Now that the CHIPS and Science Act of 2022 is law, semiconductor companies are evaluating how — and whether — to pursue a piece of the $52.7 billion in federal subsidies allocated to support chip manufacturing.
The bipartisan legislation follows severe semiconductor supply chain disruption and marks the culmination of years of political wrangling over how best to bolster US competitiveness in an industry viewed as essential to national and economic security. US semiconductor manufacturing capacity has dropped from nearly 40% of global supply in 1990 to 12% today.
About three-quarters of the CHIPS funding to be allocated over the next five years ($39 billion) is earmarked for the construction of semiconductor fabrication plants, or “fabs,” including $2 billion specifically designated for mature semiconductors essential to the military as well as the automotive and manufacturing industries. The remainder of funds will foster a more robust domestic ecosystem for semiconductor production, including research and development and workforce cultivation.
These subsidies could offer a necessary cushion for semiconductor companies, not only to close the yawning talent gap they face today, but also to upskill and diversify their workforce. The law provides an opportunity to make step changes in digital manufacturing and relevant workforce skills. This approach could be key to keeping up in the race to reduce the size and power of chips while also increasing performance.
The funding, however, comes with a catch: new geographical manufacturing restrictions.
Restrictions on overseas manufacturing
The CHIPS Act prohibits funding recipients from expanding semiconductor manufacturing in China and countries defined by US law as posing a national security threat to the United States. These restrictions would apply to any new facility, unless the facility produces legacy semiconductors predominately for that country’s market.
Further, these restrictions — which would apply to funding recipients for 10 years from the date of funding — could shift. To make sure the restrictions remain current with the status of semiconductor technology and US export control regulations, the law states that the Secretary of Commerce, in coordination with the Secretary of Defense and the Director of National Intelligence, would be required to regularly reconsider, with industry input, which technologies are subject to this prohibition.
Companies should carefully consider whether the potential value of federal funding would sufficiently offset these geographical manufacturing constraints.
Companies aiming to leverage CHIPS Act funding should consider these five key issues.
Capital project management
Capital funding strategy
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