The supply chain shocks witnessed during the COVID pandemic led governments like the U.S. to ramp up their efforts to reshore manufacturing. Semiconductors, which faced particularly severe bottlenecks, became a top priority as officials promised billions of dollars in subsidies to boost domestic investment.
The rationale was simple: As chips are now an essential part of every modern-day electronic device, increasing domestic chipmaking capacity will result in a more stable supply chain. With AI expanding demand for high-end chips even further, governments are doubling their efforts to build out their domestic chip manufacturing.
But not every chip manufacturing ecosystem is sophisticated enough to make the high-end processors that power many AI applications.
“People miss the cultural aspect of this,” Nigel Toon, CEO and chairman of U.K. semiconductor firm Graphcore, said on Tuesday at the Fortune Brainstorm AI Singapore conference.
“Why are the most advanced semiconductors built in Korea, in Taiwan, in Japan?” he asked. “These environments are places where very high-quality manufacturing is truly valued. There’s an ethos around it that actually doesn’t exist in North America,” he explained.
South Korea and Taiwan didn’t start out as semiconductor powerhouses. Toon credits the move to outsource key parts of the semiconductor industry in the ’90s and ’00s, creating an opportunity for firms to specialize in key parts of the chip ecosystem. For example, ASML makes the tools used by TSMC to make chips designed by Apple.
Even as governments now focus on building their own semiconductor manufacturing capability, Toon said there had to be a system “where people can say ‘I own this critical piece’,” while still allowing different economies to work together.
Will Abbey, vice president and chief commercial officer for Arm, agreed that the rising importance of semiconductors is forcing a rethink on investments. “The maturity of the industry [and] the price of AI is forcing everyone to think differently around controlling data and building up your own infrastructure,” he said. “Semiconductors and AI is moving from the back part to center stage.”
Chip reshoring
Governments around the world have pledged billions of dollars in subsidies to attract high-end chip manufacturing. TSMC, for example, is now planning to build or expand new plants in Germany, Japan and the U.S.
TSMC earlier this year pledged to increase its investment in its Arizona plant by $100 billion. U.S. President Donald Trump claimed the move was made to avoid the threat of tariffs.
But smaller countries are also thinking about ways to expand their presence in the chip supply chain. Malaysia, long a hub for chip packaging and assembly, is striving to move up the value chain through support for new chip design and data center ventures.
In March, the government announced it was paying Arm $250 million over the next decade for seven of the company’s high-end chip blueprints. Arm develops and licenses instruction sets that partners use to make chips that are often found in devices like smartphones and servers.
