Chipmakers are struggling to get support from the US government

Chipmakers are struggling to get support from the US government

The long wait for legislation to boost the US’s position in global semiconductor manufacturing is almost over. The fight among companies to get their hands on the billions of dollars it frees up is just beginning.

The House of Representatives last week followed the Senate in passing sweeping legislation to counter China’s rise as a tech powerhouse, including $52 billion in subsidies to support advanced chip manufacturing and research and development in the US. The law, which has yet to be signed, unlocks about $24 billion more in investment tax credits for chipmakers, letting them write off 25 percent of the cost of new factories, or factories , of its profits in the first year.

Intel CEO Pat Gelsinger said the act may be “the most important piece of industrial policy” in the US since World War II. It is designed to reverse the decline in the US share of global chip manufacturing to 10% from 38% in 1990.

However, Washington’s financial support is unlikely to extend to all the giant projects already under construction or on the drawing board in the US.

“It’s not as big as everyone thinks,” said Pat Moorhead, a U.S. chip analyst. With advanced chip manufacturing plants costing more than $10 billion, the Commerce Department, which will be responsible for deciding who gets the money, will face some tough choices, he said.

The legislation includes $39 billion over five years to support the construction of new factories, with grants of up to $3 billion for each project. Another $11 billion is earmarked for R&D, with $2 billion for projects deemed important by the Pentagon.

Senate Majority Leader Chuck Schumer following the passage of the CHIP Act in Washington DC on Wednesday. © Nathan Howard/Getty Images

Intel alone expects to secure $12 billion in construction grants, or nearly a third of the total, for two factories under construction in Arizona and two more that are about to break ground in Ohio. Others who have been looking for the money include the two chipmakers that have overtaken Intel in recent years to master the most advanced, or “cutting edge,” chipmaking techniques, TSMC, which is building a $12 billion fab in Arizona, and Samsung. , which is working on a $17 billion facility in Texas. Both plants will start producing chips in 2024.

Although Congress has agreed to make the subsidies available to foreign companies, domestic chipmakers are pushing to make sure the lion’s share of the money goes to American companies. A U.S. chipmaker executive said the Commerce Department should favor companies that conduct their R&D in the U.S. and employ the largest number of workers there, things that would clearly favor businesses North American

The Commerce Department has not yet disclosed the application process or said how it will choose priorities for taxpayer support.

U.S. officials must also decide how much money to allocate to the most expensive and cutting-edge fabs, which supply chips for demanding, high-volume uses such as smartphones and computers. That would mean giving full support to Intel, which lost its technology lead in global chipmaking to TSMC and Samsung and has been investing heavily to get back on track.

On the same day the House passed the Chip Act, Intel surprised Wall Street with a drop in its latest quarterly results and said it would cut its capital spending plans for this year by $4 billion. However, it did not change the long-term plans for its new advanced fabs. The plants are central to the company’s goal of trying to compete head-on with TSMC by becoming a “foundry” where manufacturers make chips on behalf of other companies and not just for their own designs.

Last week’s financial setback revived suggestions from some analysts that Intel should abandon its foundry ambitions to focus on its current business. However, the company has argued that it needs to convert to a foundry to justify the rising costs that come with each new generation of manufacturing technology, as its current business is not large enough to require such factories. large scale type.

Memory chip maker Micron has earmarked $150 billion for capital spending through 2031 © Steve Helber/AP

Others with big plans to boost U.S. production include memory chip maker Micron, which has earmarked $150 billion for capital spending through 2031. The company has been waiting for the bill to become law before give the go-ahead to a large new plant that expects to begin production in the middle of this decade, according to CEO Sanjay Mehrotra. “It’s not a question of whether these factories will be built, but where they will be built,” he said.

Memory and storage chips have grown to account for nearly a third of the semiconductor market, and Micron has world-leading technology in this field, meaning it is likely to be viewed in the US as a strategic supplier in need of extensive government support. Moorhead said.

TSMC is also looking for broad support to justify its biggest attempt yet to take root in the US, where costs are higher than its home base. President Mark Liu said in June that the US plant turned out to be “more expensive” than TSMC had expected and that a shortage of chipmaking talent was causing problems for the company.

Morris Chang, the founder of TSMC, said earlier this year that the erosion of US chip-making expertise over several decades had made it extremely difficult for the country to regain global competitiveness. talking inside an interview with the Brookings Institution, said this had made the CHIP Act “an expensive and pointless exercise”.

While the U.S. is under pressure to regain its edge in cutting-edge chipmaking, the Commerce Department must also decide how much cash to set aside for older process technologies that still play a central role in many chip markets. Many industrial and automotive customers, as well as the Pentagon, use chips that are produced in lower volumes to their own specifications and do not need to meet the more demanding low-power standards.

SkyWater Technology, an Indiana-based chip foundry, announced plans in July for a new $1.8 billion factory to produce chips using older technology. Tom Sonderman, CEO, said the plant would support a wide range of industrial customers using facilities on US soil. The fab would only go ahead if it can get substantial official support, with one-third of the cost coming from the federal government and another third from state support, he added.



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About the Author: Chaz Cutler

My name is Chasity. I love to follow the stock market and financial news!