For the past year, the global chip shortage has dominated headlines in Canada and around the world. As much as we’d like to put the resulting supply chain disruptions and economic costs behind us, experts predict the shortage will last well into 2023.
“We’re done with the chip shortage, but it’s not done with us.”
Semiconductors are in such high demand because they underpin virtually all technology, from household appliances to electric vehicles (EVs), agritech, quantum computing, renewable energy, medtech, and AI. In other words, if there’s a modern technology that we rely on, it relies on chips. And the smarter these technologies become, the greater our need for chips. So what can be done in the short-term to address our urgent need for these critically-important semiconductors, and how can we build towards a more resilient Canadian economy of the future?
Last year, a group of globally recognized Canadian founders, business leaders, chip manufacturers, and investors formed Canada’s Semiconductor Council to answer those very questions. With a mandate to build a national semiconductor strategy, the Council spoke to over 100 industry stakeholders and uncovered data-driven insights, leading to short-term, medium-term and long-term recommendations for building a domestic semiconductor sector and ultimately propelling Canada to the forefront of the US$7 trillion global semiconductor industry. The report, titled Roadmap to 2050: Canada’s Semiconductor Action Plan, lays out priorities across four major areas to build a thriving domestic semiconductor sector.
“Establishing a domestic semiconductor industry is critical to keeping our brightest STEM talent in Canada, and is a catalyst to generating the far-reaching economic benefits of foreign direct investment.”
From the perspective of the Council, the best way to navigate the chip shortage, and indeed the key to building a future-proof Canadian economy, is by investing in our capacity to produce the ubiquitous chips domestically. If we fail to shore up — and ultimately manufacture — a domestic supply of sensors and semiconductors, we will continue to be reliant upon vulnerable supply chains and fluctuating imports. What’s more, establishing a domestic semiconductor industry is critical to keeping our brightest STEM talent in Canada, and is a catalyst to generating the far-reaching economic benefits of foreign direct investment.
The path to a modern Canadian economy will be paved with Canadian technology. Here’s how we can get there by 2050.
Shoring Up Our Supply
The inability for manufacturers to keep up with the global demand for chips has resulted in significant production delays and supply chain disruptions, leading to untold global economic losses. The heavily chip-dependent auto manufacturing sector was hit especially hard by the shortage, losing an estimated $210 billion — or 11.3 million units of production — in 2021, according to AutoForecast Solutions. Here in Canada, auto production slowed to 1.1 million vehicles in 2021, the lowest level of output since 1967, according to DesRosiers Automotive Consultants.
“The critical first step to building a Canadian economy of the future is to shore up our supply of critically-needed chips.”
To reliably meet the domestic demand, as well as to produce for global demand, Canada must manufacture its own semiconductors. However, because that won’t happen overnight, the critical first step to building a Canadian economy of the future is to shore up our supply of critically-needed chips.
To do this, Canada must act swiftly and in a unified manner. Companies and industries must come together and establish a cross-industry, government-led consortium to increase Canada’s purchasing power and negotiating position through high volume purchases. Major chip-producing countries such as the U.S., Taiwan, South Korea, the U.K., France, Germany, and China should view Canada as a trustworthy, predictable, and unified buyer.
Chips are increasingly being viewed around the world as fundamental to national security, and it’s imperative that Canada act now to secure its supply — while at the same time building a case for increasing domestic production.
Bringing Production Home
It’s no secret that manufacturing semiconductors is a costly and time-consuming endeavour. Advanced fabrication plants (or “fabs”) can cost anywhere from US $5B to $20B, and can take years to design, construct, and launch. Despite the incredibly steep barriers to entry, investing in domestic chip production stands to yield tremendous long-term economic benefits and highly-skilled employment opportunities here on Canadian soil.
Each newly built fab in the US is estimated to create 110,000 temporary jobs during construction, and roughly 4,200 permanent jobs in semiconductors. This is in addition to 5.7 jobs in other sectors created by every semiconductor job, and the positive impacts on downstream sectors such as consumer electronics, medical devices, auto production, and clean energy.
“We must identify which types of semiconductors are in highest demand, both globally and nationally, and establish a business model based on fabricating those key products.”
In order for Canada to establish its chip-manufacturing capacity, three key factors have been identified. First, we must identify which types of semiconductors are in highest demand, both globally and nationally, and establish a business model based on fabricating those key products. Second, Canada must leverage its reputation as an environmentally and politically stable market, and rely on existing partnerships to attract new multinational semiconductor manufacturing agreements. Lastly, Canadian engineering talent must improve upon established fabrication processes and pioneer more nimble and efficient approaches to chip production.
The term ‘made-in-Canada’ is synonymous around the world with quality. However, in order to emerge as a leader in the ultra-lucrative, IP-rich semiconductor sector, we can’t rest on our laurels; Canadian-made semiconductor products must develop an uncompromising reputation as best-in-class.
Becoming a Specialist, Not a Generalist
Succeeding in the hyper-competitive world of advanced hardware manufacturing requires carving out a niche and truly owning it. To this end, the Council found that there are two key areas in the semiconductor sector where Canada could specialize.
Chip manufacturing doesn’t strictly refer to the production of semiconductors, it also relies heavily on the design of semiconductors. According to a report by Boston Consulting Group and the Semiconductor Industry Association, design activity “accounts for 65% of the total industry R&D and 53% of the value added”. With more resources going towards developing increasingly complex chips, design and R&D are key areas of growth in which Canada can specialize.
The second area of specialization pertains to EVs, batteries, and sensors. Canada’s auto sector is responsible for more than 500,000 direct and indirect jobs, and by 2030, 45% of the cost of a car will be in the electronic systems and semiconductors. Hybrid EVs alone have more than 3,500 semiconductors, accounting for over two times the cost of the electronics in a standard car today. When it comes to building the vehicles of the future, chip technology is everything.
Similarly, specializing in sensors would support a wide range of upstream and downstream sectors at the heart of the Canadian economy, as well as providing the inputs needed for Canada to modernize its outdated port infrastructure and warehouse capacity — which have contributed to transportation delays and supply chain setbacks. Canada’s 17 port authorities see close to $400B worth of goods, but are badly in need of an overhaul from their current manual processes to automated, monitored, and efficient systems powered by a steady supply of cutting edge sensors.
EVs, batteries, and sensors are all poised for significant growth, and through these specialized products Canada has an opportunity to retain its top engineering talent and establish itself as a vital hub of innovation in the value chain.
Playing the Long Game
Lastly, companies in the semiconductor sector require as much patience as they do funding, as it can take years to scale and even longer to see a return. Because of the steep and ongoing financial needs of a semiconductor company, Canadian VCs and angel investors cannot provide the funding alone; sustained growth in the Canadian semiconductor industry requires a rich array of government partnerships, programs, supports, and incentives.
“The ripple effect of investment in semiconductor production is second-to-none. Its direct impact on downstream sectors and feeder industries, and its singular ability to galvanize a technology-driven economy, cannot be overstated.”
Globally speaking, it’s estimated that $3 trillion in capital expenditure and R&D is required in the next decade to respond to the demand for semiconductors. While a figure that large is hard to fathom, it’s important to remember that the ripple effect of investment in semiconductor production is second-to-none. Its direct impact on downstream sectors and feeder industries, and its singular ability to galvanize a technology-driven economy, cannot be overstated.
Following the roadmap to a chip-producing and future-proof Canadian economy will be neither expedient nor easy — but it will be absolutely transformative.