Australia’s semiconductor industry ambitions have received substantial attention following government investment and strategic policy emphasis on sovereign capability. The National Reconstruction Fund allocated significant funding toward advanced manufacturing, including semiconductors. AUKUS requirements emphasize secure supply chains for defense electronics. And global semiconductor supply chain disruptions highlighted vulnerabilities in relying entirely on imported chips.

Whether these factors translate into viable Australian semiconductor manufacturing capability requires examining what semiconductor manufacturing actually involves, where Australia might develop competitive positions, and what realistic objectives look like.

The Semiconductor Manufacturing Reality

Modern semiconductor manufacturing is among the most capital-intensive and technically complex industrial processes. Leading-edge fabrication facilities cost upwards of USD 20 billion to build. They require years to construct, extremely pure inputs, sophisticated equipment from a small number of specialized manufacturers, and highly specialized workforce. The global semiconductor industry is concentrated because these barriers to entry are so high.

Taiwan, South Korea, and increasingly China dominate leading-edge semiconductor manufacturing. The United States retains design leadership and some manufacturing capability. Europe maintains niche manufacturing and equipment production. This concentration reflects decades of accumulated investment, expertise, and supply chain integration.

Australia currently has minimal semiconductor manufacturing capability. The country has semiconductor design expertise, particularly in academic research and some specialized companies, but virtually no fabrication capacity. Building leading-edge fab capability comparable to TSMC or Samsung is not realistic for Australia. The capital requirement alone, tens of billions of dollars for competitive facilities, exceeds what Australian industry or government can reasonably commit.

What’s Actually Possible

Rather than attempting to replicate leading-edge semiconductor manufacturing, Australian semiconductor strategy focuses on specific niches where viable positions might be established. These include compound semiconductors, specialized defense applications, packaging and testing, and semiconductor design rather than manufacturing.

Compound semiconductors, using materials like gallium nitride or silicon carbide rather than pure silicon, serve specialized applications including power electronics, RF communications, and some defense systems. Compound semiconductor manufacturing is less capital-intensive than leading-edge silicon fab, and specialized applications create niches where scale disadvantages matter less.

Several Australian organizations, including universities and small companies, work on compound semiconductor research and development. Translating this into commercial manufacturing capability requires additional investment, but it’s more plausible than attempting leading-edge silicon fab.

Defense Semiconductor Requirements

AUKUS and broader defense policy emphasize secure semiconductor supply chains for defense applications. Military electronics require specialized chips that often aren’t cutting-edge in terms of transistor density but need assured supply, security against tampering, and specific performance characteristics.

Defense semiconductor requirements create potential for Australian niche manufacturing. Volumes are relatively low, reducing scale requirements. Security considerations favor domestic production over offshore supply. Defense budgets can support higher per-unit costs than commercial markets.

However, defense semiconductor manufacturing still requires substantial capability. Even older-generation semiconductor processes require specialized equipment, clean rooms, and expertise. Whether Australian industry can develop this capability from current minimal base is uncertain. Defense semiconductor manufacturing exists in several allied countries, and Australia could potentially access secure supply through partnership rather than domestic manufacturing.

Semiconductor Design vs Manufacturing

Semiconductor design is distinct from manufacturing, and Australia has more established capability in design. Several Australian companies and research institutions design specialized semiconductors that are then manufactured offshore, typically by TSMC or other contract manufacturers.

This model is economically sensible. Semiconductor design requires expertise and engineering capability that Australia possesses. Manufacturing requires massive capital investment that Australia can’t match. Focusing on design while outsourcing manufacturing to specialized fabs aligns with Australian strengths.

The vulnerability is supply chain dependence. If geopolitical tensions disrupt access to offshore manufacturing, Australian semiconductor designs can’t be fabricated domestically. This creates the tension between economic efficiency and strategic security that drives semiconductor sovereignty discussions.

Packaging and Testing

Semiconductor packaging and testing represents another potential niche. After fabrication, chips must be packaged into usable components and tested for functionality. Packaging and testing are less capital-intensive than fabrication and represent viable segments where Australian capability could develop.

Some packaging and testing capability already exists in Australia, though at small scale. Expanding this capability would provide domestic capacity for critical applications even if wafer fabrication occurs offshore. Combined with domestic design, Australian semiconductor industry could potentially cover design, packaging, and testing while outsourcing fabrication.

Skills and Research Base

Australia has reasonable semiconductor research capability, particularly in universities including UNSW, University of Sydney, and University of Melbourne. Research focuses on both silicon and compound semiconductors, with some work on quantum devices and emerging semiconductor technologies.

Translating research capability into commercial manufacturing requires substantial additional steps. Pilot-scale manufacturing differs significantly from research fabrication. Commercial production requires process engineering, quality control, supply chain management, and manufacturing expertise that research institutions don’t develop.

The workforce pipeline is constrained. Training semiconductor engineers and technicians requires specialized programs that are limited in Australia. If semiconductor manufacturing scales up, workforce will be a binding constraint. International recruitment can help but faces competition from established semiconductor regions offering higher salaries.

The Realistic Path Forward

A realistic Australian semiconductor strategy focuses on achievable objectives rather than attempting to replicate global leaders. This means focusing on specialized niches where Australian capability can be competitive, accepting offshore manufacturing for high-volume commercial chips, and developing sovereign capability for critical defense applications where security requirements justify costs.

Specific elements might include:

Compound semiconductor manufacturing for specialized applications where Australian research capability translates to commercial advantage. This requires supporting commercialization from research phase through pilot manufacturing to production scale.

Semiconductor design capability across various applications, accepting offshore fabrication for most designs while maintaining relationships with multiple fabrication partners to reduce supply chain risk.

Packaging and testing capability for defense and critical applications, providing domestic capacity for final semiconductor production steps even when fabrication occurs offshore.

Research and development in emerging semiconductor technologies, positioning Australia to participate in next-generation semiconductor development even if current-generation manufacturing remains offshore.

Government’s Role

Government investment through the National Reconstruction Fund and defense procurement can catalyze semiconductor capability development. However, government funding alone won’t create competitive semiconductor industry. Private investment, commercial viability, and sustained policy support over decades are all necessary.

The risk is that government support creates dependent organizations unable to compete commercially once subsidies end. Several countries have invested in semiconductor manufacturing only to see facilities close when government support diminishes. Creating genuinely competitive capability requires more than subsidy: it requires building competitive advantages in technology, process, or markets.

International Partnerships

Australia’s semiconductor strategy depends partly on international partnerships. Collaboration with allied countries, particularly the United States through AUKUS, provides access to technology and supply chains that purely domestic approaches couldn’t achieve. The US CHIPS Act includes provisions for international cooperation, and Australia is positioned to benefit.

However, international partnerships involve dependencies. Technology transfer from US semiconductor companies to Australian partners faces export controls and security reviews. Partnership on terms favorable to Australia requires offering value: either market access, complementary technology, or strategic positioning. What Australia offers in semiconductor partnerships needs clear articulation.

The Honest Assessment

Can Australia build chips? The answer depends on what “build chips” means. Can Australia fabricate leading-edge processors competing with TSMC or Intel? No, that’s unrealistic given capital requirements and competitive dynamics. Can Australia develop niche manufacturing capability for specialized semiconductors, particularly defense applications? Possibly, with sustained investment and realistic expectations. Can Australia maintain semiconductor design capability while relying on offshore fabrication? Yes, that’s already occurring and can expand.

The semiconductor industry rhetoric sometimes obscures these distinctions. Political discussion emphasizes sovereign capability and strategic autonomy, which suggests comprehensive domestic manufacturing. Economic reality indicates that Australia’s viable role is more limited and specialized.

Setting realistic objectives matters. Pursuing unachievable goals wastes resources and creates disillusionment. Focusing on achievable niches where Australia can develop genuine competitive positions makes better sense. The question is whether policy will align with realistic assessment or whether political pressure drives pursuit of symbolic but unviable comprehensive domestic semiconductor manufacturing.

The semiconductor industry is strategically important, and Australian dependence on offshore supply creates genuine vulnerabilities. But addressing those vulnerabilities requires realistic strategy, not aspirational rhetoric. Australia can develop meaningful semiconductor capability in specific domains. Whether it does depends on policy realism, sustained investment, and industry willingness to focus on achievable objectives rather than attempting to replicate global leaders.