‘Embarrassingly behind’: Is Canada doing enough on semiconductors?

Click to play video: 'North American semiconductor industry will prevent ‘over-reliance’ on Asia: Trudeau'
North American semiconductor industry will prevent ‘over-reliance’ on Asia: Trudeau
WATCH: North American semiconductor industry will prevent ‘over-reliance’ on Asia, Trudeau says – Jan 11, 2023

Canada has the “opportunity of a lifetime” to incorporate itself into the semiconductor supply chain, according to experts, as geopolitical tensions give the matter a sense of urgency.

Semiconductors are needed in almost all modern technology, from cellphones to electric cars to washing machines. Currently, about 90 per cent of leading-edge semiconductor chips are manufactured in Taiwan, according to Paul Slaby, managing director of Canada’s Semiconductor Council, a consortium of players within the industry. This creates a huge risk should China ever invade the island and block its export, he said.

Slaby told Global News that if the West was cut off from semiconductors produced in Taiwan in the next few years, we’d be “cooked.”

“It would be a disaster,” he said. “All of a sudden you would have no chips for your smartphones, so no more new smartphones.”

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The COVID-19 pandemic brought a small taste of what chip shortages can do when restrictions caused a limited supply of cars and six-month waiting lists. An invasion of Taiwan would be even worse, Slaby said.

The prospect of such a nightmare scenario has been motivating North America to build its own semiconductor supply chain. The U.S. has already announced US$52.7 billion in funding for the industry with its CHIP and Science Act. The money is meant to fund the expansion of semiconductor manufacturing in the country.

Canada has put up hundreds of millions of dollars in funding, including $36 million in March and $250 million in 2022. But calls continue to do even more.

“We are embarrassingly behind,” Slaby said. “When I go to international forums and talk about it, it is hard to be serious when talking $250 million.”

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Slaby believes that more funding will be allocated in the next federal budget, due in the spring of 2024, and is hoping for about 10 per cent of what the U.S. has put forward, or around $5 billion.

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Given the U.S. investments, how should Canada fit into the burgeoning industry?

Minister of Innovation, Science and Industry Francois-Philippe Champagne holds up an example of a Ranovus monolithically integrated chip as he speaks during an announcement at Ranovus, a Kanata, Ont.-based producer of semiconductors, in Ottawa, on Monday, March 27, 2023. THE CANADIAN PRESS/Justin Tang

A collaborative approach

At stake in the conversation around semiconductors is what leaders frequently call the “economy of the future.”

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Canada is pushing to carve out a role in that new economy with its large investments in the manufacturing of electric vehicle batteries, putting up around $13 billion in subsidies for a Volkswagen gigafactory in St. Thomas, Ont., and currently negotiating to boost subsidies for a Stellantis factory in Windsor, Ont.

Some say direct competition with the U.S., though, might not be practical.

Canada is putting up huge dollars to secure EV factories to compete with subsidies provided by the U.S. under the Inflation Reduction Act. However, competing with the U.S. on semiconductors does not seem realistic given its huge $52 billion in funding, according to Gordon Harling, president and CEO of semiconductor researcher CMC Microsystems.

Harling told Global News that Canada would be better suited to a collaborative role and to find a niche in the semiconductor supply chain — then dominate. Prime Minister Justin Trudeau has previously said that Canada’s role with semiconductors could mimic its contributions to the North American auto industry, as in building parts that are assembled elsewhere.

“Our focus is on making sure that Canada and Canadians are a part of the semiconductor ecosystem,” he said in January.

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Harling said a leading-edge fabrication facility typically costs around $20 to $40 billion, and so putting in only $5 billion would not be enough and it would have to focus on older technology.

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One niche he recommends Canada focus on is sensors, which are needed for products such as electric vehicles.

“I think Canada can do things in advanced technologies that are not necessarily competing with the U.S. but are complementary,” he said.

Harling noted that Canadian technologists are great designers, with expertise in packaging.

Slaby agrees that Canada should take a collaborative rather than competitive approach with the U.S. Another opportunity could be to focus on more specialized chips rather than advanced chips — the former of which cost between $500 million and $2 billion for facilities, rather than $20 billion. Slaby gave the example of photonic semiconductors, which transmit data at the speed of light and can be used for 5G telecommunications, as a lower-cost specialized chip compared with “advance logic chips” that go into microprocessors in computers.

Harling said Taiwan — currently an economic partner but vulnerable if China decides to invade — is about 10 years ahead on advanced chip technology, a sizable gap that can’t be surmounted easily.

“We need to proceed in a smart way,” Slaby said. “Why go into the battle that we’ll likely lose?”

Canada, though, needs to keep its eye on the ball in order to reap potentially huge rewards.

If played correctly, Slaby said the semiconductor industry could end up being more valuable than the auto sector for Canada.

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“It’s an opportunity of a lifetime.”

— with files from Global News’ Sean Boynton.

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