Applied Materials 300mm Wafer Manufacturing Plant
Technicians monitor a machine that manufactures 300mm silicon wafers at the Applied Materials Inc. Maydan Technology Center in Santa Clara, California, U.S., on Thursday, Sept. 1, 2011. Photograph by David Paul Morris — Bloomberg via Getty Images

Why U.S. Computer Chip Makers May Need Government Help

Nov 01, 2016

With China ramping up government-backed efforts to manufacture more computer chips, the Obama administration is moving to respond in kind.

The first modest step came on Monday as the White House announced a new working group made up of U.S. semiconductor industry executives. The group, which includes Qualcomm executive chairman Paul Jacobs and former CEO of Applied Materials (amat) Mike Splinter, will focus on studying what other countries have done and formulating a U.S. response.

"Some countries that are important in this domain are subsidizing their domestic semiconductor industry or requiring implicit transfer of technology and intellectual property in exchange for market access," John Holden, director of the Office of Science and Technology Policy, said in a statement. "Such policies could lead to overcapacity and dumping, reduce incentives for private-sector R&D in the United States, and thereby slow the pace of semiconductor innovation and realization of the economic and security benefits that such innovation could bring."

The White House didn't name names, but China has undertaken a vast effort to increase its chip manufacturing capacity, promising to spend $170 billion over the next five to 10 years. At the same time, Chinese authorities pursued American chip company Qualcomm (qcom) for alleged antitrust violations. China imported about 90% of its semiconductor supplies in 2014, according to a report by McKinsey & Co.

To further spread the message, U.S. Commerce Secretary Penny Pritzker will speak on Wednesday at the Center for Strategic and International Studies in Washington on the global challenges facing the semiconductor industry.

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Not all of the challenges arise from China or other countries, however. The cost of building new chip manufacturing plants has skyrocketed while the former pace of advancing chip processing power, known as Moore's Law, has slowed, the White House noted.

The administration signaled that government funding might be needed to maintain U.S. competitiveness and respond to other countries's efforts.

"Additional public and private investments in R&D are almost certain to be required if the past remarkable pace of improvements in price and performance of semiconductors and the benefits deriving therefrom are to continue," Holden said.

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