Canada recently celebrated CHIPS Month, bringing together companies, engineering departments, and science centers to showcase Canada’s strong semiconductor sector. 

Democratic allies should pay attention. The country plays an important role in the key area of advanced packaging and, as home to North America’s largest Outsourced Semiconductor Assembly and Test facility, Canada demonstrates how no one country can go it alone to dominate chips. And yet Canada has been vulnerable: two decades ago, the Chinese military decimated and cannibalized its chip industry.

In the early 2000s, Canada boasted a thriving semiconductor ecosystem based around Nortel, once the world’s leading telecom infrastructure company. In its heyday, Nortel supplied 70% of the world’s fiber-optic networks required for internet traffic. At the consumer end, RiM pioneered the original Blackberry smartphone.

Nortel’s collapse began in 2004 when a computer in Shanghai hacked into the account of a Nortel executive and stole 450 key technical and financial documents. This sustained hacking, combined with Chinese state subsidies to the fledging Huawei,  caused Nortel to go bankrupt in 2009. The breakdown of Nortel ‘put a kibosh on the sector for many years,’ Chips Month’s chair Doug Suerich acknowledges.

But Canadian semiconductors are now recovering. Momentum is mounting, according to Suerich, in part due to the possibility of Canada piggybacking on the US CHIPS Act. Like the UK, Canada benefits from a startup ecosystem where innovation can thrive and prosper without large government subsidies. It has small but targeted government initiatives, such as the recently announced C$120m program for semiconductor startups. Promising startups include Boréas, Tenstorrent, and Blumind, which has developed an analog computing technology for AI that promises lower energy consumption than traditional chips such as GPUs. 

Admittedly, politics could derail this positive momentum. Incoming President Donald Trump is threatening to impose a 25% tariff on Canadian exports. It remains to be seen whether the tariff will apply to semiconductor IP and services or will ever materialize at all. 

Whatever happens with the US, Canada boasts three enduring strengths, says Niraj Mathur, founder and CEO of Blumind. The country has strong academic institutions – University College of Toronto, where Professor Geoffrey Hinton recently won a Nobel prize for his AI research. It enjoys a healthy talent pool – rooted in Nortel, where Mathur started his career. Dell, Nokia, and Ericsson all have strong Canadian operations. 

Most importantly, Canada houses a specialized manufacturing base capable of supporting critical segments of the semiconductor supply chain. A case in point is IBM Bromont, which specializes in a crucial part of the semiconductor supply chain: advanced packaging. This means putting multiple chips manufactured with different fabrication technologies into a single package, a Multi-Chip Module or MCM, to achieve higher integration levels – for example, manufacturing chips for AI applications by combining multiple small modular chip components or chiplets.

China understands the importance of advanced packaging. Like Nortel, IBM Bromont could be a prime target for Chinese subversion tactics. Against this threat, Canada must ramp up defenses against Chinese espionage and cyberattacks to protect IBM Bromont and its semiconductor sector. 

Canada should also hone its existing expertise. Instead of trying to compete in all markets, it should focus on technologies where Canada has a competitive advantage – such as AI deep tech, cost-optimized chips, and advanced packaging – and focus on sectors where it is already present, such as automotive and robotics.

Scale-ups represent another choke point. Like the European Union and the UK, the typical Canadian investor shies away from the large sums needed to grow large, global tech companies. Funds must be raised from US investors. A Canadian company that successfully scaled up to be traded on the Nasdaq was ATI of Markham, Ontario. ATI started in graphics cards, with Nvidia as its main rival. But ATI was still acquired by a US chipmaker, AMD, in 2006. 

To overcome this funding gap and boost domestic capital for tech scale-ups, countries the size of the UK and Canada should reform their tax systems to incentivize large private equity and pension funds. The defense industry could play a large role in funding innovative companies, with collaboration boosted by tax incentives to invest some profits in medium-risk tech startups with defense potential.

International collaboration and competition with other medium-sized economies such as Japan, the UK, France, and Germany should be deepened. China, in contrast, should not be treated as an equal competitor. China plays by ‘different rules,’ according to Mathur. I agree.

What happened to Nortel cannot be repeated with IBM Bromont. Semiconductor expertise must be preserved in democratic countries – or else we will become dependent on an autocratic regime for a technology that will shape our future. 

Christopher Cytera CEng MIET is a Non-Resident Senior Fellow with the Digital Innovation Initiative at the Center for European Policy Analysis. He is a technology business executive with over 30 years of experience in semiconductors, electronics, communications, video, and imaging.

Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions are those of the author and do not necessarily represent the position or views of the institutions they represent or the Center for European Policy Analysis.

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