-term storage of videos and music) use new architectures in which manufacturers compete to stack layers of memory cells on top of one another like floors in a building; the most advanced NAND flash chips have over 200 layers. Next-generation power management chips used in vehicle electrification increasingly use materials other than silicon, called compound semiconductors, such as silicon carbide. Another emerging strategy to improve semiconductor device performance is the use of advanced packaging techniques; for example, stacking chips on top of one another in the same package to improve chip-to-chip communications. Manufacturers also face ongoing demand for more established products, such as mature generations of chips, the scarcity of which forced auto manufacturers to temporarily shut down some assembly lines in early 2022. Supply chain resiliency for the production of mature chip technologies is essential for economic and national security across many sectors, including critical infrastructure, communications, medical devices, and defense, as well as integration into sophisticated end systems. The semiconductor supply chain is composed of chip design and fabrication (or manufacturing), as well as assembly, test, and packaging (ATP) stages to prepare chips for final integration in electronic devices. The semiconductor industry relies on a wide network of materials, chemicals, gases, and manufacturing equipment suppliers. U.S.-headquartered firms lead in chip design and manufacturing equipment, accounting for the highest global revenues in 2021 for chip design (46%), as well as in the production of semiconductor manufacturing equipment (42%) and design software/licensing (72%). A small share of global manufacturing capacities is physically located in the United States for wafer fabrication (11%) and ATP services (5%); the majority of fabrication and ATP facilities are located in China, Taiwan, South Korea, and Japan. The CHIPS Act of 2022 (Division A of P.L. 117-167), signed into law on August 9, 2022, appropriated funding for the Department of Commerce to carry out the CHIPS for America provisions enacted in the William M. (Mac) Thornberry National Defense Authorization Act for Fiscal Year 2021 (2021 NDAA, P.L. 116-283). These provisions include $39 billion in financial incentives to expand domestic manufacturing capacities across the semiconductor supply chain, including for wafer fabrication, advanced packaging, and semiconductor equipment and materials suppliers. The act also appropriated $11 billion for research and development programs to advance domestic capabilities to produce next-generation semiconductors. Between 2020 and 2022, U.S.- and foreign-headquartered firms announced over $200 billion in private investments to expand domestic manufacturing capacities for semiconductor fabrication, equipment, and materials across 16 states. The Department of Commerce faces choices about how to deploy federal incentives to promote economically viable and competitive semiconductor technologies. The Department of Commerce anticipates three-quarters of the funds for semiconductor manufacturing, around $28 billion, will be awarded for facilities fabricating leading-edge logic and memory chips and the remaining funds for producers of specialty and mature chip technologies, industry suppliers, and ATP facilities. Funding allocations for different types and generations of chips, as well as different parts of the semiconductor supply chain, could be a subject of congressional oversight to evaluate the effectiveness of federal awards in promoting technological leadership, economic security of critical manufacturing industries, and national security.