The CHIPS Act 2023 Updates: One Year In
Introduction
One year ago this month, the Creating Helpful Incentives to Produce Semiconductors and Science Act (CHIPS) of 2022 was signed into law by President Biden to bolster the semiconductor industry in the United States. Included in this package was $280 billion to be spent over the next decade in the form of federal incentives, grants, and funds for domestic semiconductor manufacturing and research. Of this, a lion's share tallying $200 billion has been earmarked for research and development (R&D) and economic development programs. Additionally, $52.7 billion has been allocated for semiconductor manufacturing incentives, advanced semiconductor R&D, and workforce development with the remaining $22 billion largely coming in the form of tax credits for chip production. These can be further broken down into specific funds with the $58 billion consisting of the CHIPS for America Fund, the CHIPS for America Defense Fund, the CHIPS for America International Technology Security and Innovation Fund, and the CHIPS for America Workforce and Education Fund. With semiconductors being fundamental to the functioning of modern technology, an analysis of the CHIPS Act and its rollout indicates that the future is still too early to tell as many of the bill's major components and key institutions are yet to be built or released. However, with no major setbacks or turmoil either, one can be cautiously optimistic about the direction that the American semiconductor industry will find itself in the years to come.
Aspirations:
By strengthening the domestic manufacturing industry through public-private partnerships, the hope of Congress was to make sure that the country could minimize its growing dependence on suppliers — namely China—and create more resilient supply chains. Each of these funds going into the $52.7 billion aims to be a part of this solution by incentivizing, expanding, and supporting the growth of semiconductor production facility (fabs) clusters in the country. These funds, “emergency supplemental appropriations,” include:
The CHIPS for America Fund
Includes $50 billion to be allocated over 5 years. This is then divided into the Commerce Department’s semiconductor incentive, research and development, and workforce development programs authorized by the FY21 National Defense Authorization Act (NDAA). In turn, each program is allocated the following:
The Incentive Program will receive $39 billion over 5 years to implement the programs authorized in Sec. 9902. Up to $6 billion may be used for the cost of direct loans and loan guarantees.
$19 billion was allocated for FY22, of which $2 billion was explicitly provided to focus solely on legacy chip production. From then on $5 billion will be allocated for each year, FY23 through FY26.
Commerce R&D and workforce development programs will receive $11 billion over 5 years to implement programs authorized under Sec. 9906 of the CHIPS Act such as The National Semiconductor Technology Center (NSTC), The National Advanced Packaging Manufacturing Program, and The Manufacturing USA Institute.
$5 billion for FY22 including:
$2 billion for the NTSC
$2.5 billion for advanced packaging
$500 million for other related R&D programs
For use across the NSTC, advanced packaging, and other related R&D programs, the following will also be provided:
$2 billion in FY23
$1.3 billion in FY24
$1.1 billion in FY25
$1.6 billion in FY26
The CHIPS for America Defense Fund will receive $2 billion in funding for the Microelectronics Commons, “a national network for onshore, university-based prototyping, lab-to-fab transition of semiconductor technologies — including Department of Defense-unique applications — and semiconductor workforce training.”
The CHIPS for America International Technology Security and Innovation Fund will receive $500 million over 5 years meant to be used by the State Department to coordinate with foreign governments to support international semiconductor supply chain activities.
The CHIPS for America Workforce and Education Fund will receive $200 million for the National Science Foundation, also spread over five years, to grow the semiconductor workforce and fill the projected 90,000 workers needed by the industry by 2025.
Timeline Since Enactment & What’s to Come
Since the passing of the bill and the release of the first funding opportunity in February this year, a lot has happened:
Aug. 9, 2022: President Biden signed the CHIPS and Science Act into law.
Aug. 25, 2022: The Biden Administration issued Executive Order on Implementation of the CHIPS Act.
Sept. 6, 2022: The National Institute of Standards and Technology (NIST) published its strategy for the CHIPS for American Fund.
Sept. 20, 2022: The Biden Administration announced the hiring of the following individuals:
Ronnie Chatterji as the White House Coordinator for CHIPS Implementation at the National Economic Council (NEC),
Michael Schmidt as Director of the CHIPS Program Office,
Eric Lin as Interim Director of the CHIPS Research and Development Office,
Todd Fisher as Interim Senior Advisor in the CHIPS Program Office,
Donna Dubinsky as Senior Counselor to the Secretary for CHIPS Implementation, and
J.D. Gromas Senior Advisor to the Secretary on CHIPS Implementation.
Feb. 28, 2023: The Biden Administration Launched the first CHIPS for America Funding Opportunity “for projects to construct, expand or modernize commercial facilities for the production of leading-edge, current-generation and mature-node semiconductors” and received over 200 statements of interest in the first month for the Department of Commerce’s CHIPS Program Office with proposals covering over 35 states.
March 14, 2023: The Department of State announced plans to implement the CHIPS Act International Technology Security and Innovation Fund.
June 6, 2023: In a speech given in front of the Industrial Advisory Committee, NIST Director Laurie Locascio announced the appointments to the CHIPS Research and Development Office. This office works alongside the CHIPS Program Office, which is responsible for semiconductor incentives. The appointments include:
Lora Weiss as Director,
Eric Lin as Deputy Director,
Neil Alderoty as Executive Officer,
Richard-Duane Chambers as Associate Director for Integration and Policy, and
Marla Dowell as director of the CHIPS Research and Development Metrology Program
June 20, 2023: The CHIPS for America team at the U.S. Department of Commerce announced a selection committee for the Board of Trustees of the National Semiconductor Technology Center
June 23, 2023: Funding of the CHIPS incentives program was amended to also seek applications for the construction, expansion, or modernization of commercial facilities for semiconductor materials and manufacturing equipment facilities for which the capital investment equals or exceeds $300 million.
June 26, 2023: Full applications began to be accepted for the $2 billion in funding designated for mature nodes and production facilities.
Still to come…
Sept.1, 2023: Semiconductor materials and manufacturing equipment facilities for which the capital investment equals or exceeds $300 million will finally be allowed to begin submitting pre-applications for funding.
Oct.23, 2023: Full applications for Semiconductor materials and manufacturing equipment facilities for which the capital investment equals or exceeds $300 million will be accepted on a rolling basis beginning on
TBA: The second half of supply chain funding opportunities that include applications for semiconductor materials and manufacturing equipment facilities with capital investments below $300 million has yet to be released.
TBA: The creation of the NSTC which will have a startup budget of more than $3 billion.
TBA: Following his appointment, Deputy Director Lin said the CHIPS Research and Development Office aims to release a strategy document later this year covering the National Advanced Packaging Manufacturing Program, which aims to address specific problems in creating a domestic ecosystem for assembling integrated circuits.
Year in Review
As far as the ultimate goals of the CHIPS Act are concerned, nothing drastic has happened this past year to change the position that the US finds itself in immediately. The country is still in a competitive exchange with China in terms of semiconductor manufacturing. For example, according to a 2023 report by the Semiconductor Industry Association (SIA), China remains the largest market for semiconductors and has resumed operations of the “Big Fund,” China’s $50 billion state investment fund for chips. The Chinese Communist Party (CCP) has also recently formed a National Science & Technology Commission to coordinate its efforts in the industry.
However, if we judge the Act one year out from a foundational perspective then the accompanying interest from the private sector can be seen as a very meaningful victory. SIA also reported that well over $200 billion in private investments have been announced across the country to increase domestic manufacturing capacity since the enactment of the Act into law. The American government estimates that over 115,000 jobs will be created in the semiconductor industry within the next decade as a result.
This large appetite for government funding by semiconductor companies as well as the reassurance that this investment provides is an important step in strengthening the foundations of the industry. And with the recent announcement of leadership to key institutions in the public sector, the stage has been set for the country to launch its main campaign in the chip wars.
The money has been secured, funding requirements have been announced, applications have begun to be received, and now all that is left is for development to begin. But investments and leadership are not a guarantee of success. The Act is still in its infancy and there are still many things capable of causing major issues.
Looking Ahead
Even though the stars may be aligned between the private sector at home and the many government departments attached to the CHIPS Act, there exist many issues with the potential to spoil this upward trend for growth.
According to the SIA, of the 115,000 estimated jobs to be created,
“Roughly 67,000—or 58% of projected new jobs (and 80% of projected new technical jobs)—risk going unfilled at current degree completion rates. Of the unfilled jobs, 39% will be technicians, most of whom will have certificates or two-year degrees; 35% will be engineers with four-year degrees or computer scientists; and 26% will be engineers at the master’s or PhD level.”
This threatens to be a major problem as the demand for semiconductors will only continue to grow in the future and with the possibility of a lack of manpower, the US risks investing billions of dollars into a network that cannot be leveraged to its full potential in international markets. How the country goes about filling the needed positions will be crucial to actually breathing life into fabs.
Furthermore, there also exists the scrutiny that is bound to come with such a massive industrial project. Although the bill makes clear that funds cannot be used for stock buybacks, this does not create a fool-proof solution to what has historically been a major source of spending for semiconductor companies.This can be highlighted by the fact that between 2011 and 2020, five of the largest semiconductor companies — Intel, IBM, Qualcomm, Texas Instruments, and Broadcom — spent $250 billion on stock buybacks. And while the grants themselves cannot be used to buy stock, this does not place a restriction on the money that these grants could potentially subsidize. Even if it seems that private and public goals are aligned now, it will definitely be important to track how this public-private relationship progresses or changes once the funding becomes available to spend and how the conduct of corporations will be perceived by the public who may be wary to trust them with large sums of money.
This also plays into another problem which is actually getting infrastructure on the ground and into full gear. According to a report by the Center for Security and Emerging Technology, the United States currently builds fewer fabs at a slower rate than the rest of the world due to permitting regulations which can require long timelines. The report looked between 2010 and 2020 and found that It took an average time of 2.5 years to build a fab which was actually longer when compared to the decade before that. China on the other hand has only gotten faster at building fabs and both fab production and construction speed have increased in the past two decades. With the US coming off of a negative trend of slower construction times, it will be interesting to see how the country works at the local, state, and national levels while also adhering to Biden's climate agenda and the workplace requirements needed to qualify for funding (such as the requirement that locations provide childcare) to accelerate and accommodate construction needed to bring the supply chain that the CHIPS Act envisions into fruition.
Foreign support will also be critical to advancing the supply chain that the US hopes to create and helpful in undermining the growing Chinese presence in the market. Although the State Department has been allocated $500 million dollars for this purpose of pursuing foreign partnerships, there have yet to be any major plans with South Korea or Taiwan which are homes to TSMC and Samsung, the only two companies that produce chips at the most advanced nodes. Last year, President Biden proposed the Chip 4 Alliance with Japan, South Korea, and Taiwan but this has yet to amount to anything tangible. This offers an interesting look into how these major players weigh shared and private concerns. No doubt, all these countries are concerned about the implication of a dominant China in the semiconductor industry, yet they seem to be more concerned about the immediate economic impact that such a group would have on their respective markets. After all, over 60% of South Korea's semiconductor export flow goes to China and all rely on critical and rare earth minerals from China for the production of chips. All in all, even though it may be beneficial in the long run to form a cohesive group meant to keep China in check, immediate and unhampered access to Chinese markets has proven too enticing for major semiconductor countries. With each country also developing its own competitive plan to bolster its respective semiconductor industries, signs point that it will be challenging to operate at cross-purposes while attempting to be a coherent whole.
Ultimately, as foundational as this year has been, there are still far too many things in the air for the future of the American semiconductor industry to be secure. To succeed, this moment will require a cohesive effort by all involved federal departments, local governments, and state governments to produce the best possible outcome: a return to the dominance enjoyed by America in the earlier years of semiconductors. However, failure to meaningfully cooperate both domestically and abroad will strengthen the position of foreign adversaries in the semiconductor industry and push America towards the periphery of the industry and the geopolitics of Asia at a time when tensions continue to rise.