[Chip Talk] "Don't just look at semiconductor production, look at design too"... The reason behind US concerns

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[Asia Economy Reporter Jeong Hyunjin] "The United States has long held a leadership position in the semiconductor design sector. However, without any significant measures, the U.S. market share will continue to shrink due to massive investments by global competitors."

Matt Johnson, CEO of Silicon Labs and the next president of the Semiconductor Industry Association (SIA), made this statement at the end of last month. It was made during the announcement of the report titled "Challenges to Semiconductor Design Leadership," co-authored by SIA and Boston Consulting Group (BCG), emphasizing the need for active investment in semiconductor design. While major countries including the U.S. are focusing on "securing production facilities" as the core of semiconductor hegemony competition, why did the U.S. semiconductor industry emphasize the necessity of investment in the design sector?

◇Gap in Market Share Between U.S. and China Narrows from 46% to 13% in 15 Years

Semiconductor production broadly involves design, manufacturing, packaging & testing, and sales & distribution processes. Among semiconductor companies, there are fabless companies specializing only in design, foundries specializing only in manufacturing, and integrated device manufacturers (IDMs) that perform all roles. The semiconductor supply chain is considered fully secured only when all processes are possessed, not just strength in one area.

The U.S. has a particular strength in semiconductor design among the production processes. According to the report released by SIA, as of 2020, the U.S. held the largest global market share in semiconductor design (based on revenue and headquarters location) at 46%. Representative fabless companies include Qualcomm, Nvidia, AMD, and Broadcom. According to market research firm TrendForce, among the top 10 fabless companies, four are American, and these four accounted for 75% of the total revenue of the top 10 companies as of the second quarter.

However, SIA forecasts significant changes in the market share of the design sector in the future. The most significant reason is China's aggressive market share expansion. SIA and BCG projected that the U.S. market share, which was about 51% until 2015, would decline to 41% in 2025 and 36% in 2030. Conversely, China's market share is expected to expand more than fourfold from 5% in 2015 to 16% in 2025 and 23% in 2030. It is predicted that by 2030, China will surpass South Korea to become the second largest.

Including China, Taiwan, Japan, and South Korea, the semiconductor design market share in the Asia region is expected to reach 57% by 2030, overtaking the U.S. SIA emphasized that "leadership in the design sector is not guaranteed."

◇"An Additional Investment of 40 Trillion Won Needed in Semiconductor Design"

The fact that the Biden administration, which has been focusing on semiconductor industry investment since its inception, has neglected the design sector adds credibility to this criticism.

The U.S. Congress passed the "Chips and Science Act (CSA)" in July, which includes $52 billion (approximately 69 trillion won) in subsidies, including tax credits, for building semiconductor manufacturing facilities in the U.S., aiming to diversify the semiconductor supply chain concentrated in Asia and secure production facilities domestically. President Biden has heavily promoted this, citing the attraction of major semiconductor manufacturers such as TSMC, Samsung Electronics, and Intel to build manufacturing facilities in the U.S.

However, the bill lacks support measures for the design sector. In response, SIA pointed out that focusing only on manufacturing facility investments could cede leadership in the design sector to Asia and requested Congress to enable tax credits for investments in semiconductor design.

The U.S. semiconductor industry proposed that to maintain U.S. leadership in semiconductor design, the federal government should invest $20 billion to $30 billion in semiconductor design and research & development (R&D) by 2030. This includes $15 billion to $20 billion in tax credit benefits for investments in the design sector. Additionally, the private sector should invest $400 billion to $500 billion over the next decade. They emphasized that such additional investments are necessary for the U.S. to succeed in the semiconductor market competition.

This content was produced with the assistance of AI translation services.