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News

Semiconductor sector debates Canada’s best bet to cash in on reshoring of chips

OTTAWA — As the U.S. and other countries dish out billions of dollars in incentives for semiconductor manufacturing and innovation, the Canadian chip sector is pushing the federal government to support a blossoming domestic ecosystem. While many executives hope to see funding allocated in this week’s budget, they don’t all agree on how Ottawa should spend its money. 

News

Semiconductor sector debates Canada’s best bet to cash in on reshoring of chips

‘These technologies drive other big industries’

By Murad Hemmadi
From left: Ranvous CEO Hamid Arabzadeh, Treasury Board President Mona Fortier, National Research Council president Iain Stewart and Innovation Minister François-Philippe Champagne look at a new AI chip at the Canadian Photonics Fabrication Centre in Ottawa in February 2022. Photo: The Canadian Press/Justin Tang
Mar 27, 2023
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OTTAWA — As the U.S. and other countries dish out billions of dollars in incentives for semiconductor manufacturing and innovation, the Canadian chip sector is pushing the federal government to support a blossoming domestic ecosystem. While many executives hope to see funding allocated in this week’s budget, they don’t all agree on how Ottawa should spend its money. 

Over the last three years, as a pandemic chip crunch idled auto plants, proliferating AI applications have increased demand for processing power while U.S.-China technology tensions continue to ratchet up. So several governments have moved to reshore semiconductor supply chains to ensure access to components now integral to almost every sector of their economies. 

Talking Points

  • Canada’s semiconductor sector says the federal government should provide it with funding and policy support, as other countries dole out billions in incentives to reshore production and boost innovation in the field
  • Industry executives see opportunities to hook into newly-reorganized supply chains, but don’t all agree on whether Ottawa should pursue the “fabs” that churn out chips

Last month, the Biden administration began accepting applications for US$38.2 billion in manufacturing subsidies under the U.S. CHIPS and Science Act, with up to US$3-billion in financing available per project. Semiconductor giants have already announced expansion plans in anticipation. TSMC has committed US$40 billion for two new chip factories, or “fabs,” in Phoenix. Intel is building two of its own in nearby Chandler, Ariz. at a cost of up to US$30-billion, part-financed by Toronto-headquartered Brookfield Infrastructure. The European Union’s competing chips initiative pledges €11 billion in public funding, while Japan and South Korea are also upping subsidies.

Canada has offered smaller sums to date. In February 2022, the Liberal government allocated $150-million from its flagship Strategic Innovation Fund for semiconductor manufacturing projects. On Friday, it added $100 million more. “Let’s call that a downpayment for now,” Innovation Minister François-Phillipe Champagne told reporters, in response to questions from The Logic. In an address to the Canadian Parliament shortly before, U.S. President Joe Biden had cited bilateral plans for a cross-border semiconductor packaging corridor. “As we increase resilience we’ll have to do more together,” Champagne noted, adding: “I expect my phone to ring quite a bit these days now that people will have heard the president.”

The federal government should try to attract one, some semiconductor executives say. “These technologies drive other big industries that we have” like auto, medtech and mining, said Niraj Mathur, co-founder and CEO of Blumind. The Ottawa-based startup is designing chips it says will reduce the power needs of AI processing for smart devices, industrial sensors, autonomous vehicles and robotics. It plans to have a commercial product in market by next year.

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Like many Canadian semiconductor firms, Blumind is “fabless,” meaning it outsources production to factories around the world; its technology is flexible enough to be manufactured at a range of different facilities, Mathur said. But “if the global supply chain suffers, then startups like us would struggle to get bandwidth in these fabs.”

To attract manufacturing, the country needs a strong semiconductor sector of its own, said Melissa Chee, CEO of Markham, Ont.-based VentureLab, which runs a hardware incubator.  After a period in the 2000s when many domestic chip companies were snapped up by bigger U.S. players, Canada once again has a bagful of homegrown firms. “We need the fabs,” Chee said. She noted that manufacturing is “very sticky,” and attracts facilities for other supply-chain steps like packaging, assembly and testing.

Both Mathur and Chee say Canada shouldn’t chase any and every fab. “The CPU in my iPhone is very different from the chip in your car that [moves] the seats front and back,” Mathur said, so it’s “unrealistic” for the country to try to build them all. 

Chee suggests Canada focus on chips used in the auto, defence and space sectors, which have similar manufacturing processes and go through fewer design changes than consumer electronics. “If you have longer life-cycles and more steady supply and demand, then you recoup the cost of the fab.” The facilities also use older technology, so they’re cheaper, she said. And AI chips—on which a number of domestic startups are working—need not be made on the very newest equipment.

But other executives in the sector aren’t sold on Canada subsidizing a new fab build as a response to the U.S. CHIPS Act. It would be “pouring money down a black hole,” said Hamid Arabzadeh, CEO of Ottawa-based Ranovus. The firm’s chips combine compound semiconductors, fibre optic cables and lasers. They go into data-centre servers, particularly ones used for AI applications. 

Ranovus was ahead of the reshoring movement, bringing back production from Asia three years ago. It now gets the base wafers for its chips from Malta, N.Y.-based Global Foundries, and makes its lasers at the National Research Council of Canada’s (NRC) photonics fabrication centre. It does the rest of its manufacturing and packaging at its own facility. The federal government has allocated $90 million to the NRC to upgrade its photonics centre, but Arabzadeh said it should spend more to expand the facility’s capabilities to processing wafers and other services.

Meanwhile, Ottawa should look for opportunities to collaborate with Washington as it rolls out the CHIPS Act, focusing on firms and fields with existing cross-border partnerships, according to Arabzadeh. He cited compound semiconductors and advanced packaging as areas with “good potential,” where Canadian companies can “inject ourselves inside that supply chain.” 

Last week in Ottawa, Biden and Prime Minister Justin Trudeau both talked up the prospect of cross-border chip integration. “We’re going to probably be investing billions of dollars in [Canada’s] ability to package what is coming out of the semiconductor area,” Biden said. In addition to the increased funding, Champagne signed an agreement with IBM during the presidential visit to expand the company’s facility in Bromont, Que. “There is more to come,” he said.

The CHIPS Act also includes US$13.2 billion for R&D and workforce development. Canada’s semiconductor sector wants Ottawa to take similar steps. Startups in the space require “a lot of capital,” said Mathur, noting that the domestic VC ecosystem tends to shy away from deep-tech; government programs to incentivize investment would help. He and Arabzadeh also said Ottawa needs to help keep semiconductor IP generated in Canada here. Chee called for a dedicated semiconductor fund to provide both early- and growth-stage financing.

The semiconductor sector employs about 20,000 workers in Canada, according to an estimate by Innovation, Science & Economic Development Canada contained in a February 2021 memo The Logic obtained via access-to-information request. Intel, AMD, IBM and other foreign firms have significant operations here. Multinationals and domestic startups alike back post-secondary programs to train new workers and fast-track immigration pathways to bring skilled ones from elsewhere, Chee said.

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Ottawa has been active on the semiconductor file in the lead-up to the budget. Last month, Champagne and International Trade Minister Mary Ng attended a roundtable at VentureLab in Markham to hear from startup founders as well as the local executives from multinational firms active in the region. 

Chee said the sector—and international allies already rolling out their own reshoring plans—will be looking for a “signal” in this week’s budget of Ottawa’s semiconductor intentions. While she won’t quote a specific dollar figure, Chee said “it’s got to be significant.”

#Blumind #Federal Budget 2023 #federal government #Ranovus #semiconductors #VentureLab

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