Canada’s place in the semiconductor industry

Semiconductors are part of electrical circuits used to control the flow of electric current. What began as a technology for United States military applications has undergone unprecedented development, becoming a necessity in the consumer market. They are vital components of modern technology, evident in their use across a wide range of products, including computers, smartphones, cars, household appliances, gaming systems, and medical equipment.

The semiconductor industry has become a global focal point in recent years. The semiconductor shortage during the COVID-19 pandemic and the geopolitical competitions between countries have sparked heightened interest in the industry. The exponential increase in the utilization of advanced technologies and artificial intelligence (AI) has further called for an increase in the production of semiconductors.

Furthermore, semiconductors have become a major player in the global economy. Gartner forecasts that global semiconductor revenue is predicted to grow 16.8% in 2024 to total $624 billion. A McKinsey analysis suggests that the semiconductor industry’s aggregate annual growth could average from 6 to 8 percent a year up to 2030, with the industry potential to reach a trillion dollars by the end of the decade. The CNBC recently reported that the CEO of Open AI, Sam Altman, is seeking to raise as much as $7 trillion for AI-specific semiconductors.

With the supply chain disruptions and boom in the semiconductor industry, former Harrison Pensa articling student Temitope Adeyemi gave an overview of the Canadian semiconductor industry: the past, present, probable future, and legal issues to consider in Canada’s integration into the global semiconductor industry.

Past

The Canadian semiconductor industry has not been as significant as the world’s major producers with cutting-edge technologies. Taiwan, China, South Korea, the United States, and Japan are now the leading countries in the semiconductor industry, with key companies such as Intel and Samsung driving innovation and production in this sector. Canada, on the other hand, has a number of R&D facilities and assembly plants that have been our leverage in the industry.

Present

The semiconductor industry requires a joint effort between the government and private companies. Since 2021, the government of Canada has been investing fairly heavily in the Canadian semiconductor industry. In 2022, the government invested $240 million to strengthen the semiconductor ecosystem. However, the capital put into the Canadian semiconductor industry is marginal compared to other leading countries.

According to a McKinsey report, as of January 2023, the value of U.S.-based semiconductor projects that are now under way, announced, or under consideration is estimated to range from $223 billion to over $260 billion through 2030. The Europe Chips Act enacted on September 21, 2023, is expected to mobilize more than €43 billion of public and private investment.

Future

Given the substantial capital investment required for semiconductor production, some Canadian tech experts have proposed specific semiconductor production that demands reduced capital and is envisioned to be more efficient than traditional all-purpose semiconductors. Additionally, there are suggestions for Canada to focus on semiconductor compound manufacturing, aiming not to compete directly, but to align and establish relevance in specific and advanced aspects of the industry. According to a Bloomberg interview with the chairman of ventureLAB, certain technology companies are testing ways to be part of the supply chain by designing new silicon architecture and other semiconductor compounds.

While Canada may not break even with the leading countries in the semiconductor industry for some years, it is probably too early to predict the future of Canada’s place in the industry.

Legal consideration

As Canada seeks to advance in the global semiconductor industry, this brings to the forefront a myriad of issues, including legal matters that span an array of expertise. The legal issues encompass the need for thorough due diligence to ensure adherence to securities laws, intellectual property rights, ESG standards, and international trade regulations.

Additionally, the collaborative nature of the industry will always necessitate joint venture and strategic partnership among companies. This collaborative arrangement raises concerns about the impact of investment regulations on cross-border mergers and acquisitions aimed at safeguarding national security, protecting critical technologies, and ensuring that foreign investments do not pose a risk to the domestic semiconductor industry and related sectors.

For instance, the U.S. CHIPS Act which earmarks $52.7 billion for funding of its semiconductor research, development, manufacturing, and workforce development, restricts its incentive recipients from engaging in semiconductor activities with certain persons or countries of concern to the United States. Similarly, the EU Commission has recommended heightened regulatory scrutiny of advanced semiconductor technologies to safeguard economic security in the region. Additionally, other countries, including the United Kingdom and Germany have implemented regulations to enhance oversight of specific acquisitions, particularly those involving advanced technologies such as semiconductors.

Canadian companies and startups in the semiconductor industry must prioritize staying informed about both existing and emerging domestic and global regulations, particularly as they relate to advanced or sensitive technologies. This nuanced understanding is essential for effectively navigating the complexities within the semiconductor industry.

Temitope Adeyemi completed her articles at Harrison Pensa LLP.