Microchips – chips, integrated circuits, and semiconductors – are at the heart of the electronic devices essential to virtually all industries. They are needed in almost all modern technology, from mobile phones to electric cars, dishwashers, power grids, and air defence systems. Semiconductors are the foundation of so many applications that make our world run. Many Canadians learned how critical semiconductors are during the COVID-19 pandemic when supply chains – and consumer patience – were stretched beyond the breaking point. What seemed like a simple irritant highlighted serious vulnerabilities inherent in our global semiconductor industry.
“About 90% of high-end semiconductor production is manufactured in Asia, mostly in Taiwan. Add geopolitical tensions to the mix and it’s clear that the status quo is not sustainable.”
The good news is that the current situation presents a golden opportunity for Canada to assume a leadership role in the global semiconductor industry.
Challenges in the Global Semiconductor Industry
Over-reliance on one part of the world was at the heart of recent supply disruptions and the semiconductor industry is no different. About 90% of high-end semiconductor production is manufactured in Asia, mostly in Taiwan. Add geopolitical tensions to the mix and it’s clear that the status quo is not sustainable. The world’s largest refiner of semiconducting raw materials, for example, silicon, is China, followed by Russia. You don’t need to be a geopolitical expert to see the red flags.
In August 2022, the United States responded with the USD $52 billion CHIPS and Science Act to boost US competitiveness, innovation, and national security. The Act will stimulate investments in domestic semiconductor manufacturing capacity and jump-start R&D and the commercialization of leading-edge technologies. By some estimates, the CHIPS and Science Act has already sparked $200 billion in private investments for semiconductor production. The European Union launched the €42 billion European Chips Act in April 2023, and private investment is beginning to flow.
The scope and scale of these government initiatives are inspiring, but the costs of these facilities are daunting. What is a country like Canada to do?
Understanding the Semiconductor Industry in Canada
In Canada, the semiconductor industry is driven by design and development thanks to a well-trained workforce of Highly Qualified Personnel (HQP) from our universities and colleges. We are known for high value-add and innovative technologies such as exotic compound semiconductors, which are essential for high-power applications such as EV charging and solar power converters. We also have a growing ecosystem of established and start-up firms, and our researchers are among the world’s best.
Canada does have manufacturing capacity in some advanced technologies, but we cannot compete on production volume. Our strength is largely our grey matter, and our goal does not have to be new brick-and-mortar facilities, but to increase the sales from existing companies, develop new manufacturing processes to sell, and diversify the customer base.
How Canada Can Win With Semiconductors
Government of Canada policymakers understand that semiconductors are crucial to power our economy. They also know that a vibrant semiconductor ecosystem will enable larger policy goals such as green energy production, electrification of transport, and enhanced economic productivity.
The practical answer for Canada is not to spend our way to the front of the pack, but to target government support in key areas.
“Canada should be thinking about making specialty chips for tomorrow’s applications in artificial intelligence, 5G telecommunications, Internet-of-Things connected devices, and quantum computing.”
1. Prioritize specialty semiconductors
Canada’s strategy should be specialty semiconductors. Support and incentives are needed for niche and high value-add technologies targeting next-generation applications. Instead of being able to produce high-volume chips for iPhones and Ford F-150s, Canada should be thinking about making specialty chips for tomorrow’s applications in artificial intelligence, 5G telecommunications, Internet-of-Things connected devices, and quantum computing. There is huge potential in these technologies and their applications.
2. Our semiconductor industry needs the best facilities
First of all, Canada must upgrade the capacity we already have at facilities such as the Teledyne MEMS and IBM packaging facilities in Bromont, QC and Applied Nanotools in Edmonton so they can produce next-generation chips. We also need incentives for prototyping and manufacturing capacity in smaller innovators throughout the ecosystem. It’s critical that these players have access to the best facilities for prototyping and manufacturing so that the intellectual property – and talent – remain in Canada.
Don’t get me wrong – if Canada attracted a “megafab” foundry (such as TSMC’s $40 billion USD facility under construction in Arizona), I’d be thrilled to use it. I just don’t think this kind of investment plays to our strengths at a reasonable cost to taxpayers. Targeted, specialty support would have maximum ROI for our ecosystem.
3. Reshoring goes beyond Canadian borders
The Oshawa-Oakville-Windsor-Detroit auto corridor is so successful because of the tight integration between Canada and the United States. President Biden and Minister Champagne recently discussed a semiconductor manufacturing trade agreement or “corridor” to integrate supply chains between Canadian firms in southern Quebec and firms in the American northeast (mainly New York State). This is great news for Canadian innovation and our national interests and should be a government priority.
4. Strengthen the ecosystem to retain talent
The semiconductor-related ecosystem in Canada is made up of over 300 firms and organizations and this is where our HQP should continue to develop after they graduate. All too often, Canadian-trained talent will move elsewhere simply because there is not a big enough ecosystem of players here to help them grow. Small firms and organizations need incentives that will allow them to train and retain our best and brightest.
“All too often, Canadian-trained talent will move elsewhere simply because there is not a big enough ecosystem of players here to help them grow.”
If as a country we act strategically, Canada can have a productive future in the semiconductor industry and become an essential part of the supply chain for high-tech products. We must recognize the strengths that we have in our private and public facilities and leverage them in such a way that we can gain market advantage in a range of technologies and applications. This is an achievable goal and one that will help diversity our economy, create meaningful and rewarding jobs for thousands of Canadians and, expand our technology ecosystem overall.