A Billion here and a Billion there...

Soon you are talking about real money

The Chips Act of 2022 still captures headlines across the semiconductor industry, while few have an overview of the scope and size of the legislation. Valid discussions about supporting large corporations with taxpayer-funded subsidies are ongoing, and there are concerns about the Semiconductor industry’s impact on society and the environment.

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The legislation's background is based on the US's decades-long loss of manufacturing leadership. From a 37% share in the 1990s, the US now only accounts for 12% of global chip manufacturing. The legislation aims to bring the US back into a leadership position with less reliance on unstable and politically adverse countries.

The legislation will undoubtedly create significant economic growth in the US, but its main purpose is to increase competitiveness and address the question of national security.

Chips Act Funding

The detailed funded activities include:

• $54.2 billion allocated over 5 years for a CHIPS for America Fund. Funding must be used to implement the Commerce Department semiconductor incentive to develop domestic manufacturing capability and research, development, and workforce development programs. Within the fund, the following appropriations are available:

• Manufacturing Incentive Program: $39 billion has been allocated over 5 years to implement the authorised programs, of which $2 billion is explicitly provided to focus solely on legacy chip production to advance economic and national security interests. These chips are essential to the auto, military, and other critical industries. Within the incentive program, up to $6 billion may be used for the cost of direct loans and loan guarantees.

• Commerce R&D and workforce development programs: $11 billion appropriated over 5 years to implement programs authorised, including the National Semiconductor Technology Center (“NSTC”), the National Advanced Packaging Manufacturing Program, and other R&D and workforce development programs.

• $2 billion for a CHIPS for America Defense Fund: Funding would be appropriated 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.

• $500 million for a CHIPS for America International Technology Security and Innovation Fund:

• $200 million for a Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Workforce and Education Fund: Funding provided to the National Science Foundation, spread over five years, to promote growth of the semiconductor workforce. A highly skilled domestic workforce is vital to the success of new and expanded facilities created through the CHIPS Act incentives. The semiconductor industry is projected to need an additional 90,000 workers by 2025.

The implications

The chart below shows that the funding is comparable to TSMC's 2023 Capex, which is just under $30B.

The largest and most interesting fund for large Semiconductor manufacturers is the 31B$ manufacturing incentive fund, which can directly be used to fund new Semiconductor factory projects in the US. The grants have strings attached, such as limitations on activities based in China and the exchange of sensitive technical information. This has made the grants unappetising for a company like SK Hynix, which has significant activities in China.

While most of the projects being funded would have been initiated anyway, the funding is not wasted, as the US government sees this program as a national security issue to a higher degree than an economic incentive. From that perspective, the Chips Act of 2022 makes sense.

The R&D fund aims to ensure that not only Semiconductor manufacturing but also the R&D of vital areas such as metrology, packaging, and Semiconductor Manufacturing Technology will be based in the US.

The $200M workforce and Education fund seems quite small, given the workforce deficit that the Semiconductor Industry Association (SIA) highlighted in the just-released Semiconductor Workforce Development Report.

Unless this deficit of qualified workforce is addressed, the grants will not generate the full potential.

The recipients

Intel has been one of the large winners of the Chips Act of 2022. Pat Gelsinger has cleverly called this smart capital, but you could also call it money for nothing. Given its solid US heritage, Intel would likely have made these investments anyway.

In Intel Vision 2024, Pat Gelsinger wasted no time before showing a picture of himself and his friend, President Biden.

Intel has received direct grants of $8.5B and loans for $11B and also secured a Defence & Security grant valued at somewhere between $1.5B and $3.5B. The $1.5B of this grant is part of the Chips Act 2022.

Global Foundries got $1.5B in grants and $1.6B in loans. The former AMD manufacturing unit was also unlikely to have placed manufacturing facilities outside the US.

TSMC was the latest confirmed recipient of manufacturing grants of $6.6B and loans of $5B.

Micron is working on a grant worth $3B

Samsung is close to a grant of $6.6B but has stated that it is not interested in loans.

Microchip secured 150M$ of the mature semiconductors fund in line with its conservative manufacturing strategy of low obsolescence.

SK Hynix has found the Chips Act guardrails too restrictive so far, as they prohibit the company from expanding activities in China for the next ten years.

“Prohibit the recipients of Federal incentive funds from expanding or building new manufacturing capacity for certain advanced semiconductors in specific countries that present a national security threat to the United States.”

SK Hynix has a significant manufacturing footprint in China.

The Biden administration has softened its stance and is willing to allow for expansions in China for up to 10% annually.

There are over 400 other and smaller applications for the rest of the funding, but as can be seen, a significant proportion has already been allocated.

The overview of grants and timing

As can be seen, the Chips Act grants have been front-loaded and are available for distribution now. Although the Micron and Samsung grants have not yet been approved, they look like formalities. When those grants are approved, all funding until 2026 will have been spent.

The rest of the world.

In Europe, the concern is not only China and Taiwan but also the dominance of US corporations in the processing markets. EU has so far granted 13BEUR in the European Chips Act.

There is concern about US subsidies in Korea, where the semiconductor industry is key to the country's exports. The Korean government is planning to increase the subsidies significantly.

Kioxia and Western Digital have received grants from the Japanese government for their joint venture factories in Yokkaichi and Kitakami. The grant is 150BYen or just above 1B$.

Japan’s Fiscal System Council analysed Semiconductor subsidies, showing that Japan allocated significantly more resources to the chip industry than the USA and other countries.

This is not an exhaustive list of global grants, as almost all regions in the world are currently favouring the semiconductor industry.