Should Australia develop semiconductor manufacturing?

Should the federal government back development of a semiconductor manufacturing industry in Australia?

We have the talent and resources to develop semiconductors.

This issue reports on investment by Japanese computer chip manufacturer MegaChips in Sydney-based specialist semiconductor manufacturer Morse Micro.

MegaChips led the company’s recent $140 million funding round. In accepting the investment, Morse Micro recognised that linking with the Japanese company would give it access to large manufacturing capacity for its low-power internet of things (IoT) Wi-Fi HaLow chips.

Manufacturing at scale is, however, a much bigger challenge than developing high-tech products. Would it be worthwhile for the federal government to back developing large scale manufacturing of semiconductors in Australia?

There are strong political as well as economic arguments in favour. Taiwan dominates global production of semiconductors. Semiconductors are essential components in nuclear submarines through to sophisticated medical equipment as well as in every-day items such as computers and mobile phones.

China’s recent military exercises in the Taiwan Strait raised concerns about military conflict but the danger of potential loss of access to semiconductor supplies was noted in subsequent US strategic analysis.

In Canberra, the Australian Strategic Policy Institute, an independent body, has looked at semiconductor supply from an Australian perspective and reached a similar conclusion. In a recent policy brief, the institute provided a vision for Australia to secure its place in the global semiconductor industry.

According to the authors of the report, Alex Capri and Robert Clark, Australia’s notable lack of participation in the global semiconductor ecosystem has put us at a geopolitical disadvantage.

As a nation, they say, with some niche exceptions, we are almost entirely dependent on foreign-controlled microchip technology. This has made Australia increasingly vulnerable to global supply-chain shortages, shutdowns and disruptions. This was made clear by the COVID-19 pandemic.

Having unfettered access to microchips in an increasingly digitised world, Capri and Clark argue, is a matter of economic and national security.

The global semiconductor manufacturing industry is “the single most important technology underlying leading-edge industries”, they say. It would be possible for Australia to secure a place in the industry, but it would require a ‘moonshot’ strategy from the federal government.

They suggest $1.5 billion of government investment and financial incentives could stimulate $5 billion of semiconductor manufacturing activity. Those subsidies and tax concessions could mirror similar US initiatives such as its ‘CHIPS’ and ‘FABS’ acts.

The report accepts that commercial semiconductor chip manufacturing capability is currently almost non-existent in Australia so developing other aspects of the ecosystem at the same time will be important, including access to critical minerals and microchip design.

Australia does, however, have an R&D semiconductor fabrication foothold upon which it can build the new capabilities.

The report suggests that a commercial compound semiconductor foundry capability could be developed distributed across the country via a public-private partnership. Over the longer term, it proposes establishing a commercial silicon-complementary metal-oxide semiconductor foundry at mature process scale.

To achieve this, investment via the Australian National Fabrication Facility (ANFF) network, under the National Collaborative Research Infrastructure Scheme, would need to be increased substantially.

While government should only intervene in a private market after careful consideration, the report makes a compelling argument to do so in this case. Intervention would surely be justified if the federal government recognises that Australia needs more secure access to semiconductors.

A ’moonshot’ it might be but promoting development of a semiconductor manufacturing industry would align well with the federal government’s policy of backing the growth of advanced manufacturing and should generate significant spin-off development.

Adrian Herbert
Managing Editor, Australian Private Equity & Venture Capital Journal.

Image: A cleanroom at a silicon chip manufacturing facility.