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The CHIPS Act: An Exceptional Investment in a Strategic Technology

BY PEET VAN BILJON

The CHIPS and Science Act of 2022 injects $280 billion into U.S. research, innovation, and manufacturing over the next five years. The “CHIPS” name reflects the priority given to the semiconductor industry with $52.7 billion of dedicated semiconductor spending, including $39 billion in grants and a 25% tax credit for on-shore US manufacturing. The policy goal is to increase the U.S. manufacturing share of this crucial technology after years of decline – from 37 percent in 1990 to 12 percent (relative to the US semiconductor consumption of 34%) – mostly due to more aggressive industry investments by other governments. The Act also reflects the urgency of addressing semiconductor shortages and cyclic dynamics which trouble multiple industries (for example, automotive manufacturing), and impede U.S. economic growth.

The Importance of Semiconductors

Our modern economy runs on semiconductors: both discrete devices such as power transistors and diodes that handle electric power or govern electric motors, and integrated circuits (ICs or “chips”) which are typically manufactured as wafers and contain thousands to billions of devices, mainly transistors. ICs may be microprocessors or memory chips used in computing, or commodity electronic building blocks used in a myriad of circuit designs, as well as custom circuits on a single chip, such as 5G wireless or GPS chips for your smartphone. An exponential growth in chip complexity over the last few decades has enabled our digital age and so much of the functionality we too easily take for granted. The smartphone in your pocket has far more computing power than NASA used for 1969 Apollo moon mission.

The global semiconductor market is forecast to be worth $633 billion in 2022, up 13.9 percent from 2021 of which the U.S. market share is about half. After a period of low profitability in the early 2000s, semiconductor companies have seen their economic profits grow strongly into the double digits since the late 2010s. The industry outlook is strong with no sign of demand abating. This makes some question why large industry subsidies are needed.

Industrial Policy Revisited

Though the CHIPS Act passed with bipartisan majorities in both the Senate and House, most Republicans opposed it. This is in line with a long tradition of skepticism about the U.S. government’s role in shaping and subsidizing industries. Unlike many other developed countries, the United States has generally eschewed an industrial policy of deliberately building up strategic industries. Yet, it also has a long tradition of making exceptions considered to be in the national interest.

The exigencies of World War II forced the U.S. government to be directly involved in weapons development, from basic research to production. The Manhattan Project (nuclear bomb) is the most famous example, but radar and computers were wartime government projects too. In each case, the government partnered with select universities and private firms. After the war, the government initially resolved to limit itself to only funding basic research. But the 1957 Sputnik launch and the military threat posed by the Soviet Union soon changed that, leading to the creation of NASA and DARPA in 1958. Technologies created with defense dollars have subsequently enabled great private-sector innovation, for example the internet and GPS. DARPA maintains partnerships with semiconductor firms for the development of new technologies, often with both military and civilian applications.

Policy Objectives

What is the public-policy rationale for a $52.7 billion government investment in one industry?

First, there is a substantial U.S. national-security interest, which includes self-sufficiency in advanced devices for defense and aerospace systems. Specifically, China’s territorial claims on Taiwan, which dominates global semiconductor manufacturing, is seen as a national-security risk.

Second, there is a desire to increase industry resilience to global supply-chain disruptions such as happened due to COVID lockdowns. A reliable supply of semiconductors is needed to make anything from home appliances and automobiles to the computers and data centers essential for continued national productivity growth.

Third, there is a global manufacturing capacity shortfall in the industry with factories running at full capacity, but unable to meet demand; backlogs are running at six months or longer.

Fourth, semiconductors are a top 5 U.S. export amounting to $60 billion, and a category in which the United States maintains a trade surplus.

Understanding more about the development and state of the semiconductor industry will provide further context on why the semiconductor industry was considered worthy of an exception to the general avoidance of industrial policy. 

Semiconductor Developments

Transistors are tiny multilayered devices made from silicon or germanium of which some parts are precisely infused with impurities, enabling them to amplify or switch electrical current. Transistors and other semiconductors are the active components in almost all modern electronics. The transistor was invented by Bell Labs scientists in 1947 and the first integrated circuits (ICs) containing multiple transistors on a single chip appeared in the 1950s. In 1965, Gordon Moore (a future cofounder of Intel) wrote a prescient paper predicting that ICs containing more integrated electronics would revolutionize telecommunications and computing. Moore’s observation that the number of transistors on a single chip were doubling every two years as techniques improve became known as Moore’s Law, and was soon interpreted to mean that computing power would double every two years. In 1965 only 60 transistors fit on one IC, but Moore’s Law meant that by 1975 a state-of-the-art microchip would contain 65,000 transistors, which came to pass in 1975 exactly as predicted. Moore’s Law subsequently set industry expectations and became a self-fulfilling prophesy. By 1989, Intel launched the first 1-million-transistor microprocessor, the 80486. Today, over 2 trillion transistors can be crammed onto a chip. The end of Moore’s Law has been declared many times as miniaturization techniques ran into physical limits, yet ingenuous chip designers keep inventing new techniques to extend it.

The semiconductor node size in nanometers (nm) historically represented the smallest features that could be created by a particular manufacturing process. The node size is an indicator of how many devices one chip can contain (the smaller the node, the more devices) and hence related to Moore’s Law. Node size is also used to indicate the technology generation, with successive generations having smaller node sizes. The current cutting-edge node, 5 nm, is used for chips with the highest transistor densities such as powerful processors for mobile phones and computers. But as nodes advance, manufacturing and design costs escalate. Fabs, as individual factories are called, need new equipment to build different nodes. Building a 7nm or 5nm fab is so expensive that only Intel, TSMC, and Samsung have done so. These firms are now launching 3 nm processes.

However, most chip applications do not require the smallest nodes. Production of chips continue in nodes as large as 130 nm, while 20, 14 and 12 nm nodes can still meet support high-performance applications as process advances continue to be made by companies such as GlobalFoundries. There is a misperception that sub-7nm logic chip technology – still less than 30 percent of the market – is all-important. The United States needs to onshore a much broader set of semiconductor technologies. Such technologies include radio and optical communication chips used in a vast number of products essential for national security and industry resilience. Leading-edge innovation in these technologies depends more on specific device and circuit architectures, and less on node size.

Little is gained if American-made wafers have to shipped offshore to be packaged into devices. Chip packaging – historically a low-margin business – is now a critical technology as 2.5D and 3D architectures are needed for advanced designs. The CHIPS Act accordingly invests in microelectronics packaging technology with the new Advanced Packaging National Manufacturing Institute created by the Act.

The Current State of The Industry

The industry is global and interconnected with three main types of semiconductor companies: those who design but do not manufacture are called “fabless” firms; those who only manufacture, usually for multiple design clients, are called foundries; and those who package and test the semiconductors coming out of the foundries. Increasing foundry capacity is costly with a new fab’s construction and operating costs easily being $2 -3 billion; more for the latest technologies. Chipmaking is a highly capital-intensive industry with each node generation demanding a larger expenditure on equipment than the previous. Due to high fixed costs, most chip companies outsource manufacturing to foundries, who achieve high utilization by making chips for multiple customers. AMD, Nvidia, and Qualcomm are all fabless: their chips are manufactured by contract foundries. Intel is one of the few remaining Integrated Device Manufacturers (DMs) – designers with their own foundries – as is Samsung. But even IDMs use contract foundries to make some of their chips.

The majority of semiconductors worldwide, including the most advanced chips with the highest component densities, are made in Taiwan by various foundries including the world’s largest, TSMC, which counts Apple, Qualcomm, Nvidia, and other technology companies among its clients. The next largest manufacturer is Samsung in South Korea.

Both TSMC and Samsung plan to build foundries in the United States: a $12 billion Arizona fab for TSMC, and a $17 billion fab in Texas for Samsung. Intel has started construction of its new $20 billion Arizona fabs and will also build new fabs in Ohio for an initial $20 billion investment which could grow to $100 billion making it the world’s largest chip plant. Several of these investments were contingent on the CHIPs Act passing. And just after the Act was signed by President Biden, Micron announced a $40 billion investment in U.S. memory chip manufacturing.

The CHIPS Act seems to be off to a good start.

All images courtesy of GlobalFoundries.

A different version of this post first appeared on De Gruyter Conversations.

The hidden beauty of hitting singles – how modest new product development can quickly pay off

BY PEET VAN BILJON

 A company with an ageing product line doesn’t have to choose between a major new product development project that it may not be able to afford, or doing nothing. Incremental product improvements that can dramatically improve sales can often be completed within months and on a small budget, at relatively low risk.

Many small or medium companies (SMEs) were built on a few – sometimes only one – core products. Typically the founders started with a particular market segment that they understood well, and then developed an offering that met a clear need in that segment. Over time, the company expanded its geographical reach, and increased the number of product flavors, without necessarily developing any truly new product. Sometimes they acquired another small company to add an adjacent product line, or to enlarge their geographical footprint.

These companies have longevity because they are usually good at application engineering and customer service, which forge deep customer relationships yielding a reliable stream of repeat business. They maintain a healthy base of loyal customers whom they know really well. If they also sell to the retail market, they may have a couple of major retailers with whom they have long-standing relationships. Each year, the company is virtually guaranteed 90 percent or more of the previous year’s revenue as long as they just keep doing what they are doing. Gross margins are usually quite healthy.

The problem is that nothing lasts forever. Even long product life cycles come to an end eventually. A decline in the size of the customer segment, new technologies, changing customer needs, regulatory changes, and new entrants can all exert downward pressure on revenues and profits. These declines may be almost imperceptible at first, and too easily ascribed to random events, individual personalities or bad luck. But before too long a pattern of decline emerges. And a slow-motion death spiral is still a death spiral. Or more prosaically, from the dialogue in Ernest Hemingway’s novel, The Sun Also Rises: “How did you go bankrupt?” “Two ways. Gradually, then suddenly.”

Faced with a decline in their traditional business, companies too often make one of two mistakes: They try to hit a home run by developing a revolutionary new product. But an organization that has not done any major innovations in years, sometimes decades, may not have the institutional muscle memory and capabilities to succeed in such an endeavor. Expensive, reputation-damaging mistakes are made, putting the survival of the company in even larger jeopardy. The second mistake is to do nothing, and keep milking the cow for as long as possible. Why would a company do nothing? Sometimes the original owner is close to retirement, or the owners are planning to sell the company. Other times they are simply in denial.

Some years ago, I arrived at an industrial products company that were in the process of making the first mistake. Limitations with their current products had started to lose them sales to the competition. So they set out to develop a highly ambitious, industry-leading new product. Under pressure to create excitement among their clients, they made the additional mistake of marketing the new product before they had been able to make the technology work. Their engineering team front-loaded work on the flashy user-interface so they could demonstrate it, neglecting to do a proper proof-of-concept on the guts of the product, which was a technically very demanding application. The development project went on for two years and missed all its important milestones. The product technology was failing miserably because the architecture was overly complicated, designed by tenured company engineers who were not familiar with the latest processor technologies. In the end, the product launch had to be cancelled, and the lead engineer was duly fired.

As you can imagine, many painfully embarrassing conversations with customers and distributors followed in the wake of this disaster. However, in talking to them, it became clear that while they were not satisfied with the old product, in 80 percent or more of cases they were only looking for one additional important feature called for in new regulations and already offered by the competition. The company’s technical team had falsely assumed that they could not add that feature without designing a completely new product (to which they then wanted to add all sorts of bells and whistle). But it turned out that there was a low-cost chip on the market that could be easily be integrated with the existing design to add the desired feature. I helped them to build, qualify and launch the improved product in only three months. This was all done on a shoe-string budget. The customers were very satisfied with the product and sales rebounded. The company’s product kit was beloved by customers because it was always easier to install than the competition, and with that crucial new feature added customers could go back to buying their preferred product from their preferred vendor. We then set about to add the next new feature, which would further update the product and extend its life cycle.

Sometimes SMEs with well-established product lines, good cash flow, and latent potential for revenue and profitability improvements, are bought by investors like private equity companies. These investors then typically launch aggressive operational and sales effectiveness programs to increase the value of the company in a short period of time. But investors leave money on the table if they do not pursue incremental product improvements that can rejuvenate stale product line-ups. They may even be flogging a dead horse – sales effectiveness initiatives can only go so far in improving sales if the product is losing its appeal. In doing so, they overlook that carefully selected product-line improvements can be completed within about the same time scale as their other value-driving programs.

Here is where to find opportunities for incremental product improvements:

  • Missing features. In which cases did we lose sales because our competition offered features or specifications that we could not match? (Or maybe we only won after heavily discounting our product to win against to a superior competitive product.) Are there recent or future regulatory changes to specifications that can make our product less desirable?
  • Adjacent market opportunities. In what similar markets could our products be used with minor modifications or upgrades?
  • Cost savings opportunities. Is our product cost too high compared to the competition? Are our gross margins always under pressure? (A desired margin improvement of 10 percent or more usually requires some product redesign.)
  • New technologies. Is the market moving on to new technologies? For instance, do we need to enable our products for the Internet of Things (IoT) by adding new components and digital communication?
  • Competitors. What product updates have our competitors recently made, or are in the process of making? What do we see at trade shows that we don’t, but maybe should, have?

Whether you are the owner or senior management, the strategy you choose to rejuvenate your product lineup is crucially important, and you have to be realistic about the capabilities of your organization. If you start too ambitiously, by wildly swinging for the fences, the odds are that you will miss and get caught out or struck out. But if you go for hitting singles instead, you can dramatically reduce your cost, risks and time to market. And while you are doing that, you are also building up new competencies that enable you to take on gradually more ambitious projects. The product development muscles of your organization get stronger every time you successfully launch a new product, or do even a small enhancement to your current product.

This article was originally posted by the author on LinkedIn.

©2025 Peet van Biljon. All rights reserved.

Out-Innovate Your Competitors with Advanced Analytics

BY PEET VAN BILJON

MAPI, BMNP Strategies, and Decodexis teamed up to study the impact of advanced analytics on the manufacturing sector.

Ask innovation and product development executives at U.S. manufacturers, and they will agree — advanced analytics will change the face of innovation. Two-thirds of executives surveyed expect that analytics will improve their innovation performance in the near future.

46% of manufacturing executives believe that advanced analytics will drive major changes in the industry, and 49% believe that it will drive some changes in how their industry innovates.

Where in the analytics journey are you and what tools and techniques are you using? A variety of tools and techniques are used in the manufacturing industry and companies typically start with implementing analytics tools that support decision-making. 

Download the executive summary

Download and read the full report:

Van Biljon, P., Callaway, J., Ranade, V., and Ruiz, E. (2018). Out-Innovate Your Competitors with Advanced Analytics. MAPI Research Report.

How to get good ideas from your team members

BY PEET VAN BILJON

A culture of innovation needs a flourishing democracy of ideas. This means that in an organization everyone’s ideas should be valued.. and welcomed. However, it is surprising how often leaders miss out on opportunities to tap their team members for ideas. A few simple actions are all it takes to tap into your most precious resource, the creativity of your team members.

There are three types of ideas you can, and should, get from your team. Each require a slightly different technique to gather.

Type 1 – Spontaneous individual ideas

We continuously have experiences which spur ideas to pop up in our heads. At work such ideas may include seeing potential solutions to problems in our daily tasks (efficiency or process-improvement ideas), or thinking of better ways to bring value to our customers (product or service innovation ideas), or maybe better ways for people in the organization to work together (organizational improvement ideas). The problem is that so many good ideas stay in the head of the person who had them, with no benefit to their organization. This is a shame, and a waste.

Each person is a unique individual with a unique mind, life experience and perspective on the world. So even if you have 100 people in a factory doing exactly the same basic job, you will be surprised at the diversity of thoughts they have about the tasks they do. And, in many cases, simply asking people close to the action what they think about a particular issue or challenge may yield you extremely helpful ideas on how to solve it.

Senior people – who usually have no problem making themselves heard on any topic – too often do not appreciate that more junior people may be reluctant to speak up and share their ideas. But there are many reasons why people hold back: they could be shy, overly deferential, risk averse, or simply feel unqualified to provide input. Sometimes it is a cultural constraint, and sometimes there are language barriers.

Therefore leaders have to create an environment where it is clear to everyone that their ideas are not only permitted, but welcomed. Nothing can replace the one-on-one personal conversation for teasing out Type 1 ideas. And none of this needs to be complicated. Simply walk around, stop at someone’s workstation and chat, keeping your ears open for his or her ideas. You’ll be pleasantly surprised!

Type 2 – Solicited individual ideas

You can also spur ideas from your team members by directly asking for the type of ideas you are looking for at that point in time. The effective way to do this is to frame the issue or opportunity you want ideas for, clarify any constraints they have to take into account, and explicitly communicate any commonly assumed constraints that may be ignored or relaxed.

You can do this informally at a small meeting, or more formally as part of a large organizational initiative like an innovation competition of an efficiency campaign. Articulate a challenge in simple terms, e.g. “How may we reduce our customization process in production from four weeks to three weeks?” and encourage individual participation through a good communications campaign. Give visible rewards and recognition, not only for the winning ideas, but also for the most original idea, the most prolific proposer and so on. People like their contributions to be recognized and appreciated.

Additional ways that you can help people to get out of the rut of their routine thinking include exposing them to new environments and stimuli, like a field visit.

Type 3 – Collaborative interactive ideas

Putting many heads together is the most powerful way of gathering new ideas. Sadly, most organizations are not good at managing the process of collaborative idea generation, which is why they often need to rely on external facilitators like me to manage the group interaction. 

The fatal mistake to avoid with any type of brainstorming, is to evaluate ideas as they are raised: If the idea seems good, the group will stop too soon and declare victory. And so they miss out on better ideas that would have come later in the process. If the idea seems bad or crazy, it will be rejected out of hand particularly if there is a strong hierarchy or peer pressure in the group. The inevitable result will be incrementalism – with nothing new really being proposed.

Another mistake is stopping the idea generation process too soon, when the first batch of ideas seems to be drying up, the room becomes quiet, and people look like they want to move on. Research has shown that the best ideas often come on the other side of this plateau, just like when you are trying to break through a barrier in athletic training.

There are many good brainstorming techniques available. Some are better for certain situations than others. But they all have one thing in common: that people should build on one another’s ideas, so that the winning idea is one that no one would have thought about on their own. That way my crazy, impractical idea makes Tom think of an unusual, but more promising idea he would not otherwise have considered, and when Tom mentions his intriguing new idea, it gives Sally’s thinking a jolt so she comes up with the brilliant winning idea.

And, of course, you are more likely to get a diversity of ideas when you have a diverse group of people, representing multiple functions, groups, levels, and viewpoints together for any collaborative idea generation exercise.

***

In summary, here’s a simple guide to making sure you make the best use of all your people’s good ideas:

1.      Type 1 ideas – Walk around, ask open-ended questions and listen

2.      Type 2 ideas – Define the challenge to solve in simple terms, and ask everyone for their ideas

3.      Type 3 ideas – Orchestrate one or more collaborative idea sessions, invite a diversity of people, and have rules of order that ban premature evaluation of ideas

Lastly, and very importantly, rather than just gathering ideas you have to be seen to act on them and implement one or more of the ideas generated. Not only is that the only way to actually get stuff done, but soliciting ideas which are never brought to fruition is an idea inhibitor in itself.

This article was originality posted by the author on LinkedIn.

©2025 Peet van Biljon. All rights reserved.