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Biden Sends $53B to US Chipmakers by Signing CHIPS Act Into Law
President Joe Biden signed the CHIPS and Science Act into law Tuesday, sending $52.7 billion to processor manufacturers over five years in an effort to help the US reclaim semiconductor industry leadership lost to Taiwanese and Korean companies and challenged by increasingly capable Chinese firms.
The legislation has already helped encourage smartphone chip designer Qualcomm to spend $4.2 billion with chipmaker GlobalFoundries to build processors in New York, the White House said in a fact sheet released Tuesday. And Micron will invest $40 billion in memory chip manufacturing capacity, the White House said, a move that could elevate the US share of memory chipmaking from 2% to 10%.
"The CHIPS and Science Act supercharges our efforts to make semiconductors here in America," Biden said in a speech Tuesday at the White House's Rose Garden. "America invented the semiconductor, and this law brings it back home."
It costs billions of dollars to build new chip fabrication facilities, called fabs. The CHIPS Act will knock about $3 billion off a $10 billion leading-edge fab, said Intel, which is sinking more than $40 billion into new and upgraded fabs in Arizona, Ohio, New Mexico and Oregon and stands to be one of the biggest beneficiaries.
US fabs made 37% of processors in 1990, but that's dropped to 12%, according to the Semiconductor Industry Association. The CHIPS Act is designed to reverse that trend, shoring up an industry that's critical to electric vehicles, laptops, weapons systems, washing machines, toys and just about anything that uses electricity about anything with a power plug or battery.
The law emerged after a chip shortage made it clear how much US industries and the US military now rely on processors made overseas. As Intel, a Silicon Valley fixture, struggled to advance over the last decade, Taiwan Semiconductor Manufacturing Co. in Taiwan and Samsung in South Korea took the lead. China, eager to foster a native chipmaking industry, subsidized its own rivals like Semiconductor Manufacturing International Corp.
TSMC and Samsung are foundries, businesses that build chips for other companies. Intel, in contrast, has chiefly built its own chips. Part of Intel Chief Executive Pat Gelsinger's recovery plan is to add a foundry business, expanding its manufacturing volume and drawing in new customers such as Taiwanese chip designer MediaTek. Although Samsung and TSMC have headquarters and most of their chipmaking business overseas, both are building new fabs in the US, too. GlobalFoundries, a foundry based in the US, isn't on the leading edge of chipmaking for most technologies, but it's expanding capacity, too.
That chip shortage frustrated consumers eager to lap up PlayStation 5 game consoles during the COVID-19 pandemic and shuttered US auto plants as crucial electronic components stalled manufacturing. The shortage also provided a measure of rare bipartisan support for the CHIPS Act, which passed with a 243-187 vote in the House of Representatives and a 64-33 vote in the Senate in late July.
Waning chip manufacturing in the US comes with geopolitical worries. China claims Taiwan as its own territory and has been saber-rattling with military exercises since Nancy Pelosi, speaker of the House of Representatives, visited Taiwan last week. Russia's invasion of Ukraine and the subsequent cessation of high-tech product imports also shows how vulnerable a country without its own industry can become. This week, the chip shortage led the US auto industry to drop production of 100,000 vehicles.
RK Anand, chief product officer at automotive AI chip designer Recogni and a longtime Silicon Valley executive, laid out the problem. One of his earlier employers, network gear maker Juniper Networks, relied on IBM to make its chips. But as Big Blue slipped behind, Juniper switched manufacturing to TSMC to keep up with rivals like Cisco, Anand said. IBM eventually exited the chipmaking business altogether.
"In the last 20 years, it's been disappointing that we've given up that leadership," Anand said. "We better get back on it."
Nantero, a startup trying to leapfrog today's memory chips using an exotic material called carbon nanotubes, could be the opposite example to Juniper, hoping CHIPS Act funding will let it find a fab in the US.
"Right now fab access is so limited in the US that many companies either fail or go overseas while waiting in line," said CEO Rob Snowberger, who attended Biden's signing. "Nantero will now be able to plan our future around staying in the US."
Massive government subsidies are anathema to the free-market ethos that generally prevails in the US, but CHIPS Act allies argue they're necessary to compete with subsidies in South Korea, China and Taiwan. Japan's government subsidizes the development of the exact technology Nantero hopes to commercialize.
US chipmaking won't suddenly surge
Businesses and consumers shouldn't expect immediate relief from the CHIPS Act. For one thing, it takes years to build a new fab, so new capacity won't arrive right away.
For another, many of the processors that have stalled products are built with older, less advanced chipmaking technology. Chipmakers are generally more eager to invest instead in leading-edge methods that make premium chips like those that power Apple iPhones, Nvidia graphics accelerators and Amazon data centers.
Making a handful of fabs significantly cheaper can help US manufacturing, but it's a long way from building the rich network of companies that prevail in Asia, supplying materials like giant polysilicon crystal ingots that are sliced into chip wafers to all the testing, packaging and assembly work that takes place after chips are made.
"Efforts must also support the larger semiconductor ecosystem, which spans everything from wafer substrates to chip probers to items as mundane as shipping materials," said Jim Witham, CEO of power electronics maker GaN Systems. He believes the CHIPS Act funding is only a beginning. "We've lost many of these capabilities in the US, and rebuilding them takes time and money."
The Boston Consulting Group expects it would cost $350 billion to $420 billion to create a self-sufficient semiconductor supply chain in the US.
Fusion Worldwide, which distributes chips worldwide and has had a front-row seat to the semiconductor supply chain crisis, expects it'll be two or three years before the CHIPS Act funding really makes a difference. And the law largely sidesteps some of the most acute shortages, said Paul Romano, chief operating officer at Fusion.
"The legislation will improve long-term US standing around newer, complex chip production but isn't likely to do much to boost supply of older technology components," still in high demand for cars and other industries, Romano said. Although the CHIPS Act helps US manufacturing, it "won't go nearly far enough in helping achieve parity with the Asian fabs."
Chip industry cheers the CHIPS Act
Chip industry players cheered the law. The Semiconductor Industry Association estimates that it will create thousands of jobs and make supply chains more resilient for industry and military customers that rely on processors. The Information Technology Industry Council, whose members include dozens of tech companies, included the CHIPS Act as a top policy priority. It's now the Commerce Department's job to rapidly approve CHIPS Act applications so the money can flow, the ITI said in a statement Tuesday.
Under the law, companies receiving the subsidies may not use them for dividend payments or stock buybacks, Biden said.
The CHIPS Act includes $39 billion in manufacturing incentives. Of that $2 billion is for the older generation chips that automakers and military equipment makers require. It also includes $13.2 billion to spur research and development and to improve worker training.
The full title of the legislation — the CHIPS and Science Act, with CHIPS standing for Creating Helpful Incentives to Produce Semiconductors — is so named because the $53.7 billion in semiconductor industry funds are part of a larger $280 billion law that also funds basic and applied research at the government's National Science Foundation, National Institute of Standards and Technology, and Commerce Department.
The chipmaking subsidies and research funding will "cultivate the tech hubs of tomorrow, spurring new innovations and technologies right here at home," said Senate Majority Leader Chuck Schumer, a Democrat from New York, which stands to benefit from investments by GlobalFoundries and other chip makers.
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