Canada's Role in the Semiconductor Industry and Supply Chain

Ajinkya Joshi
|  Created: January 22, 2025  |  Updated: January 24, 2025
Canada's Role in the Semiconductor Industry and Supply Chain

Canada is in a race with other countries to establish itself as a key player in the semiconductor sector by making strategic moves in the global semiconductor industry. With investments exceeding $150 million, initiatives like the FABrIC network, and a focus on critical mineral resources, the country is bolstering its design, manufacturing, and research capabilities. Canada's expertise in advanced packaging, MEMS, and compound semiconductors aligns with the growing global demand. Discover how these developments are positioning Canada as a crucial contributor to the semiconductor supply chain, driving innovation and securing its place in this high-stakes sector.

The semiconductor industry is the backbone of modern technology. Recognizing its critical importance, Canada has been making efforts to establish itself in the global semiconductor market. With focused investments, innovative initiatives, and capitalizing on its strengths, the country seeks to establish itself as a major player in this critical industry.

Recent Investments and Strategic Initiatives

In recent years, the Canadian government has made significant investments to bolster the semiconductor industry.

Canada's Semiconductor and AI Strategy

CMC Microsystems' FABrIC Network: In July 2024, the government announced a $120 million investment through the Strategic Innovation Fund to support CMC Microsystems in creating the Fabrication of Integrated Components for the Internet's Edge (FABrIC) network. This initiative aims to establish a pan-Canadian network that brings together stakeholders to support the design, manufacturing, and commercialization of semiconductors and intelligent sensor technology. Over the next five years, FABrIC is expected to create approximately 325 highly skilled jobs and maintain an estimated 440 jobs across Canada. 

Semiconductor Challenge Callout and CPFC Funding: In February 2022, the government launched the Semiconductor Challenge Callout, allocating $150 million through the Strategic Innovation Fund to invest in projects that enhance Canada's semiconductor ecosystem. Additionally, $90 million was invested in the National Research Council of Canada's Canadian Photonics Fabrication Centre (CPFC) to upgrade equipment and improve its capacity to address the increasing complexity of leading-edge technology. 

Investment in IBM Canada and C2MI: In April 2024, Prime Minister Justin Trudeau announced a federal investment of 59.9 million Canadian dollars to support projects by IBM Canada and the MiQro Innovation Collaborative Centre (C2MI). These projects, totaling 226.5 million Canadian dollars, focus on research into quantum technologies, expanding manufacturing capacity at IBM Canada's semiconductor packaging facility in Bromont, Quebec, and strengthening Canada's semiconductor supply chain.

AI Investments A Catalyst for Growth: In early April 2024, Prime Minister Justin Trudeau announced a $2.4 billion CAD ($1.75 billion USD) investment in artificial intelligence (AI), with $2 billion CAD ($1.5 billion USD) allocated to the AI Compute Access Fund. This fund aims to enhance computing infrastructure and provide access to technical resources, positioning Canada as a leader in AI-related semiconductor development. Another $50 million CAD ($36.5 million USD) will support the creation of an AI safety institute to establish guardrails against advanced or nefarious AI systems.

Strengthening the North American Supply Chain

Global supply chain disruptions in the time of COVID-19 have driven home the requirement for resilient, localized semiconductor production. Other countries, such as the United States and South Korea, are accelerating domestic fabrication and packaging capacities. Canada's strategy is built around collaboration and specialization. IBM's Bromont plant, along with Albany's semiconductor ecosystem and MEMS fabrication in Ottawa within the "northeast corridor, is a part of the strategy.

Stephane Tremblay, executive director at IBM Bromont, highlighted the importance of a coordinated North American approach. "Canada may not have the financial resources to build leading-edge fabs, but we can excel in areas like packaging and MEMS," he said. This collaborative strategy ensures that Canada contributes meaningfully to the regional supply chain without directly competing with U.S. initiatives.

Challenges and Opportunities

Even though there has been some progress, Canada's semiconductor industry still faces challenges. In the past, uneven funding and unclear strategies have slowed growth. Paul Slaby, managing director of Canada's Semiconductor Council (CSC), pointed out that Canada needs a clear policy like the U.S. CHIPS Act. He said, "While people are starting to understand how important the industry is, Canada still needs to set up investment funds and teamwork efforts to grow."

Canada's Semiconductor Industry Challenges

Challenges Ahead

Limited Domestic Manufacturing Capacity

Canada has minimal domestic semiconductor manufacturing compared to global giants like the U.S., Taiwan, and South Korea. This results in heavy reliance on imports, making the country vulnerable to supply chain disruptions.

Geopolitical Risks

As tensions rise between major semiconductor-producing nations, Canada may face challenges in accessing certain critical components due to export restrictions or trade barriers.

Skilled Labor Shortage

The semiconductor industry requires highly specialized technical talent. Canada faces a shortage of engineers and technicians, which can slow down both the development of new manufacturing capabilities and the ability to attract investment.

Supply Chain Bottlenecks

The semiconductor industry is highly complex, with multiple stages of production and an extensive global network of suppliers. Even small disruptions, like the COVID-19 pandemic, can cause significant delays. The recent global chip shortage highlighted how fragile these supply chains are.

Dependence on Asian Suppliers

A large proportion of semiconductor components are sourced from Asia, making Canada vulnerable to disruptions in that region.

Opportunities for Growth

Canada's strengths present significant opportunities. Toronto is a hub for semiconductor design, particularly for AI chips, with notable contributions from companies like Untether AI, which specializes in AI accelerators, and Tenstorrent, a leader in machine learning processors. The country's expertise in low-power AI devices for edge computing could be a game-changer, especially as global demand for such technologies rises. Using Canada's abundant mineral resources, like cobalt and nickel, which are crucial for chip production, can help strengthen the industry even more.

Opportunities for Canada's Semiconductor Industry

Government Support and Policy Initiatives

Canada has launched several initiatives to foster innovation and build semiconductor manufacturing capacity. Programs like the Canada Innovation and Investment Agency (IISA) focus on supporting high-tech sectors, including semiconductors. This can help position Canada as a leader in semiconductor research, development, and manufacturing.

Growth of Tech Startups

Canada has a thriving tech ecosystem, particularly in cities like Toronto, Montreal, and Vancouver. Startups in AI, quantum computing, and automotive technology can drive demand for semiconductors, presenting opportunities for local supply chains to develop and scale.

Strategic Partnerships

Canada's close proximity to the U.S. and its trade agreements like the USMCA (formerly NAFTA) create opportunities for collaboration with American semiconductor firms. Maintaining these relationships can help Canadian companies gain access to the latest technologies and manufacturing capabilities.

Attracting Foreign Investment

With global interest in diversifying semiconductor supply chains away from Asia, Canada is well-positioned to attract foreign investment in semiconductor manufacturing and R&D facilities. Companies may be incentivized to set up operations in Canada to capitalize on the stable political environment and skilled workforce.

Focus on Sustainable Manufacturing

The global semiconductor industry is increasingly focusing on sustainability. Canada's renewable energy sources, such as hydroelectric power, provide an edge for creating eco-friendly, energy-efficient factories, which can attract environmentally aware consumers and businesses.

Expanding R&D Capabilities

Canada is home to several world-class universities and research institutions that can contribute to semiconductor R&D. Strengthening these capabilities can lead to the development of next-generation semiconductors, positioning Canada as a key player in the global market.

Critical Minerals and Compound Semiconductors

Canada's mineral wealth presents opportunities to support the development and production of compound semiconductors. The country produces both indium and germanium as by-products of zinc smelting, accounting for 6% of the world's indium production. Canada also contains 4% of the world's antimony reserves. These critical minerals are essential for producing compound semiconductors, which can outperform silicon due to properties such as power, speed, and durability.

Global Market Outlook

The global semiconductor market is dominated by key players, with the United States leading at a commanding 50% market share, fueled by its strong design and fabless ecosystem. Taiwan and South Korea each hold 20%, driven by advanced manufacturing and memory chip expertise. China and Japan each contribute 10%, showing their growing skills in materials and equipment. Canada, with less than 1%, focuses on a small but specialized role in materials and research.

Table representing global semiconductor market share

The global semiconductor market is projected to expand from US$500 billion in 2020 to US$695 billion by 2025, driven by demand in industries such as automotive, computing and data storage, and wireless communications. The compound semiconductor market was valued at $64 billion in 2021 and is expected to grow to $100 billion by 2026. 

The semiconductor industry's revenue highlights global leaders and emerging players. The United States dominates with a staggering $300B, driven by innovation and fabless giants. Taiwan and South Korea follow closely at $170B and $150B, respectively, reflecting their prowess in advanced manufacturing and memory chips. China secures $160B, showcasing its growing capabilities, while Japan, with $40B, excels in materials and equipment. Canada, contributing $1B, focuses on areas like R&D and critical materials.

Table representing semiconductor revenue by country

Demand for gallium, used in compound semiconductors, is projected to increase tenfold between 2020 and 2040, primarily due to its application in the solar cells industry.

Next Steps for Canada

Canada's semiconductor supply chain is growing, but there's more to be done. To strengthen Canada's position in the global semiconductor supply chain, all stakeholders, including the government, industry, and academia, must collaborate closely. The Canadian government should continue investing in semiconductor infrastructure, expand funding for R&D, and promote policies that attract international investments. Industry players must foster innovation while building domestic capabilities through public-private partnerships. Academic institutions should prioritize semiconductor-focused programs to develop a skilled workforce. By building on its strengths in critical minerals, clean energy, and advanced technologies, Canada can strengthen its position in this critical industry and support a future driven by innovation.

About Author

About Author

ISM Certified Supply Chain Professional with over 10 years of expertise in strategically procuring electronic components for prominent global electronics manufacturing brands. Bachelor’s degree in Electronics Engineering, currently based in England and managing end to end sourcing activities & playing a pivotal role in optimizing supply chain operations for a leading global manufacturing facility, ensuring seamless procurement and fostering strategic supplier relationships globally for semiconductors and electronic components.

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