Semiconductors are the single most important technology underpinning cutting-edge industries. They are essential for the proper functioning of everything from smartphones to nuclear submarines and from medical devices to wireless communications.
Australia’s notable lack of participation in the global semiconductor ecosystem has placed it at a geopolitical disadvantage. As a nation, it is almost entirely dependent, with some niche exceptions, on foreign-controlled microchip technology, making it increasingly vulnerable to bottlenecks, standstills and disruptions in the global supply chain. Such occurrences have become all too common, either due to events such as the Covid-19 pandemic or attempts by other governments to arm supply chains for geopolitical reasons.
Unrestricted access to microchipping is a matter of economic and national security, and more generally the day-to-day wellbeing of Australia as a nation. In an increasingly digitized world, policymakers must treat semiconductors as a vital public good, almost on a par with basic necessities such as food, water and reliable electricity supplies.
According to some calculations, Taiwan produces 60% of the world’s semiconductors and 90% of the most advanced chips. That alone should keep us focused on how to secure our future supply of this critical resource.
The best solution for Australia is to build up its own semiconductor manufacturing capabilities in selected areas, aligned with its R&D strengths and key markets. Otherwise Australia will be at significant risk, our growth as a technological nation will be severely curtailed and we will be relegated to second tier status.
Admittedly, it would be an enormous undertaking – as many well-informed observers, including Chief Scientist Cathy Foley, have noted. In fact, we’re calling it a “moonshot” in a report we’re releasing today via ASPI.
However, there is a viable avenue that involves pursuing public-private partnerships from an existing R&D base, embedding Australian companies in friendly and reliable value chains, attracting talent and investment, and leveraging our relationships with strategically aligned and technologically advanced partners includes. Our report lays out the global context and key elements for a national semiconductor plan in which a $1.5 billion government investment could mobilize $5 billion in manufacturing activity through a combination of grants, subsidies and tax breaks.
Other like-minded nations have recognized the urgency and are acting quickly.
The United States and European Union both introduced “CHIPS” legislation this year, providing subsidies to semiconductor sectors and support for areas that depend on advanced chips, such as 5G wireless, artificial intelligence and quantum science. Japan, South Korea, India and China are stepping up their efforts. There is a race going on and Australia must make a decisive move.
The fact is that we are no longer in an era of economic liberalism and unrestricted free trade. Rather, nations have found it necessary to adopt the practice of “managed trade” with a pragmatic techno-nationalism. This has been driven by geopolitics, most obviously China’s mercantilist approach, but also by factors such as the Covid-19 pandemic and climate change encouraging shorter supply chains in efforts to decarbonize economies.
Australia has some key strengths: strong institutions, a network of universities and R&D bases, an entrepreneurial sector and good friendships with other leading technology nations with whom we share strategic interests, such as the US, UK, Japan and South Korea. We need to use skillful tech diplomacy and engage in global value chains made up of reliable, strategically aligned countries – so-called friend-shoring.
Australia already has an important R&D base on which to build its new capabilities, in the form of the Australian National Fabrication Facility (ANFF) network under the National Collaborative Research Infrastructure Scheme, which with a modest investment can gain commercial relevance and attract could anchor real commercial foundries.
The ANFF, with eight hubs across Australia, allows researchers to innovate and manufacture advanced products, including semiconductors, but not on a scale beyond research at this time. Doubling the cumulative investment in the ANFF with an additional $400 million in catalyst funding would allow select key nodes to escalate from one-off R&D to the development of pilot production lines targeted for volume and yield, bridging the gap to commercial chip manufacturing .
They could then build a pipeline of talent and enter into commercial partnerships. Companies that see this activity are more likely to invest in Australia because they can locate a foundry close to one of these key hubs rather than build from scratch. Several national and international examples are outlined in our ASPI report.
Significant subsidies and tax breaks would encourage semiconductor companies to invest here through public-private partnerships. The regulations set out in the US CHIPS and FABS Acts are good guides and could be scaled up to Australia’s comparable level of development. Such a commercial foundry partnership would represent an investment on the order of $2 billion at a bespoke entry point.
The ANFF network is already strong in the manufacture of research-scale compound semiconductors using two or more elements, which are important in areas such as 5G, photonics and electric vehicles, and we should reasonably start there.
We can then work towards building a commercial complementary metal-oxide-silicon foundry, initially at a mature process scale for which there are important markets, and in the long-term progress towards the development of leading-edge chips that require more investment.
We must ensure a local talent and innovation pipeline empowers commercial foundries based in Australia by partnering with Australian universities and government R&D agencies and offering semiconductor related degrees and technical qualifications from universities and polytechnics. We should work with other trusted nations to strengthen this talent pipeline through coordinated research and training at major research universities.
We believe that the plan we are proposing, detailed in the ASPI report, is an actionable blueprint for Australia and not just a fluffy idea. No one thinks it’s going to be easy, but the strategic imperative is clear.
There are skeptics who will argue that we are too small and that our near-lack of commercial chip manufacturing capability means we should instead focus on chip design and let others manufacture.
That might be fine in a perfect, rules-based world, but in the real world of supply chain uncertainty and darkening strategic horizons, we need to address this focus lest we be a small player forever, totally reliant on foreign chips is dependent.