The semiconductor industry is booming, with expected average annual growth of 6 to 8 percent through 2030 and yearly revenues forecasted to reach $1 trillion. The industry will have to double semiconductor production to keep pace with future demand, but most fabrication plants, commonly called fabs, are already operating at capacity. To increase supply, many companies have announced plans to build new fabs and some are already in the construction phase. And in a coordinated push to achieve a microelectronics resurgence, the United States is becoming a hot spot for fab construction.
The value of US-based semiconductor projects that are under way, announced, or under consideration totals $223 billion to over $260 billion through 2030. But it’s not just private companies that want to move more manufacturing to the United States. Semiconductor production is getting more funding from the federal government, which recently approved $54 billion in grants for domestic semiconductor manufacturing and research through the US CHIPS and Science Act.
The current economic outlook is prompting several semiconductor companies to slow their capital deployment, however. Combined with the strong outlook for future demand, this creates a dilemma: companies may decide to invest in the through cycle to avoid another supply shortage down the road while simultaneously attempting to manage cash flow limitations. Building fabs in the United States may also present different challenges than those encountered in other countries. Some projects have already experienced delays, including those related to labor and material shortages. What’s more, volatile prices for raw-material commodities are injecting another element of uncertainty into the construction process. The potential solution for companies that want to continue building US fabs amid all this uncertainty? A mix of creative financing, more thoughtful design, greater prefabrication, and better strategies for negotiations, scheduling, and cost control.
The building boom for US fabs
For many years, chip manufacturing has been consolidated in Southeast Asia and China. Semiconductors manufactured in the United States now account for only about 12 percent of the global total, down from 37 percent 30 years ago, according to a recent White House statement (Exhibit 1). The amount varies by node size, and leading-edge chips—those with node sizes under ten nanometers—are largely produced in East Asia, although some fabs outside this region are now ramping up production (Exhibit 2).
When supply chains were functioning well, companies had little incentive to build new fabs outside Southeast Asia. But chip output and distribution have recently faced challenges because of the COVID-19 pandemic and consequent supply chain disruptions, with a 2021 drought in Taiwan and recent geopolitical issues compounding the problems. These considerations have prompted companies to take a new interest in diversifying their fab locations and exploring US sites. The availability of subsidies is one of the main considerations when evaluating potential new locations.
Of the total $223 billion to over $260 billion investment in new US fabs, about $183 billion is attributed to projects that are ongoing or announced; the remainder relates to projects still under consideration (Exhibit 3). Most investment is flowing to specific geographic clusters. Arizona and Texas, for instance, are attracting investment because they already have fab ecosystems, and their local governments have historically provided incentives and helped to coordinate the process. Adding to the large incentives play: Ohio is emerging as a desirable site, with over $20 billion in investment announced for Columbus-based fabs, and New York is offering incentives to encourage fab construction. Other states attracting investment include Indiana, New Mexico, Oregon, Utah, and Virginia. (For more information on geographic clusters, see sidebar “Where are US fabs being built?”)
Key challenges for US fab construction
Semiconductor fabs are complex, capital-intensive projects in any location. But in the United States, where fab building has been uncommon and construction talent is in high demand across sectors, semiconductor companies may face even more challenges than usual. Many of the issues they face fall into one of the following categories.
A shortage of construction talent
Large-scale fab construction has not occurred in the United States in more than 20 years, and few builders within the country possess the experience, capabilities, and expertise required to deliver these specialized projects. Compounding this issue, semiconductor players must compete with companies across multiple sectors, including residential housing, for construction workers of all types—from earthwork specialists to skilled electricians—in an already tight labor market. Once fabs are completed and open, they will also face competition for a very different type of talent: the technical employees required to operate them. (For more on this topic, see sidebar “It’s more than construction: The ongoing talent challenges for semiconductor companies.”)
A greater emphasis on sustainability
There is a greater emphasis on sustainability within the semiconductor industry because many of the most important customers want to reduce emissions along their supply chains. Many semiconductor companies have not yet clearly articulated their sustainability goals, however, with only about 60 out of approximately 2,000 companies committing to emissions targets.
Semiconductor manufacturing may attract particular scrutiny from end customers because it is responsible for a high level of emissions associated with end products. For example, more than 70 percent of the lifetime emissions associated with some mobile phones are related to manufacturing the phone itself and the chipset. As end customers increasingly focus on achieving net-zero emissions, more semiconductor companies are expected to commit to more aspirational and actionable emissions targets.
Fab owners may also consider accessibility to renewable-energy resources more carefully as they decide where to build new main fabs, since 45 percent of emissions of a typical fab are electricity related, excluding Scope 3 downstream emissions.
Supply chain complexity
The typical semiconductor production process could involve steps in more than five countries and three or more shipments across the globe. Regional bottlenecks exist at nearly every step in the value chain because of industry consolidation, labor cost dynamics, and technical complexity. To boost supply chain resiliency, semiconductor companies might consider building or moving pieces of the value chain closer to new fab sites. Strategies for material sourcing for construction and operations may require updating. The capital spend will extend beyond the fab build because creating a true ecosystem will necessitate additional infrastructure and suppliers.
Federal and local incentives
The CHIPS and Science Act will provide $54 billion in federal incentives for semiconductor manufacturing and R&D, but companies will have to navigate a range of eligibility requirements in order to qualify for funding. Subsidies are critical to shortening the payback period for fab construction, and companies may favor sites that allow them to obtain state or local incentives. Negotiations with government stakeholders before and during fab construction may influence both funding and incentives; it is clear that companies that receive CHIPS program management funding will have to meet certain requirements.
Well before they begin fab construction, semiconductor companies will need to consider future negotiations with stakeholders at all levels of government. They could also improve site selection by looking at other factors that will affect costs and timelines. Other site selection criteria (for example, operations costs, capital efficiency, infrastructure, labor, carbon emissions, water, energy, land, societal) will need to be fully defined, analyzed, and weighed to ensure a holistic decision-making process.
Difficulties with performance management and execution
Delivering large or mega capital projects on time and on budget is difficult under normal circumstances. The current disruptive forces—commodity price volatility, inflation, supply chain disruptions, an overheated labor market—make projects even more complicated, and semiconductor companies may encounter obstacles even if they follow construction best practices across a project’s life cycle. For instance, too many recent projects have suffered from delivery delays for key long-lead mechanical, electrical, and plumbing systems, even when procurement orders were placed well in advance and confirmed by suppliers. What’s more, the overheated labor market may reduce productivity because companies cannot find enough qualified construction employees, making it even more difficult to deliver facilities on time and on budget.
