A semiconductor factory may — or may not — massively expand its operations in San Antonio. It depends on Washington.

The maybe-project from Tower Semiconductor on the West Side to create a new plant for 8-inch chips would be welcomed by many: semiconductor-starved manufacturers; the Defense Department and its contractors who rely on foreign-made chips; and anyone who wants to see more high-paying, high-tech manufacturing jobs in San Antonio.

But there’s a problem. Building or expanding a semiconductor plant in the United States is much more expensive than it is abroad.

What could tip the scales toward building the plant is a new federal initiative to bring semiconductor manufacturing back to the United States, says the company’s chief executive.

CEO Russell Ellwanger floated the prospect to reporters at a roundtable held at his company’s San Antonio campus Tuesday morning, where Texas legislators and local manufacturers met to voice support for the CHIPS Act.

The CHIPS Act — short for Creating Helpful Incentives to Produce Semiconductors — was spearheaded by U.S. Sen. John Cornyn (R-Texas) in the Senate and Rep. Michael McCaul (R-Austin) in the House, who both spoke at the roundtable meeting. The law creates grant programs, incentives, research centers, and more initiatives aimed at supercharging semiconductor manufacturing in the United States. The act was signed into law last year but still lacks critical funding.

The House has so far failed to act on a bill passed by the Senate in early June that would provide $52 billion in funding for the programs.

Russell Ellwanger, CEO of Tower Semiconductor, explains the components of a semiconductor chip on Tuesday.
Russell Ellwanger, CEO of Tower Semiconductor, explains the components of a semiconductor chip on Tuesday. Credit: Nick Wagner / San Antonio Report

Manufacturing executives present at the roundtable and speaking in support of the legislation included Toyota Manufacturing Texas president Kevin Voelkel, Boeing’s Vice President of Supply Chain William Ampofo, and Broadcom Director of Government Relations Robert Hoffman.

The semiconductor shortage, which ramped up near the beginning of the year, has been among the most widespread and long-lasting supply-chain disruptions in recent memory. Among the more high-profile casualties is the automotive industry, which in recent years has become highly dependent on small electronic components.

Toyota Texas’s Voelkel said something as simple as a taillight  — which used to be a mere 12-volt bulb — is now an LED assembly requiring microprocessors to function. The Tundra, built in San Antonio’s Toyota plant, uses “almost 80% more electronic components than previous generations,” he said.

“As vehicles become more connected, autonomous, shared, and electrified, this problem is only going to intensify for all automakers,” he said, predicting that the shortage would continue into next year.

Boeing, which has major operations in San Antonio and is a major contractor for the Department of Defense, also wants to see the funding for the CHIPS act approved. Ampofo said the pandemic caused shockwaves that forced a reexamination of its supply chain. “We’re pretty beholden to some of these international sources,” he said.

Disruptions to global supply lines have extended delivery times for some crucial parts from four months to as long as a year. But while the company wants to build out its domestic capabilities, doing so requires a “fairly significant” investment, he said. “There’s assistance that’s going to be required,” he said.

Building or expanding a semiconductor plant in the United States is 30% more expensive than doing so in some other countries, said Jerry Strickland, executive director of the FABSS Texas Coalition, a group of semiconductor manufacturing companies.

Beyond the business case for domestic semiconductor productions, legislators also stressed the national security case. The CHIPS Act passed last summer as part of the national defense budget.

Taiwan produces the overwhelming majority of the world’s semiconductors, which form the building blocks of everything from iPhones to F-35s. But the island nation is eyed hungrily by a resurgent China.

“We have to find a way to decouple these supply chains,” McCaul said, describing how he has stressed to White House officials the need to create chips in regions “not threatened by the Chinese Communist Party.”

Cornyn and McCaul said they were confident that the funding bill, called the U.S. Innovation and Competition Act of 2021, would pass the House due to its bipartisan support.

“But every day it’s not done makes me a little more anxious,” Cornyn said.

Waylon Cunningham

Waylon Cunningham writes about business and technology. Contact him at waylon@sareport.org.