The pandemic exposed the vulnerability for U.S. companies having chip production concentrated across the Pacific Ocean. When factories in Asia shut down, the effects rippled through the entire economic system.
As more consumer products also rely on semiconductors, with the proliferation of connected appliances and electric vehicles, factories have been unable to keep up with consumer demand, causing prices to spike.
Major chip manufacturers have been increasing their capital expenditures in recent years — the three largest players expect to spend more than $200B through 2023 to beef up production, according to a 2022 semiconductor industry report by Deloitte. The researchers estimated that $500B of potential revenue was lost by industries that rely on semiconductors over the last two years.
Mark Granahan, co-founder and CEO of high-voltage chipmaker startup iDEAL Semiconductor, said chipmakers will naturally gravitate toward places that have a lot of power for their fabrication plants, or fabs for short, such as in Pennsylvania and Ohio, where Intel recently announced plans for a semiconductor manufacturing megacampus.
“One of the major expenses in running a manufacturing facility for semiconductors is the cost of energy,” Granahan said. “Would you drop a fab in California? Probably not.”
The federal incentives piled on the semiconductor industry will likely be a boon for the Midwest and other semi-rural areas, said Michelle Comerford, a project director with the site selection consulting firm Biggins Lacy Shapiro & Co. Plants generally need as much as 1,000 contiguous acres and the ability to access huge amounts of both electricity and water.
Many of the undeveloped sites that would be ideal for chip manufacturers have been taken in recent years by electric vehicle makers, who have similar land and energy requirements. Those deals have largely been concentrated in the Southeast.
Comerford said some of the brownfields of the Midwest — the remnants of the Rust Belt’s industrial prime — could be revitalized with a new, federally backed factory.