U.S. CHIPS Act – Who will be the big winners?

On February 28th, the U.S. Administration announced the long-awaited launch of the first funding opportunity for semiconductor manufacturing incentives since the passing of the bipartisan CHIPS Act last July. Of the $52 billion earmarked to revitalize the U.S. semiconductor manufacturing, $39 billion will be dedicated to incentives. All potential applicants are invited to submit statements of interest, so the U.S. Department of Commerce may begin application reviews. Funding awards will be made as soon as applications can be rigorously evaluated and negotiated. Click here for more details on the application process.

This first public funding opportunity seeks applications for projects to construct, expand, or modernize commercial facilities for the production of leading-edge, current-generation, and mature-node semiconductors, including both front-end wafer production and back-end packaging fabs. Awards will take the form of direct funding, federal loans, and/or federal guarantees of third-party loans. Awards are designed to complement – not replace – private investment and other sources of funding.

The timely CHIPS Act funding application process kicks in as the global semiconductor market is entering yet another downturn cycle this year. According to Malcolm Penn, Founder & CEO of UK industry analyst firm Future Horizons, the global chip market could contract by as much as 22% in 2023. In the U.S., greenfield fabs take two to four years from build to product qualification and we are still in the midst of an operational brownfield fab shortage that is likely to continue through to at least mid-2025. Given the huge cost of building highly advanced wafer fabs, the funding could go very fast amid fierce competition, so who will be the big winners?

  • The companies that can execute a site selection process quickly – Case in point, Wolfspeed was one of the first U.S. companies to get on the incentives bandwagon in Mohawk Valley by selecting the Marcy Nanocenter near Utica, NY for its state-of-the-art 200mm silicon carbide fab that was inaugurated and started production in April 2022. Since then, other major chipmakers including Intel (OH), TSMC (AZ), IBM (NY), Samsung (TX), Micro (NY), and Texas Instruments (UT) have embarked on aggressive fab expansions to be able to claim some of that support in various U.S. states.
  • The companies bringing capital to the table – The U.S. Administration does not plan to fund entire projects, but rather offer grants of between 5% to 15% of a company’s capital expenditures for a project, with funding not expected to exceed 35% of the cost. Companies can also apply for a tax credit reimbursing them for 25% of project construction. So far, more than $200 billion in private investments for U.S. semiconductor manufacturing projects have been committed since the CHIPS Act was signed into law.
  • The companies committed to their local community – Those who will be creating hundreds of regional skilled jobs in a very tight labor market and will implement programs that will attract women into the semiconductor workforce, such as affordable, high-quality child care, as well as training programs for local school, college, and university students.

As part of the CHIPS Act funding program, at least two U.S. manufacturing clusters will be built to produce the most advanced types of logic chips, as well as facilities for other kinds of chips, and complex supply networks to support them. In light of where most greenfield builds are already happening, it is everyone’s educated guess as to which locations will be the lucky ones.

I think we can all agree that this initial public funding package will not be sufficient in the long term for the U.S. to regain its semiconductor manufacturing leadership on the global stage in light of fierce overseas competition. The U.S. needs to balance short-term investments that shore up capacity with spending aimed at mastering cutting-edge manufacturing, as well as longer-horizon R&D of next-generation technologies. Although one 2020 study found that a $50 billion investment in the semiconductor industry would increase U.S. market share to only 14%, this funding is the first necessary step towards kick-starting our U.S. onshore chip production efforts.