The Strength and Prospects of the U.S. Semiconductor Industry

Recently, SIA released the 2022 version of Factbook.

According to reports, the data contained in the 2022 SIA Factbook helps demonstrate the strength and prospects of the U.S. semiconductor industry and why it is critical for policymakers to enact measures to promote growth and promote innovation.

SIA stated in its Factbook that the U.S. semiconductor industry is a key driver of U.S. economic strength, national security, global competitiveness and technological leadership. Semiconductors enable the systems and products we use to work, communicate, travel, entertain ourselves, harness energy, treat diseases and make new scientific discoveries. Semiconductors were invented in the United States, and U.S. companies still lead the global market, accounting for nearly half of global chip sales.

But SIA also stressed that despite this, the U.S.-based industry still faces significant challenges. For example, the share of modern semiconductor manufacturing capacity located in the United States has fallen from 37% in 1990 to 12% today. This is mainly attributed to the fact that other countries' governments have made ambitious investments in chip manufacturing incentives, but the U.S. government has not. At the same time, federal investment in chip research as a percentage of GDP has remained flat, while other countries have significantly increased their research investment.

To this end, SIA said that although the United States remains the world leader in semiconductor design (the complex mapping of the tiny and complex circuits of chips), its leadership is declining and uncertain. Therefore, they pointed out that to help promote innovation and ensure that the United States continues to maintain its technological leadership, policymakers should take the following measures:

1. Investing to ensure U.S. semiconductor leadership

Funding domestic semiconductor manufacturing, research, and design provisions in the American CHIPS Act. Create an investment tax credit covering manufacturing and design to spur construction of new onshore advanced semiconductor research, design, and manufacturing facilities and promote domestic chip innovation.

2. Strengthen America’s technical workforce:

Implement a national strategy, backed by appropriate investments and in consultation with education leaders and the private sector, to improve our education system and increase the number of Americans graduating in STEM fields. Reform the U.S. high-skilled immigration system so they can access and retain the world’s best and brightest.

3. Promote free trade and protect intellectual property rights:

Ratify and modernize free trade agreements to remove market barriers, protect intellectual property, and level the playing field. Expand the Information Technology Agreement, one of the World Trade Organization’s most successful free trade agreements.

4. Close cooperation with like-minded economies:

Recognize the global nature of the semiconductor industry and expand collaboration with like-minded allies to shape a regulatory and legal environment more conducive to growth, innovation, and supply chain resilience in areas such as regulatory consistency, standards, and export controls.

SIA noted that by implementing these policies, Congress and the Administration can take critical steps to protect America’s leadership in semiconductor technology and win the global competition for future technologies.

Next, let’s take a look at the details in the 2022 SIA Factbook.

Factbook said that the semiconductor industry is an important part of global economic growth. Data shows that global semiconductor sales have increased from US$139 billion in 2001 to US$555.9 billion in 2021, with a compound annual growth rate of 7.18%. According to the semiconductor industry forecast made by the World Semiconductor Trade Statistics (WSTS) in the fall of 2021, global semiconductor industry sales are expected to reach US$601 billion in 2022 and US$633 billion in 2023.

Relying on years of investment, the United States accounts for more than half of the global semiconductor market.

As Factbook notes, the U.S. semiconductor industry experienced significant losses in global market share during the 1980s.

In the early 1980s, U.S. producers accounted for more than 50% of global semiconductor sales. However, due to fierce competition from Japanese companies, illegal "dumping", and the severe industry recession from 1985 to 1986, the U.S. industry lost a total of 19% of the global market share and ceded the global industrial market, allowing Japanese semiconductors to take the lead in the industry.

But the U.S. semiconductor industry rebounded strongly over the next decade, and by 1997 it had regained its lead with more than 50% of the global market share, a position it maintains today. Today, U.S. semiconductor companies maintain a competitive advantage in microprocessors and other cutting-edge devices, and continue to lead in a range of other product areas. In addition, U.S. semiconductor companies also maintain a leading position in research and development, design, and process technology. Today, U.S. companies have the largest global market share, at 46%. In contrast, other countries have only 7% to 20% of the global market share in the industry.

At the same time, sales of US semiconductor companies have shown steady annual growth over the past few years.

As shown in the chart below, sales of semiconductor companies headquartered in the United States have grown from $71.1 billion in 2001 to $257.5 billion in 2021, a compound annual growth rate of 6.65%. This sales growth exhibits the same cyclical fluctuations as the entire industry.

With strong strength, US semiconductor companies maintain a leading market share in major regional semiconductor markets.

In 2021, semiconductor companies located in the United States accounted for 46.3% of the total semiconductor market share, which is the most in the semiconductor industry of any country. In the semiconductor markets of all major countries and regions, companies headquartered in the United States also maintain a leading position in sales market share.

Factbook also states that most semiconductor manufacturing done in the United States is done by American companies.

Data shows that in 2021, approximately 80% of the United States' semiconductor wafer manufacturing capacity came from companies headquartered in the United States. Semiconductor companies headquartered in the Asia-Pacific region accounted for 10% of the domestic production capacity in the United States.

Statistics also show that the U.S. semiconductor industry has more manufacturing bases in the United States than in any other country.

In 2021, approximately 43% of the front-end semiconductor wafer capacity of U.S.-headquartered companies was located in the U.S. Other major locations for U.S.-headquartered front-end semiconductor wafer fab capacity are Singapore, Europe, Taiwan, and Japan.

But the report also emphasizes that the share of U.S. semiconductor manufacturing capacity in the United States is shrinking. This is mainly caused by ambitious chip manufacturing incentives provided by other countries' governments and the continued consolidation of the industry. This has caused the share of U.S. semiconductor manufacturing to fall by more than 10% in the past 8 years.

It is precisely because of this lasting influence that semiconductors have become one of America’s largest exports.

In 2021, U.S. semiconductor exports totaled $62 billion, ranking fifth among U.S. exports, behind only refined petroleum products, aircraft, crude oil, and natural gas. Semiconductors account for the largest share of U.S. exports among all electronic product exports.

According to Factbook, global semiconductor sales are driven by products that consumers ultimately purchase. The vast majority of semiconductor demand is driven by products that are ultimately purchased by consumers, such as laptops or smartphones. Consumer demand is increasingly driven in emerging markets, including Asia, Latin America, Eastern Europe and Africa.

Of course, global semiconductor sales also vary depending on the type of product sold.

The report pointed out that semiconductor technology is developing rapidly as the industry develops more advanced products and process technologies for applications in end-use industries. In recent years, the largest segments of the global semiconductor industry have been memory, logic, analog, and MPU. In 2021, these products accounted for 79% of semiconductor industry sales.

The Asia-Pacific region is the largest regional semiconductor market, and China is the world's largest single-country market.

In 2001, the Asia-Pacific market surpassed all other regional markets in sales as electronic equipment production shifted to the region. Since then, it has grown exponentially in size, from $39.8 billion to more than $343 billion in 2021. By far the largest country market in the Asia-Pacific region is China, which accounts for 56% of the Asia-Pacific market and 35% of the global market. This data reflects only sales of semiconductors to electronic equipment manufacturers - the final electronic products containing semiconductors are then shipped around the world for consumption.

According to the report, total R&D and capital expenditures by U.S. semiconductor companies, including fabless companies, were $90.6 billion in 2021. This represents a CAGR of approximately 5.9% from 2001 to 2021. Investment levels as a share of sales are generally not subject to fluctuations associated with market cyclicality.

To remain competitive in the semiconductor industry, companies must continually invest a significant portion of their revenues in R&D and in new plants and equipment. The pace of technological change in the industry requires companies to develop more sophisticated designs and process technologies and to introduce production machines capable of manufacturing components with ever-smaller feature sizes. The ability to design and produce state-of-the-art semiconductor components can only be maintained through a continued commitment to keep pace with the industry-wide investment rate of approximately 30% of sales. The need to remain at the forefront of technology has led to some extreme volatility in years such as 2001 and 2002, when sales fell sharply while spending on R&D and capital equipment did not fall at the same rate.

Total investment per employee (measured in research and development and total investment in new plant and equipment) has increased by about 3.4% per year from 2001 to 2021. These expenditures exceeded $100,000 in 2001 but fell to about $91,000 in 2003 following the 2001 recession. Investment per employee increased to over $100,000 in 2006. The 2008-2009 recession caused investment per employee to decline in 2009 and 2010, but it recovered in 2012 and grew to a record $206,000 in 2021.

From 2001 to 2021, the US semiconductor industry's R&D spending grew at a compound annual growth rate of about 6.9%. Regardless of the annual sales cycle, US semiconductor companies' R&D spending tends to remain high, reflecting the importance of investing in R&D to semiconductors. Statistics show that in 2021, the total investment in R&D by the US semiconductor industry totaled $50.2 billion.

Over the past 20 years, the semiconductor industry has spent more than 10% of sales on R&D each year. This rate is unprecedented among the major manufacturing sectors of the U.S. economy. R&D spending is critical to the competitive position of semiconductor companies. The rapid pace of technological change requires continuous advances in process technology and equipment capabilities. R&D growth in 2001 and 2002, despite the economic downturn, largely reflects the industry's commitment to the technological future. The decreases in 2003-2004 and 2020-2021 are not due to cuts in R&D budgets, but rather to stronger-than-expected industry growth and faster-than-expected revenue growth.

The U.S. semiconductor industry has the highest R&D spending rate among the major high-tech industrial sectors. According to the 2021 EU Industrial R&D Investment Scoreboard, the U.S. semiconductor industry is second only to the U.S. pharmaceutical and biotechnology industries in terms of R&D spending as a percentage of sales.

It can be seen that the percentage of R&D expenditure of the US semiconductor industry as a percentage of sales is unsurpassed by any other country's semiconductor industry. This is far ahead of China's 7.6% and Taiwan's 11%.

In 2021, total capital expenditures for the U.S. semiconductor industry were $40.5 billion. Capital expenditures declined from 2001-2003 due to the construction of major new facilities and increased use of wafer fabs during the 1999-2001 period. A rebound occurred in 2004, and in 2005 the industry was in equilibrium in terms of capital expenditures as a percentage of sales. In 2011, after a sharp decline in 2009 due to the global recession, capital expenditures rebounded to $23.7 billion. In 2021, capital expenditures exceeded $40 billion as chipmakers increased production capacity to meet the surge in demand for semiconductors.

In all but two of the past 20 years, annual capital expenditures as a percentage of sales have exceeded 10%. This ratio is very high among the major manufacturing sectors of the U.S. economy. For semiconductor manufacturers, capital expenditures are critical to their competitive position because the rapid pace of innovation in the industry requires large capital expenditures to continue to produce more advanced equipment.

According to the SIA report, there are 277,000 people directly involved in the semiconductor industry in the United States, but each semiconductor person needs 5.7 people from other industries to participate in support. That means semiconductors have created 1.6 million jobs in the United States.

Labor productivity in the U.S. semiconductor industry has more than doubled since 2001. These productivity gains have been achieved by maintaining high levels of capital investment and research and development spending rates. In 2021, the U.S. semiconductor industry's sales revenue per worker ratio exceeded $670,000.