Rapid geopolitical, economic, social and environmental disruptions have highlighted the increased global reliance on semiconductors and microchips. This trend is set to continue as the world accelerates its electrification and digitisation transition.
Semiconductors, also known as microchips, are one of the most important technologies on the planet, underpinning all leading-edge industries and capabilities. From smartphones, electric vehicles, advanced medical equipment and supercomputers, to defence applications, they are ubiquitous.
The average modern vehicle now has between 1,500 and 3,000 microchips, controlling everything from monitoring engine function to lane and driver fatigue. Semiconductors support our terrestrial lives, as well as marine, submarine, and aerial applications. Since the first Apollo mission, they have been fundamental to powering our explorations further into the galaxy.
Semiconductors are set to become a US$1 trillion a year sector by the end of the decade, increasing reliance on the few nations which produce them.
Countries like Australia, which do not have onshore silicon chip development or manufacturing capability, are at a significant economic and political disadvantage, particularly given the backdrop of increased technological nationalism, prospective global insecurity and instability, and a heavily entwined international economy. From both policy and capability development standpoints, Australia is under-investing.
Beyond the obvious economic and business opportunities, semiconductors are important to Australia’s future national security and sovereignty.
In a 2022 report, the Australian Strategic Policy Institute said: “Having unfettered access to microchips is a matter of economic and national security, and, more generally, of Australia’s day-to-day wellbeing as a nation. In an increasingly digitised world, policymakers must treat semiconductors as a vital public good, almost on par with other necessities such as food and water supplies and reliable electricity…”
Advanced silicon microchip fabrication facilities (fabs) perform the most complex and precise manufacturing processes ever employed in human history. These involve specialised manufacturing steps including deposition, photolithography, photoresist coating to etching, metrology and ion implantation, many of which are performed under vacuum in cleanrooms with tightly controlled air quality and temperature, supported by advanced robotics.
These enormous, advanced facilities take years to build and can cost hundreds of billions of dollars. For this reason, semiconductors are expensive to manufacture, and China spends as much importing chips today as it does on importing oil and is vulnerable to even tiny interruptions to global availability.
This is a vulnerability shared by other non-semiconductor manufacturing nations.
Leading semiconductor jurisdictions Taiwan, South Korea, and Japan, are reaping the substantial rewards of many decades of focused government policy and investment, attracting the world’s leading chip companies such as Apple, Google, Amazon, and Intel.
In turn, these leading chip companies have co-invested in the development of Southeast Asia’s massive semiconductor industry.
Taiwan’s TSMC has unparalleled capabilities, producing 90 per cent of the world’s advanced silicon semiconductor chips. The strategic importance and interdependence of Taiwan and TSMC are well understood by both the US and China.
According to the Congressional Research Service (CRS), the United States’ share of global semiconductor fabrication capacity fell from just over 40 per cent in 1990 to less than 12 per cent in 2020.
Given the high costs and complexity of chip manufacturing, many US semiconductor firms transitioned to a fabless model, outsourcing manufacturing to Southeast Asia while maintaining high-value design elements for advanced chips.
With the changing geopolitical environment, the US, Europe, and others are taking aggressive policy action and investing heavily to re-shore capability and invest in next-generation applications with the establishment of the US$280 billion US CHIPS and Science Act, and the US$43 billion EU CHIPS Acts.
It is sometimes thought that Australia doesn’t have a semiconductor industry, due to our lack of a vertically integrated silicon fab. However, it is home to a highly innovative nascent semiconductor and quantum industry pioneering next-generation technologies in a diverse range of applications across the sector’s supply chain.
These include fabless IP developers of next-generation memory and AI chips, quantum computing and sensing pioneers, semiconductor capital equipment innovators designing next-generation hardware for global semiconductor fabs, and vertically integrated manufacturers supplying radiofrequency and wireless communications and compound semiconductor photonics.
The domestic industry spans disruptive startups to well-established global suppliers. Each of these has the potential to revolutionise the global semiconductor and quantum industries, delivering significant economic growth engines and helping secure the nation’s advanced manufacturing future.
Today’s semiconductor technology can be divided into two distinct branches. The first is the silicon-based traditional semiconductor, which currently accounts for over 80 per cent of the market.
Silicon became the material of choice for the transistor and metal-oxide-semiconductor field-effect transistor (MOSFET) due to its highly advantageous electrical properties and scalability.
Despite silicon’s enormous and established market size, for Australia to invest in building onshore silicon manufacturing capability at this late stage would be akin to investing in Kodak at the launch of the first iPhone.
To have a real seat at the global semiconductor table, Australia needs to focus its investment on valuable new and emerging technologies and leverage existing strengths where we already have advanced capabilities, or where no clear leader has emerged.
While silicon-based semiconductors will continue to dominate the data processing and conventional computing applications into the foreseeable future, increased computing power and data storage requirements, combined with silicon technology reaching the theoretical limits of transistor performance and production efficiencies, are driving innovation in next-generation materials and technologies.
Compound semiconductors are emerging as the solution of choice, offering faster switching speed, optimised electrical resistance, lower costs, and greater supply chain stability.
Compound semiconductors are highly complex inorganic materials that combine two or more elements to make novel molecular compounds. They are manufactured using highly precise atomic deposition to create the crystalline thin-films.
These materials have significant advantages over their predecessors. The are smaller, cheaper to manufacture, and more energy efficient than silicon, and provide greater power, speed, and light.
Compound semiconductors, such as Gallium Nitride, Silicon Carbide, Indium Phosphide, and Gallium Arsenide, are enabling a growing number of highly strategic next-generation technologies from power electronics, energy storage, advanced manufacturing and are gathering pace to disrupt the broader semiconductor ecosystem.
Gallium Nitride (GaN) semiconductors are considered the most important semiconductor material since the discovery of the silicon chip. They are the leading candidate for taking electronic performance to the next level, conducting electrons one thousand times more efficiently than silicon.
Its benefits for next-generation applications where robustness and SWAP (size, weight, and power) are key considerations are unrivalled.
GaN semiconductors are increasingly underpinning global megatrends, including electrification and digitisation, AI, quantum photonics, industry 4.0, defence, aviation, space, and healthcare.
Compound semiconductors provide a highly strategic opportunity for Australia for several reasons.
Australia already has clear competitive advantages in compound semiconductors with innovative GaN manufacturers Silanna Group, BluGlass Limited, and its foundry service subsidiary EpiBlu.
These businesses have invested heavily over the past decade in developing novel technologies and capabilities, dedicating more than one billion dollars in the development of their manufacturing supply chain and unique product suites.
Australia is also home to highly regarded compound semiconductor researchers at Macquarie University and the Australian National University (ANU).
Investment and development in GaN and SiC capability could lay the foundation for the country to become a leader in burgeoning markets at a time when the supply chain remains underdeveloped globally.
There are limited front-end GaN fabs in the world today, such as IQE, Epistar, and EpiBlu. It is even more limited in the back-end fabrication supply chain, currently constraining innovation and forcing companies like BluGlass to build or acquire back-end fabrication facilities offshore.
Compound semiconductor fabs represent cost-effective use of funds with a state-of-the-art GaN or SiC fab costing about $50 million to $100 million, several orders of magnitude cheaper than its silicon counterparts.
The supply chain for compound semiconductors is also significantly less complex than silicon technology with a handful of manufacturing processes rather than the 100 or so required in the silicon supply chain.
This has a flow-on effect for talent, requiring expertise for specialist processes. These skills are incredibly difficult to find, and expensive, even in key silicon manufacturing jurisdictions.
Compound semiconductors leverage existing onshore capabilities and skills. As just one example, over the past decade, BluGlass and EpiBlu have supported innovative startups develop novel technology and solutions for multiple applications, several of which have gone on to be acquired by large, global conglomerates.
While many of these developers have been international companies, there is no reason why these could not be innovative startups or spin-offs from Australia’s vibrant university, photonics and quantum communities.
The impact of which would be exponentially greater with the establishment of domestic downstream fabrication capabilities, enabling these home-grown innovations to start, scale, and commercialise onshore.
Lastly, and most importantly, compound semiconductors are essential for the development or enablement of critical technologies, from quantum and AI to advanced manufacturing and autonomous systems.
To maximise these existing advantages, strengthened government policy and greater access to scale-up capital is needed.
In the USA and Europe, the CHIPS Acts have been instrumental in funding development of next-generation semiconductor technologies and capabilities, and reshoring leading talent. Australia must look to adopt similar policy structures if we are to capitalise on our quantum, photonics and compound semiconductor strengths.
Policy and investment in Australia have been hampered by a lack of understanding of the importance of semiconductors, and the timeframes associated with bringing new semiconductor technologies to market.
While semiconductors are a significant market globally, it is not a sector that is well understood in Australia, representing just 0.03 per cent of companies on the ASX, compared to 15 per cent on the NASDAQ.
Often these deep tech pioneers are sent offshore to access sufficient scale-up capital, along with their leadership, innovation talent, and future economic returns.
While Australia’s early-stage and venture capital investment grew at the second fastest rate globally over 2013-2021, bringing it on par with industry leading nations such as the US per capita, access to sufficient growth funding falls off dramatically at the scale-up stage.
Without action, the Tech Council of Australia forecasts the nation will face a $53 billion scale-up funding gap by 2030.
The establishment of the National Reconstruction Fund Corporation (NRFC) and the Advanced Strategic Capabilities Accelerator, and state-owned VCs such as Breakthrough Victoria, are fantastic developments.
However, to be fully effective, they need to attract sufficient co-investment, including unlocking additional investment from Australia’s highly influential pension funds and attracting specialised foreign investment if we are to commercialise our technology innovations at the same rate as the US.
While Australia’s R&D rebates have been successful in supporting early-stage businesses, additional policy mechanisms are needed to bridge the significant funding gap between R&D and commercialisation.
To provide onshore deep-tech companies with certainty of ongoing funding and government support, and attract international players to the country, increasing investor education about the sector and addressing this funding gap is key to improving onshore access to private equity and institutional funds, co-investing in Australia’s critical priority areas, building exponential impact for the whole sector.
At this critical juncture in technological innovation, we have a once-in-a-generation opportunity to future-proof Australia’s supply chain and workforce, significantly improving the diversification and sophistication of our economic activity.
If Australia invests strategically in its innovative semiconductor, photonics, and quantum industries, it could carve out a strategic niche that leverages existing investment, talent, and innovation, and emerge as a technology powerhouse with a first mover advantage.
Dr Ian Mann, chief technology and operations officer, BluGlass Limited. Ian is the COO and CTO at BluGlass, an ASX-listed Australian semiconductor manufacturer delivering laser technology to the quantum, defence, industrial, biotech, and scientific markets. Dr Mann has worked in a number of technology companies in the US and Australia. Ian was previously the CEO of Bandwidth Foundry International. He holds a PhD in Polymer Science from Akron University in the US and an MBA from the Australian Graduate School of Management.
Stef Winwood, head of corporate, BluGlass Limited. Stef is a founding team member at BluGlass. She is a capital markets and corporate strategy executive with over 18 years’ experience in the semiconductor, photonics, and deep-tech sectors. With previous roles in Fortune 500 companies and technology startups, Stef has helped build and scale technology brands and businesses from ideation through to IPO and scale-up.
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