US Semiconductor Manufacturing and the CHIPS Act

The CHIPS Act (Creating Helpful Incentives to Produce Semiconductors) is part of an effort to increase national security by strengthening the supply of critical technologies. The act is designed to provide “investments and incentives to support U.S. semiconductor manufacturing, research and development, and supply chain security.” However, faced with climate concerns, military aid for Ukraine, escalating gasoline prices, and trade with China, Congress has been slow to implement the act’s funding package—which provides the first subsidies of their kind for U.S. chip manufacturers. Meanwhile, foreign governments have long subsidized the building and maintenance of their country’s fabrication plants. Some to the tune of billions. 

According to a 2020 report by the Semiconductor Industry Association (SIA) and based on the OECD’s (Organisation for Economic Co-operation and Development) 2019 Semiconductor Report, subsidies for the top foreign producers were broken down as follows:

China: $50 billion

South Korea: $26.7 billion

Japan: $5 to $7 billion

Singapore: $5 billion

Europe: $2.5 billion

Israel: $2.5 billion

Taiwan: $0.58 billion

These statistics don’t include tax incentives, discounted land, equipment incentives, workforce training, preferential loans, or hiring credits provided in each of these countries. None of which the U.S. offers its semiconductor manufacturers.

The CHIPS Act sought to change this. Delays in funding, however, are causing concern in among domestic chip manufacturers.

Is the Department of Defense’s ‘Microelectronics Vision’ Falling Out of Focus?

This June, as part of its response to the CHIPS Act, the Pentagon released its “Microelectronics Vision” report, outlining its commitment to mitigate escalating U.S. supply chain woes. The document came in the wake of last year’s formation of the Defense Microelectronics Cross-Functional Team (DMCFT) whose primary responsibility was to develop a “DoD-wide ME strategy that includes an implementation and transition plan for a sustainable U.S. [microelectronics] ecosystem . . . “

To carry this out, the DoD recently awarded $117 million to GlobalFoundaries (GF), one of the world’s leading semiconductor manufacturers. After an $8 million DoD award funded GF’s initial engineering baseline activities last year, GF is now scheduled to transfer some of its silicon-based semiconductor manufacturing processes to its Fab 8 facility in Malta, New York.

However, in a recent statement to Construction Dive, GlobalFoundaries hinted that the delay of CHIPS Act subsidies may waylay this plan. And they’re not the only semiconductor manufacturer who is concerned about the congressional delay in funding.

Manufacturers and Chip-Reliant Industries Concerned About CHIPS Act Delay

Beyond the government sector, other U.S. chip-reliant industries and manufacturers continue to grapple with shortages—with the auto, lighting, power, and consumer electronics industries most impacted. Awaiting relief through the CHIPS Act, these sectors are now also confronting Congress’s delay.

Responding to the situation, Intel CEO Pat Gelsinger recently halted the groundbreaking ceremony for the company’s Ohio mega-fab site. In his strongest statement to date on the matter, he warned that if Congress didn’t act soon, Intel would take its semiconductor manufacturing operations overseas.

Gelsinger goes on to cite the fact that European, Indian, and South Korean plants are 30- to 50-percent subsidized, while China’s semiconductor plants are subsidized up to 70 percent.

Gelsinger is not the only person to make this point. While at the World Economics Forum in Davos this May, U.S. Commerce Secretary Gina Raimondo spoke about the possibility of losing more U.S.-based semiconductor manufacturing. Following a recent trip to South Korea, where she and President Biden visited Samsung’s facility, she had this to say to CNBC: “Intel, Micron, Samsung – they’re growing. They’re going to build future facilities . . . If Congress doesn’t move quickly, they’re not going to build them in America. They’re going to continue to build them in Asia and in Europe, and we risk losing out on that.”

Will the Funding Delay Deter Asian Manufacturers?

Another major project awaiting CHIPS Act funding involves Taiwanese Semiconductor Manufacturing Company (TSMC), the world’s largest chip manufacturer. In 2020, they announced plans to build a $12B chip-fabrication plant in Arizona.

“TSMC has already begun their construction in Arizona, basically because of trust. They believe the CHIPS Act will be passed by the Congress,” said Ming-Hsin Kung, minister of Taiwan’s National Development Council, in a recent interview.

Kung added that the speed of construction will depend on CHIPS act subsidies.

Manufacturers Innovating to Mitigate Chip Shortage

While some organizations await subsidies, others are getting creative. In a widely circulated comment, Peter Wennink, CEO of the Dutch company ASML, noted that at least one unnamed conglomerate had resorted to purchasing washing machines—in order to salvage semiconductors for its products. Meanwhile, some car manufacturers are rewriting their codes to accommodate older-model chips. Even social enterprises, like PRIDE Industries, are innovating. Tasked with assembly, product testing, and supply chain management for a medical device company’s injury management system, PRIDE Industries got creative.

“We helped one of our medical device companies mitigate supply chain challenges by designing out a hard-to-source IC chip from their build, replacing it with a readily available, equivalent substitute,” said Tony Lopez, Vice President of Manufacturing and Logistics at PRIDE Industries.

Senators Weigh In

Against this backdrop, two senators are now weighing in. On July 6, Senator Andrew Brenner (R-Delaware) and Jay Hottinger (R-Newark) introduced a resolution, urging Congress to allocate CHIPS Act funding: Senate Concurrent Resolution 17.

“We have a serious shortage of computer chips needed to make everything from consumer goods to military equipment,” said Brenner. “Intel is poised to make Ohio a world-class chip manufacturing center, but we need Congress to fund the CHIPS Act in order to make this critical next step in our nation’s economic future.”

Further details on the resolution haven’t yet been released, but chip manufacturers are warning that without CHIPS Act subsidies, the U.S. will continue to fall behind foreign semiconductor manufacturers. And major players are now sending a direct message to Congress: Allocate funding or watch the U.S. chip shortage continue.

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