If you work in the semiconductor industry, and you probably do if you are reading this, then you know how fascinating it is. There has never been a technology like it, that is both unbelievably complex and moves at such an incredible pace. But it is not usually something that Washington spends a lot of time on. It is not easy to understand how all the moving parts fit together. Plus, politicians are not noted for being tech-savvy, not when they think the internet is a series of tubes . But there is a surprising amount going on, only some of which I was aware of until various sessions at SEMICON West enlightened me. A few things have put issues on the political radar though. At the start of the year, the Obama administration published Ensuring Long-Term US Leadership in Semiconductors by the President's Council of Advisors on Science and Technology Working Group on Semiconductors. In the semiconductor world, this group tends to just be called PCAST. The report covers a lot of ground but concludes that China is seeking to reshape the global semiconductor industry in a manner that threatens US leadership in that sector. Semiconductors are clearly important to US national security and the report recommended: US policy to counter Chinese actions Improve the business environment for US semiconductor companies “Catalyze transformative semiconductor innovation over the next decade" It is a surprisingly unpolitical document, despite the above three points. The main conclusion is that politics can't do anything much: Our core finding is this: the United States will only succeed in mitigating the dangers posed by Chinese industrial policy if it innovates faster. Policy can, in principle, slow the diffusion of technology, but it cannot stop the spread. And, as U.S. innovators face technological headwinds, other countries’ quest to catch up will only become easier. The only way to retain leadership is to outpace the competition. As I said yesterday, China's biggest import is semiconductors. Over the last few years they have been investing (I will say "they" to mean the Chinese government, some of the regional governments, and some state-owned-enterprises) a lot into building up a strategically important domestic semiconductor industry, not just manufacture but design and, more vaguely, equipment and materials. One aspect of having a lot of money is the potential for M&A, to buy expertise. Not being a Washington insider, you have probably never heard of siffiyus, which is how you pronounce CFIUS, the Committee on Foreign Investment in the United States. Historically, it has reviewed mergers that have the potential to impact national security, but that seems to be being interpreted fairly broadly and, as came out in the China panel: Today we heard about CFIUS blocking most if not all China acquisitions. Having given you all that background, let's move on to SEMICON West's press conference where Jamie Girard, SEMI's senior director of public policy, talked about all of this. SEMI uses the catchy term The 4 Ts to frame the discussion, the 4 Ts being: Trade (self-evident) Tax (meaning how corporations are taxed where the US is an outlier) Talent (meaning immigration and education) Technology funding (meaning public funding by the federal government for R&D, basic research, etc) So here is some of what is going on in Washington in the semiconductor world that Jamie told us about. There is a lot here you are simply not going to read from the New York Times Semiconductor Correspondent, not least because no such person exists. Trade Commerce Secretary Ross is solely focused on US trade deficit reduction and the Department of Commerce is currently concluding a 90-day review of all trade deficits by nation and sector. Secretary Ross has stated that "China's plans threaten US semiconductor dominance" and he sees CFIUS (see above) as a trade tool. When so much semiconductor manufacturing and design is done in Taiwan and Korea, I'm not sure "dominance" is quite the word, especially in a quarter where Samsung is expected to surpass Intel to be the #1 semiconductor company. Taxes Jamie said that there is a once-in-a-generation opportunity to modernize and reform the US tax system. You probably have heard some of what makes the US unique in the world, the most important feature not being the highest corporation tax in the world (well, actually Chad and UAE are higher) but the fact that is is levied on all income worldwide not just income earned in the US. This is why some companies like Apple have the GDP of a small country stashed offshore. SEMI is pushing to: Lower the rate Move to a territorial system Keep innovation incentives The original timeline for this was "the summer" but that has passed and September is the target for the House. It will require strong White House involvement. Jame said that conventional wisdom is that you can't do a reform in an election year but conventional wisdom has never been so unconventional. Technology The White House Budget contained big cuts for R&D but these have largely been ignored in the House. One new initiative is the Defense Advanced Research Projects Agency (DARPA) "Electronics Resurgence" program. This is $75M in new funding for semiconductor research as part of the President’s Budget, specifically focused on "post Moore's Law", meaning beyond 3nm or so where we have a sort of roadmap, looking 10-15 years out. This came out of the PCAST semiconductor working group recommendations to develop "leapfrog technologies" (see above). It operates inside DARPA and is being run as a traditional DARPA program. Given the cost of semiconductor R&D, this has to be a drop in the ocean. A new process costs literally billions to get to volume production, as you can see from the R&D numbers from the few semiconductor companies who can keep up at the leading edge. Talent Most of this area politically is focused on the H1-B visa system and its dysfunctionality. You may know that there is an H1-B lottery each April, with the actual visas being granted to the winners six months later. In practice, what has happened, is that the lottery closes after a couple of days since it is full. So the only people who can really make use of it are third-party outsourcers such as Indian subcontractor companies, who can apply for hundreds of visas, without worrying too much which ones win and which ones lose, and can wait six months to send the winners to the US. The scheme no longer works like it did when I came to the US in the 1980s where the company applied for a visa for me, and it was granted six weeks later. Oh, and if you are married, you need two slots in the lottery even though your spouse won't be able to work. Anyway, there was a new immigration executive order on April 19 that: New Rules and Executive Order to “Hire American” as H1-B Lottery opened on April 3 The executive order is aimed at restricting third-party outsourcers DHS has to do a full review of the system (long overdue, IMHO) Set the limit at 200,000 applicants for the 65,000 visas available for this year, which took four days to fill up Perhaps more significantly, there is a bill known officially as Immigration Innovation Act and unofficially as I-squared. It is being introduced by Senator Orrin Hatch. An updated draft bill is being circulated to secure co-sponsors. It will: Raise the H1-B cap from 65,000 to 115,000 20,000 set aside for Masters degrees and above Maintain the green card cap at 120,000 but eliminate the inclusion of dependents as part of this cap, effectively doubling the level Eliminates per-country caps Authorizes work by dependents Establishes a prevailing wage rate (which I thought was always part of it, but apparently there are so many loopholes it is ineffective) SEMI's Focus Some big-picture things are holding up progress with these issues, the budget in the House and healthcare in the Senate. Not much can get done until these are through the sausage machine. The FY18 appropriations process is way behind schedule, the debt ceiling will be hit near the end of FY17 (September 30), and there is not a lot of time (three weeks before the August recess and six weeks more before FY17 ends). For now, SEMI's focus will be just two of the Ts: trade and talent.![]()
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