From little (but valuable) things, big things grow

Is there a possibility to develop sovereign design, fabrication and packaging capability for semiconductors through defence projects? Glenn Downey looks at the question, and the implications beyond the defence industry.

There is some impetus for Australia to increase its ‘sovereign capability’ and ‘supply-chain resilience’ in general, but particularly in defence and in semiconductors, yet the intersection between the two seems underexplored. The budgets for Australian defence, and our home-spun space efforts, are sizeable and typically their needs are specialised (often associated with ‘high value’) and the volumes relatively small. These are not commodity markets. Frequently the discriminating acquisition factors are based on providing a competitive/comparative advantage in capability (which comes down to performance, traceable back to the relatively unique properties of materials and the processes (fabrication and design) used), and provenance and supply-surety. 

All of these factors suggest that Australian based design, fabrication and packaging and assembly of ‘unique’ semiconductors should be valued. As ever, the ‘economics’ are challenging at these small volumes, as is acquiring and retaining the skill-sets for each of the design, fabrication and packaging steps. The ‘economics’ could be addressed a number of possible ways:

(i) the aggregation of semiconductor Bill of Materials across numerous defence procurement programs may reveal some commonalities not yet surfaced;

(ii) given a unique performance capability in our home-spun semiconductors for Australian defence purposes there may very likely be demand from ‘like-minded countries’ for their defence purposes; and/or

(iii) the developed capability also lends itself to commercial opportunities in the near- to medium- terms.

In all three cases individually, as well as progressively and collectively, the business case for the capital-intensive steps of fabrication and packaging takes on a very different, and much more ‘appealing’, complexion. But, who is doing this ‘math’?

This analysis requires a perspective beyond what defence would normally find necessary to take itself, is beyond what a single start-up could possibly scope, and internationally owned and controlled ‘Primes’ would find is (at least at the beginning) at odds with their jealously controlled existing global value-chains and business model approaches. Leading semiconductor OEMs – such as Intel and Samsung — and the leaders in their respective value-chain roles – for example, TSMC for foundry, and ASE for packaging – or leaders in their end-market focus – for example, Infineon in automotive semiconductors – look at the piss-ant Australian domestic market size and can’t see any good reason (all other things being equal) to locate capital and skill intensive investments here.  

But, if we *had* a proven end-to-end local capability, albeit niche but high value with a proprietary technology element, that *is* something to build on. It may even be the nucleus that attracts such global industry behemoths in time to Australia. Let’s look at initiating this sequence. Let’s take a broader look at where the opportunities are, from a national industry perspective rather than a narrow single interest perspective (defence or academic or research), and then provide the detailed business case to excite broader national interest and support.

Please reach out to me if you have any thoughts or sources of information to progress this small, yet valuable, initiative. You never know what it may grow into.

Picture: Adobe Stock

Glenn Downey is Executive Director of The Maltby Group. You can connect with him here.

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