China Vs The World: What Shifting Microchip Production Means For IoT
Microchip production is in a state of flux. The pandemic kickstarted a global shortage and virus outbreaks, labor challenges and geopolitical uncertainties have made matters worse.
Now, facing strained supply chains, the west is trying to retake control of the market. At the start of March, The Biden Administration released $50B in new funding to boost domestic research and manufacturing of semiconductors.
This is in addition to the announcement of new semiconductor factories in Europe and India’s Internet of Things (IoT) module market growing by more than 250 per cent in a single quarter last year.
In a nutshell, the world of electronics is witnessing a great decoupling from China. This struggle for semiconductor control will reshape the years to come. Let’s explore.
What’s Happening In Microchips
Chip supply problems continue to define this decade. Due to the pandemic, 80% of global manufacturers have faced challenges in producing digital products and services. Additionally, Ukraine produces crucial metals for semiconductors. As a result, current lead times extend past 40 weeks. This serves as a major hit to productivity and innovation since even the most basic products today count intelligent parts.
Now the west wants to play a bigger role. The US once held the leading position in the global semiconductor industry with a commanding 37% market share in 1990. However, this dominance has declined over the past three decades. At the same time, China prioritized semiconductor production with government subsidies, procurement preferences and other preferential policies. The jump in growth helped China capture 9% of the global semiconductor market in 2020, surpassing Taiwan for two consecutive years and closely following Japan and the European Union (EU).
Moreover, The Semiconductor Industry Association, which represents the vast majority of the US semiconductor industry, has forecasted a bleak future for the country’s share of the market in a recent report. At current rates, the US will witness a decline to just 10% by 2030 while China’s market share will soar to almost a quarter (24%).
The US is therefore trying to shift production and supply back under its control with The CHIPS Act.
Export Controls and New Production Sites
Announced in August, The CHIPS Act marks a major change in microchip policy. The legislation invests more than $280B to bolster the nation’s semiconductor capacity, catalyze research and development, and create regional high-tech hubs and a larger STEM workforce.
The act’s impact was immediate. Buoyed by the government’s embrace of microchips, US memory chip manufacturer Micron announced a $40B investment with the potential to create 40,000 new jobs in construction and manufacturing.
But the act also included tighter export rules for competitors. The US Commerce Department announced export controls on “advanced computing integrated circuits (ICs), computer commodities that contain such ICs, and certain semiconductor manufacturing items” to China. The Netherlands soon mirrored restrictions on its most advanced microchip technology exports to protect “national security.”
These protectionist policies are a warning shot at China. Fearing shortages, Chinese semiconductor companies are scrambling to stockpile chip-making equipment, spare parts and other related materials. Meanwhile, other overseas firms remain unaffected. The tech cold war looks to be only getting started.
What’s Next For Device Manufacturers
This story will define the tech landscape of the 2020s. Why? Because decoupling chip production from China cannot occur overnight. Chip independence is still years away for the west. Companies and governments must therefore strike a delicate balancing act to keep pace with the demand for consumer electronics.
It’s important to stress that microchips are the lifeblood of connected devices. From mature sensors to microcontrollers and communications technologies, there are no devices without them. For example, chip supply issues last year slowed the industry’s growth by 10-15 percent. Therefore, there are real concerns that tighter export rules and retaliatory measures could further destabilize the market.
But at the same time, stronger chip production in the west offers long-term benefits. If there is another worldwide disruption to supply chains, these vital tech components will be available closer to home. Further, homegrown chips bring fewer geopolitical concerns. For example, some industry analysts are worried about the cybersecurity risks associated with Chinese-manufactured cellular IoT modules. These pieces of hardware can theoretically act as backdoor entry points for third parties to access data generated by the device or the broader IoT network. Taking back control over chip production helps to eliminate this perceived threat.
The stakes could not be higher in this escalating tech competition. In this transitory moment for semiconductors and microchips, the last thing device creators need is more supply uncertainty. Let’s hope leaders from all sides come to the negotiating table with this in mind.
“This article is written by Carsten Rhod Gregersen, CEO and Founder of Nabto”
