Optimizing Capital Investment in the Semiconductor Industry

Optimizing Capital Investment in the Semiconductor Industry

By The Fatty Fish Editorial Team - October 16, 2023

The United States is looking to optimize capital investment in the semiconductor industry. Semiconductor companies are building manufacturing capacity at feverish pace with new fabs expected by 2025, and nine in the United States alone. Deloitte estimates the cost of building one fab starts at $10B with an additional $5B of costs for machinery and equipment. Additionally, overall capex costs have grown over 1.5x from 2019 to 2022 and will likely slow a bit as chip growth and the global economy slows.

The US CHIPS Act, which provides $52 billion in funding for the building, growth, and modernization of the semiconductor industry, is meant to encourage semiconductor companies to grow domestic production capacity, rather than sending it to foreign locations. At the same time, the EU CHIPS Act is trying to grow European capacity by a similar amount.vi Since the US and EU CHIPS Acts are just the tip of the investment iceberg, semiconductor manufacturers should improve capital investment processes, capital allocation decisions, and accountability for performance.

Since capital allocation is one of the most important decision-making responsibilities of an organization, experts recommend senior management needs to consider modernizing and optimizing processes, integrating tools and systems, digitizing, and leveraging end to end lifecycle data to help transform how they deploy capital and deliver on the corporate vision. Here is an opinion piece we found of interest relating to investments in the semiconductor industry.

Innovation Lightbulb: Capital Expenditures among U.S. Chip Firms

In an opinion piece “Innovation Lightbulb: Capital Expenditures among U.S. Chip Firms” for Center for Strategic and International Studies, Gregory Arcuri, program coordinator and research assistant and Bailey Crane, research intern, argue that analyzing capital expenditure, or “capex,” from leading semiconductor firms headquartered in the United States provides valuable insight into the current state of the industry. Publicly reported capex from fifteen leading U.S. companies over the past ten years shows dramatic growth in spending across the sector. Driven primarily by semiconductor manufacturing firms like Micron and Intel, capex reached nearly $50 billion in 2022.

It is not surprising that Micron and Intel are the primary contributors to this expenditure. This is because the process of manufacturing cutting-edge chips has become increasingly labor and capital intensive, involving higher tool and facility expenses, a greater number of manufacturing steps, and reduced yield rates. The substantial capital investments made by these companies are directed towards acquiring the exceedingly costly equipment required to efficiently produce memory and logic chips that are either at the forefront or close to the forefront of technology, with the anticipation of generating substantial returns through large-scale production.

The authors argue that while the $39 billion in subsidies and 25 percent investment tax credit in the U.S. CHIPS Act represents a significant level of support, these funds represent a small part of the investment needed to grow U.S. manufacturing capacity. They emphasize timely execution and continued support will be key to achieving the CHIPS Act’s goals. Read the full article on Center for Strategic and International Studies.

Disclosure: Fatty Fish is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.

The Fatty Fish Editorial Team

The Fatty Fish Editorial Team includes a diverse group of industry analysts, researchers, and advisors who spend most of their days diving into the most important topics impacting the future of the technology sector. Our team focuses on the potential impact of tech-related IP policy, legislation, regulation, and litigation, along with critical global and geostrategic trends — and delivers content that makes it easier for journalists, lobbyists, and policy makers to understand these issues.