Water shortage and talent hole hinder Gulf chips ambition

Alamy/Aleksei Gorodenkov

• Demand growing enormously
• Fear of chip shortages
• But lack of engineering talent

Plans by the UAE and Saudi Arabia to become centres of computer chip manufacturing are threatened by everything from shortages of engineering talent to a lack of water, experts have warned.

The ambitions of the two countries will fail unless they invest in training and form partnerships, they say.

The demand for high-end semiconductors, otherwise known as microchips, has grown enormously with the expansion of artificial intelligence and machine learning.

---

---

The UAE and Saudi Arabia are driven by a perception that access to chips will be an important provider of global power and influence in the future, and also by fears of chip shortages.

The Middle East semiconductor market is projected by IMARC Group, an Indian market research firm, to grow by 9 percent a year through to 2032.

“Global demand and fierce competition for semiconductors will make a reliable source of supply at scale impossible without local manufacturing,” says George Chanos, an author on technology and a former attorney general for the US state of Nevada.  

Worldwide supply is dependent on a handful of companies such as Nvidia of the US, Samsung of South Korea and the Taiwan Semiconductor Manufacturing Company. 

Taiwan leads the pack with nearly half of the world’s foundry capacity, followed by South Korea, Japan, the US and China. The factories in which semiconductors are made are known as fabs or foundries.

• Saudi Arabia campaign aims to attract chipmakers

• Race is on for AI chips as nations seek tech supremacy
• Mubadala trims stake in US chipmaker GlobalFoundries

This heavy reliance on a limited number of suppliers creates vulnerabilities in the global supply chain, as seen in recent chip shortages.

Saudi Arabia launched its National Semiconductor Hub last month “to promote the kingdom as an attractive relocation country for international semiconductor design companies,” according Dr Mohammed Alotaibi, acting head of the Research Development and Innovation Authority.

In 2021 the UAE launched Operation 300 billion, which aims to increase the industrial sector’s contribution to the country’s GDP from $133 billion, with a specific focus on chip development. 

However, it has struggled in its attempts to get into the chip industry. Mubadala Investment Company, an Abu Dhabi sovereign wealth fund, acquired a controlling stake in GlobalFoundries, the US chip maker, in 2008.

Mubadala has invested heavily in GlobalFoundries. But despite acquisitions, including IBM’s loss-making chip division and an IPO, the company has struggled financially. 

The UAE and Saudi Arabia could start with less ambitious projects, like assembly and test facilities

Michael Bruck, semiconductor design expert

Analysts say that developing semiconductor manufacturing facilities in the UAE and Saudi Arabia would generate employment opportunities, as well as reduce reliance on China, but will require more than just money.

“The UAE and Saudi Arabia could start with less ambitious projects, like assembly and test facilities,” Michael Bruck, a semiconductor design expert in Dubai, told AGBI.

Building fabrication plants is just one hurdle, according to Mohammed Soliman, a strategy advisor at McLarty Associates, an advisory firm.

“The semiconductor industry’s future [here] looks promising but will depend on sustained investment in infrastructure, education and research,” Soliman says.

Lack of talent

Bruck says the UAE and Saudi Arabia would have to address a lack of manufacturing engineering talent.

Universities would need to offer advanced degrees in relevant fields such as electronic engineering, computer engineering, materials science, solid state physics and chemistry, “as those are some of the key skills required in the design and manufacturing of semiconductors,” he says.

Technology is another obstacle. Achieving parity with established players in Taiwan and South Korea necessitates significant investment in research and development, according to Soliman.

Finally, there is the environmental cost. Chip fabs are water-intensive, a concern in the water-scarce GCC region. An average chip plant consumes millions of gallons of water a day, and one computer chip can require eight to 10 gallons of water.

Sustainable practices must be factored in, the experts warned, and suggested collaboration would be necessary. 

Partnerships with established players can facilitate technology transfer, “helping local industries to upgrade their capabilities,” Soliman says. 

According to Bruck the only country in the Middle East that has a world class semiconductor ecosystem is Israel, with design engineering centres from Intel, Nvidia (Mellanox), AWS and Google. 

“The Abraham Accords and any potential future normalisation of relationship with Saudi Arabia will be very important for this to have a better chance of success, both on the fabless chip design firms and manufacturing,” Bruck says.

The UAE and Saudi Arabia should start their computer chip efforts gradually, with projects such as packaging processes or talent development, industry experts suggest.

All the same, Chanos says: “If UAE and Saudi Arabia can establish themselves as key players in this game, it could be a model for the world.”