September 28, 2012    Volume 19, No. 15

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Global Semiconductor Industry Has No Plans To Build Factories In The United States

By Richard A. McCormack

The United States is no longer a place where companies are building their new semiconductor fabrication plants. In 2011, of the 27 volume (or large-scale) semiconductor fabs under construction in the world, only one of them was located in the United States; 18 were in China; four were in Taiwan; two were elsewhere in Southeast Asia; and one was in Japan, according to the Semiconductor Equipment Materials International (SEMI).

In 2012, construction started globally on nine new volume fabs. None of them were in the United States.

Next year, construction is expected to start on another six fabs. Again, not one of them will be in the United States.

In all, between 2011 and 2013, construction was expected to start on 42 new fabs. Only one is in the United States.

By a similar measure, the number of volume fabs that started operations globally in 2011 was 49, three of which were in the United States and 26 were in China. The remainder were in Europe (six), Korea (three), Southeast Asia (two), and Taiwan (seven).

In 2012, another 23 volume fabs will begin operations globally. Two of those will be in the United States while 15 will be in China.

In all, between 2011 and 2013, 81 new fabs will begin operations globally; six of them will be in the United States and 50 in China.

The U.S. downward slide in semiconductor fabrication is a long-term trend. In 2003, North America ranked in second place globally in semiconductor capacity, but is projected to fall to fourth place by 2013 behind Japan, Korea, and Taiwan.

In 2007, the United States was home to 123 fabs. That number is projected to decline to 95 by 2017, according to SEMI's "World Fab Forecast for 2013 and 2013, Past and Future Trends for Fab Spending and Capacity" report.

For the 10 years that will end in 2013, global semiconductor capacity is projected to increase by 472 percent, from 3.48 million 200mm equivalent wafers to 16.94 million. U.S. capacity will only grow by 65 percent. Over that period, China's installed semiconductor capacity is projected to increase by 583 percent; Korea's is expected to increase by 307 percent; Southeast Asia will be up 277 percent; Taiwan's capacity will increase by 228 percent; and Japan's will increase by 100 percent.

Don't expect much of the semiconductor industry to return to the United States. As the industry has shifted offshore, the supply chain has gone with it. When the electronic packaging industry moved to the Philippines and Korea, "a lot of people thought that once it became more automated, it would move back to the United States because it would not be so dependent on labor costs," says Bill McClean, president of IC Insights. But as production moved, so too did the manufacturing and management expertise. "It's not a case of comparing labor costs any more," says McClean. "It is comparing where the expertise in manufacturing is: It doesn't make sense to move it back here."

Semiconductor manufacturers need to be close to the systems houses that purchase their chips. With so much electronics production in Taiwan, China and Asia Pacific, "the goal is to be near the customer," says McClean. With so little electronic system assembly in the United States, "it has become less important to manufacture here."

There are expansions in the United States and the country is still a good place to manufacture, "but there is no big incentive to move existing manufacturing back," says McClean. "That entails more problems than it's worth."

Government-provided tax breaks and expedited permits issued to entice construction are essential in determining where a semiconductor plant is located. Arizona offered tax breaks to attract Intel and New York did the same for Global Foundries. "If a company is looking to set up a fabrication facility, the government has to come up with incentives to locate there," according to McClean. But as the U.S. economy has faltered, fewer incentives are being offered, particularly for semiconductor plants which can cost as much as $8 billion to construct.

Some states have hurt themselves. "Taxes are so high in California that Intel moved all of its fabrication out of the state, even though that is where they started," McClean notes. "They don't have a fabrication facility there because of the tax structure and the unfriendly business structure in that state."

States are also hesitant in offering incentives because the semiconductor industry is so automated. There are not that many jobs in a semiconductor plant.

As for the materials that are used for semiconductors and semiconductor packaging, North America in 2011 accounted for only 10 percent -- or $4.9 billion -- of global consumption of $48.6 billion, according to the "Total Regional Materials Markets" report from SEMI.

Taiwan consumed more than twice the amount of materials used to make semiconductors (at $10 billion) than did the United States, while Japan was almost at the same level ($9.34 billion). South Korea also consumed far more than the United States, at $7.15 billion, and China was tied with the U.S. at $4.9 billion. In 2012, China is projected to surpass the U.S. in consumption of semiconductor materials.

In the category of semiconductor packaging materials, the United States is hardly a player. The U.S. market for packaging materials in 2011 was $720 million, or 3 percent of the total global market of $24 billion. Virtually the entire packaging industry is located in Asia, with Taiwan controlling 24 percent of the market ($5.8 billion), China controlling 16 percent ($3.7 billion), Japan controlling 15 percent ($3.4 billion) and the rest of Southeast Asia controlling 27 percent of the market ($6.5 billion).

The United States is still strong in the category of semiconductor equipment, accounting for $9.3 billion of the total global market of $43.5 billion in 2011. But U.S. market share is still much lower than the $30 billion for Asia Pacific and Japan. Equipment makers based in the United States saw their percentage share of the global market slip below 40 percent in 2011 for the first time in history, according to SEMI.

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