With 2024 coming to a close, the semiconductor industry has had a mixed year. Artificial intelligence was the key market driver, sending graphic processor units (GPUs) and high-bandwidth memory (HBM) to record revenues. Mobile phones and AI PCs failed to respond to the hype, and automotive and industrial chips experienced an undersupply hangover. The strong AI and advanced technology sales enabled the semiconductor industry to outperform the WSTS spring forecast of 16%. Semiconductor equipment sales benefited from strong sales in China and will eke out slight growth in 2024.
The year 2025 is a mystery. AI sales are expected to continue to see growth as the Blackwell chips and 16-high HBM support that application. Growth of PCs and mobile phones is expected to be positive, but in the low single digits; the automotive and industrial areas are preparing for a flat year as the inventory hangover continues into 2025. The WSTS has forecasted 13% growth in 2025, but concerns about tariffs and a challenging geopolitical environment will create a climate for slower growth, with the fall forecast coming in at 11.9%.
One of the concerns is that the new administration will try to claw back much of the $52.7 billion in subsidies, tax incentives and loans. The CHIPS and Science Act has announced $33.8 billion in grant awards and up to $28.8 billion in loans. Arizona has received three major grants from the CHIPS Act. Intel’s grant has been reduced to $7.9 billion in grants and $11 billion in loans to build two fabs that will cost $32 billion to construct. Taiwan Semiconductor Manufacturing Company has received $6.6 billion in grants and $5 billion in loans to build three fabs for $65 billion, and Amkor has received a $400 million grant and $200 million in loans to build a $2 billion packaging and test facility.
In addition to the CHIPS Act, the semiconductor investment in Arizona since 2020 to support the new chip and packaging facilities has been astronomical. There has been more than $102 billion in total semiconductor investment, with $100 million in semiconductor infrastructure, workforce and 40 semiconductor company expansions. A significant amount of the investment is made by companies that will support Intel and TSMC as the new fabs ramp up; as long as Intel and TSMC are able to ramp up production, this investment will support the Arizona economy.
So, what are the potential impacts for Arizona and the larger semiconductor industry if the next administration decides to tear up the contracts or implement tariffs?
The Biden administration is working furiously to finalize the agreements so it will be more difficult to pull back any grants. From an Arizona perspective, both TSMC’s and Intel’s grants have been finalized. This may make it more challenging to pull back funding or tax incentives. The CHIPS Act creates high-quality jobs, which the next administration has been promoting. So, pulling back the investment will have negative implications for the next administration.
TSMC and Intel have completed, or nearly completed, the construction and equipment installation of four fabs. If funding is pulled, it is unlikely that either company would stop production now. TSMC could delay the start of its second and third fabs until additional capacity is needed. Intel needs capacity, so it is unlikely that it would stop implementation if funding were pulled; however, with CEO Pat Gelsinger now gone, equipment purchases could slow. Tariffs could play a positive role, as it might become more economically feasible for Apple, Nvidia and AMD to manufacture their chips in the United States. Intel is at a higher risk if it loses funding; does it have the capital reserves to start the completed fabs? While the next administration is figuring out how to move forward, there will be significant opposition if they attack the CHIPS Act.
U.S. Senator for Arizona Mark Kelly has stated how important he believes the act is: “We’re talking about an investment of private companies of $100 billion in our state. It’s the biggest investment any state has ever seen in any industry,” he said.
The Arizona Chamber of Commerce agreed that the act is pivotal and isn’t concerned by the president-elect’s comments during his campaign. “I think when [Trump] gets back in office, he’ll see the importance of it — the national security, economic security and, honestly, just continuing to have that passion to build things in America,” said Danny Seiden, president and CEO of the chamber. “We need chips in America, so no, I don’t think it’s going anywhere.”
As the administrative transition begins, there might be a lot of saber-rattling and shouting, but, as Seiden said, at least for Arizona, I don’t think it’s going anywhere.
Dean Freeman is a senior advisor and analyst at Kiterocket Insights. Freeman has more than 40 years of experience in the semiconductor industry and is one of the unique individuals who has not only worked both in a fab and for semiconductor equipment manufacturers, but he has also had responsibility for every aspect of the semiconductor manufacturing process, from wafer selection to final passivation.
Before working with Kiterocket Insights, Freeman was a VP of research at Gartner, where he was the primary researcher for semiconductor technology, looking at the impact of Moore’s Law on developing new semiconductor equipment and processes. He frequently advises on best use of technology transitions to leverage new product introductions. Before Gartner, Freeman held senior marketing and technology development positions at FSI, Watkins Johnson, Lam Research and Texas Instruments.
