Semiconductors are ubiquitous, cornerstone components of nearly every aspect of our tech-enabled lives. They require significant investment and resources to manufacture, and take years to develop and months to produce. However, the global semiconductor sector is being impacted by nationalism, supply chain models that focus on low production costs over resiliency, and lingering COVID-19 disruptions. With this in mind, the recent chip shortage making
headlines around the world represents a significant danger for Canada.
Semiconductor supply — which has long focused on concentrated, large scale manufacturing over a more diversified approach — is being near-shored, reshored, and restructured to the advantage of countries with dominant positions, including the U.S., Taiwan, South Korea, the UK, France, Germany, and China. Increasingly, Canada is being left on the outside, looking in.
Meanwhile, demand for chips continues to rise, putting Canadian production at risk until a reliable supply of semiconductors can be sourced. Canada needs a semiconductor strategy to deal with these twin shocks to supply and demand.
Canada’s key industries are heavily dependent on global semiconductor supply chains that have proven to be volatile and vulnerable. The value chain is currently concentrated in six major regions: the U.S., South Korea, Japan, mainland China, Taiwan, and Europe
As noted in Strengthening the Global Semiconductor Supply Chain in an Uncertain Era, an April 2021 report from Boston Consulting Group and the Semiconductor Industry Association:
About 75% of semiconductor manufacturing capacity, as well as many suppliers of key materials — such as silicon wafers, photoresist, and other specialty chemicals — are concentrated in China and East Asia, a region significantly exposed to high seismic activity and geopolitical tensions. Furthermore, all of the world’s most advanced semiconductor manufacturing capacity — in nodes below 10 nanometers — is currently located in South Korea (8%) and Taiwan (92%) [editor’s note: Intel has since developed a 7 nanometer process]. These are single points of failure that could be disrupted bynatural disasters, infrastructure shutdowns, or international conflicts, and may cause severe interruptions in the supply of chips .
Canadians are increasingly clear eyed about China’s intention to control supply chains, and the increasingly isolationist stance of the U.S. They know that sovereignty, along with sufficiency, are of the utmost importance. With this in mind, elected leaders must take the next step in establishing guidelines and protections for the semiconductor sector. We need a national trategy to keep IP in Canada, and also to ensure the resiliency of our supply chain.
Canada’s semiconductor industry has little market share compared to countries that established fabrication and R&D capacity early on, but ensuring robust access to semiconductors is crucial from a national security standpoint, as critical technologies, consumer products, and employment opportunities rely on chips.
“If you look at Korea or Israel, there is a very clear pathway to commercialization and that pathway tocommercialization starts locally. I don't think anybody in Canada who has produced a chip has ever been able to sell to any of the large Canadian players, whether it's the military, telecommunications firms, or any of those. If you can create a market locally, you can create more money coming in from the venture capitalists. You an drive entire ecosystems.”
- Sally Daub, CEO and Founder, ViXS
In addition, climate change has had a profound impact on the global semiconductor industry. For example, in 2021, drought in Taiwan and extreme cold weather in Texas placed strain on semiconductor supply. In an August 2021 Globe and Mail article, experts noted that semiconductors are almost exclusively manufactured in regions at high risk for natural disasters
This includes Taiwan Semiconductor Manufacturing Corporation (TSMC), which is the largest independent manufacturer of chips with the vast majority of its fabrication operations in Taiwan — a region prone to damaging typhoons as well as seismic activity — but it has made strategic investments in the US and other regions to diversify its manufacturing base.
“If there's ever going to be an opportunity for change, now is the time. And if we don't push for it, Canada will always be in big brother's shadow.”
- Tony Pialis, CEO and Founder, Alphawave
What’s more, the COVID-19 pandemic led to increased demand for chips to power online learning, virtual healthcare, and working from home . Manufacturers of those chips filled orders from companies who wanted to secure supply — in particular, companies who design consumer electronics like mobile phones, tablets, and gaming consoles. At the same time, those types of chips required the most advanced manufacturing technologies and there are only a few semiconductor manufacturers who have such capability. New semiconductor fabrication plants take years to plan, design, construct, and launch, which puts a limit on the manufacturing capacity. The supply bottlenecks for chips (and constraints in other segments of the supply hain for advanced devices), combined with a strong demand, produced a domino effect across multiple industries, sectors, and geographies.
As global demand for chips is expected to continue rising, total global fabrication capacity will need to increase. As the Semiconductor Industry Association reports, “The global semiconductor industry is planning accordingly to meet this projected market growth in the years ahead, through record levels of investment in manufacturing and R&D.” Supply chain
vulnerabilities and geopolitical instabilities revealed by the COVID-19 pandemic poses significant risks to Canada’s key industries. Building domestic manufacturing capability and increasing supply chain resilience should be an area of focus. Efforts should also be directed towards improving talent pipelines to ensure that the industry can keep up its pace of innovation. Failure to sustain or develop components of the semiconductor supply chain in Canada could result in disastrous implications as hundreds of other sectors depend on semiconductors or semiconductor-related products.
A strong and resilient Canadian semiconductor industry will enable Canada to adopt a more nimble approach to managing a shifting international relations landscape, better absorb supply chain fluctuations, and be a leader in transformative areas like quantum, artificial intelligence, clean tech, and beyond. Such an effort requires commitment and resources across all sectors, including government, private industry, academia, and not-for-profits.
Canada needs to leverage its strengths, declare its unique differentiation, and consciously develop an ecosystem that supports this specialization. It also needs to empower top talent in the semiconductor sector through bold investments in emerging technologies, and build a global brand for the nation as a hub of research and design innovation.
This Action Plan makes recommendations focused on four overarching goals:
1.strengthen and Diversify the Supply Chain
2.Develop Onshore Manufacturing
3.Establish a Unique Specialization and Brand for Canada
4.Foster Innovation and Support Market Development
If you want to know details of full document , please search " Roadmap Canada's semiconductor action plan 2021"
