The U.S. semiconductor industry is prepared to meet President Obama’s goal of doubling its exports in five years, but maintaining the sector’s competitiveness on the world stage will require changes in tax and investment policies, immigration and export-control reform, and a cautious approach to environmental issues.
In his State of the Union address last January, Obama called for a national export initiative to double exports to $3 trillion and create 1 million jobs in the next five years. The Semiconductor Industry Association this month said microchip makers stand ready to double exports to $76 billion by 2014, up from $38 billion in 2008.
|The SIA, in a detailed strategy laying out how to achieve export goals, estimated doubling exports would result in $2 billion in new taxes. The goals are supported by an upbeat forecast that sees global sales jumping 28.4 percent this year, to $290.5 billion. Growth will be more modest in the next two years, with sales reaching $317.8 billion by 2012.
Microchip manufacturing is at the heart of the electronics industry, and a key, high-value commodity for air cargo carriers. While U.S. companies make the chips, most of the assembly occurs elsewhere. Indeed, one official said the chips rack up thousands of frequent flyer miles on the way from a silicon wafer to a new iPhone.
But even with exports jumping 24 percent, to $7.8 billion, in the first four months of this year compared to the same period of 2009, the U.S. still has a trade deficit in technology products. According to the Census Bureau, imports exceeded exports by $56 billion in 2009, and the trend continues with an $18 billion deficit through April 2010.
Growth in the world semiconductor market alone will help get the industry halfway to the $76 billion target, the SIA said. More than 80 percent of the world market is outside the U.S., and U.S. manufacturers’ traditionally have held a market share that hovers in the 40 percent range. But the market fluctuates, and U.S. market share jumped to 51 percent last year, even as global chip sales shrank 9 percent. U.S. manufacturers also account for 58 percent of semiconductors sold domestically.
To double exports, the U.S. should increase its market share by 0.5 percent a year. The SIA also said it’s necessary to keep a balance between chips for export from the U.S. and ones U.S. companies make in foreign facilities.
The SIA has strong reasons to be bullish about the future. Sophisticated technology — from tablet computers and e-books to 3D televisions and advanced cell phones — is seemingly introduced and upgraded by the day. Added to that are new uses for microchips in energy-saving and energy-monitoring equipment. Although doubling exports in five years can be achieved, more important are changes in law and policy to help U.S. manufacturers remain the world’s microchip leaders in the long run.
“It’s a lot more profitable to manufacture in other countries than it is in the U.S.,” said John Greenagel, the SIA’s communications director. “We need to find a way of making investment in these very costly manufacturing facilities on a level playing field with other countries.”
A chip fabrication facility, or fab, costs about $3.5 billion, Greenagel said. Investors have better treatment in other countries, which could steer capital away from the United States. China, for example, gives new facilities a five-year tax holiday. Other countries will build a new fab, and absorb the costs.
Lower labor costs in foreign countries can be overcome, Greenagel said, but “it’s those capital expenses in the assistance packages elsewhere that make it more costly to manufacture in the U.S.”
The SIA is urging caution when the federal government considers higher corporate tax rates, but it’s not just about money. The industry would like to see reforms in export controls, and address immigration and environmental policies. It also encourages government investment in corporate and academic research and development programs.
Greenagel said 65 percent of college graduates in the U.S. in science and engineering are not U.S. citizens. The U.S. has to address immigration reform to make it possible for them to stay and work here.
The SIA recommends “avoiding climate change policies that add costs, limit flexibility” and make U.S. companies less competitive. In fact, the industry has had an agreement with the Environmental Protection Agency since 1995 to achieve a 10 percent reduction worldwide of perfluorocarbons, a gas used in wafer manufacturing. The EPA says PFCs’ global warming potential is 13,500 greater than carbon dioxide.
U.S. companies have nearly met their goals, but it’s better to handle climate change policy through the World Semiconductor Council the industry’s international association, Greenagel said.
Contact R.G. Edmonson at email@example.com.