CHIPS Act is working as billions of dollars in payouts is divvied out to semiconductor makers

More than a year and a half after the CHIPS and Science Act was signed into law, the Biden Administration has begun divvying up $52.7 billion in funding and tax incentives meant to spur semiconductor production on US soil, though the actual funding has yet to be dispersed.

Over the past several months, the administration, which championed the legislation, has allocated about $29 billion in funding among chipmakers, including Samsung, TSMC and Intel. In return, various chip designers and makers have pledged about $300 billion in current and future projects in the US, according to the White House.

The most recent announcement last week was for $6.14 billion toward Micron’s plans to build new fabrication plants in upstate New York and perform upgrades elsewhere. To date, Intel has reaped the most in promised funds: $8.5 billion.

The Department of Commerce, which is administering the CHIPS Act, has spent months negotiating with semiconductor designers and fabricators to gain commitments from the companies and to achieve specific milestones in their projects before getting government payouts.

For example, negotiations between the federal government and TSMC resulted in the Taiwanese semiconductor designer and manufacturer being promised $6.6 billion in CHIPS Act funding; in return, the company bringing its most advanced 2nm process technology to US shores and adding plans for a third fabrication plant to its Arizona site.

Micron Technologies

At the beginning of 2023, TSMC, the world’s largest chip maker, began construction on its second chip fabrication plant near Phoenix, AZ. For Biden, TSMC’s three plants represented the flagship of the CHIPS Act incentive program. The TSMC project, however, stalled, and the company announced it had pushed back its completion date to 2025 due to problems finding skilled labor.

TSMC had promised to make a $40 billion investment in its US chip production plant. The investment represents the largest ever foreign investment in Arizona and one of the largest in US history.

Micron said it might spend up to $100 billion over the next 20 years to expand its US facilities, including a $15 billion memory chip plant in its home base of Boise, ID.

Industry analysts say the CHIPS Act is having its desired effect — the largest semiconductor designers and makers are investing in the US. By 2030, research firm IDC expects that 30% of the leading edge chip techology will be produced in the US, Western Europe, and Japan.

“Today, the semiconductor supply chain is concentrated in Asia,” said Mario Morales, a group vice president at IDC. “In fact, 100% of the global leading-edge chip capacity — 5nm and below — is only available in Taiwan and Korea. This will change dramatically by the end of the decade as leading-edge manufacturing is reestablished in the western hemisphere and in Japan.”

The latest round of CHIPS Act funding will support Micron’s construction of the first two fabs of a planned four-building “megafab” focused on leading-edge DRAM chip production. Each fab will have 600,000 square feet of cleanrooms, totaling 2.4 million square feet across the four facilities — the largest amount of cleanroom space ever announced in the US and the size of nearly 40 football fields.

The CHIPS Act’s purpose was to strengthen American supply chain resilience after the pandemic and counter China’s rising share of the market. The US share of global semiconductor fabrication capacity has fallen from about 36% in 1990 to about 10% in 2020, according to a Congressional Research Service report. Meanwhile, China’s share of chip manufacturing has grown nearly 50% over the past two years and now comprises about 18% of the world’s supply.

More CHIPS Acts to come?

The White House has argued that CHIPS Act spending will grow America’s share of the world’s leading-edge chip market to 20% by 2030. But experts say more government incentives will be needed to sustain and continue that growth domestically.

“The first CHIPS Act is just the start, there will be more funds needed to sustain and include other parts of the supply chain like materials, OSAT, design, and tools,” Morales said. “I expect that a second CHIPS Act will likely be higher in value than the first and will be approved sometime in the second half of this decade — in 2026 or 2027.”

Gaurav Gupta, a vice president analyst at Gartner Research, agreed with Morales that more funding is needed, and that while the current funding closes the capital cost gap, it does not do much for future operational costs. “Various factors will continue to make it expensive for fabs to be competitive here, like the regulatory and compliance framework that causes delays, labor compensation, higher utility rates, etc,” he said.

“So, if the US government really wants the needle to move and make this current CHIPS Act have a real impact, I expect version 2.0, 3.0 and onwards to come. When and what amounts they would be is hard to predict for now,” Morales said.

The current CHIPS Act includes $39 billion in subsidies for chip manufacturing on US soil along with 25% investment tax credits for costs of manufacturing equipment, and $13 billion for semiconductor research and workforce training.

In December, Computerworld contacted the Department of Commerce to discover why funds from the CHIPs Act had yet to be distributed. The Department said at the time it was still in “complex negotiations” with chip manufacturers to ensure the money is wisely spent.

In February, the Administration announced $1.5 billion for GlobalFoundries to support the development and expansion of facilities in Malta, NY, and Burlington, VT.

Last month, more multi-billion-dollar distributions were announced, including $8.5 billion for Intel to support investments across four states, (Chandler, AZ; Rio Rancho, NM; New Albany, OH; and Hillsboro, OR) to construct logic fabs, modernize advanced packaging facilities, and invest in R&D.

Along with Micron this month, $6.4 billion was allocated for Samsung to build an R&D facility, and advanced packaging fabs in Taylor, TX, and to expand a current-generation and mature-node facility in Austin, TX. And $6.6 billion was earmarked for TSMC to support the development of three greenfield leading-edge fabs in Phoenix, AZ.

Chip production, the supply-chain crisis, and the new law

In 2021, the decline in domestic chip production was exposed by a worldwide supply-chain crisis that led to calls for reshoring manufacturing to the US. After more than a year of work from the Administration to respond to acute semiconductor shortages, Congress in August 2022 passed the measure. With the CHIPS Act spurring them on, semiconductor makers including  Intel, Samsung, Micron, TSMC, and Texas Instruments unveiled plans for a number of new plants on US soil. (Qualcomm, in partnership with GlobalFoundries, also said it would invest $4.2 billion to double chip production in its Malta, NY facility.)

Companies became eligible In February 2023 to apply for the first round of CHIPS Act incentives totaling $39 billion for the construction of large-scale fabrication facilities. Last September, a second funding opportunity for small-scale fabrication projects opened.

The Commerce Department said the CHIPS ACT has moved extremely fast for a government program. For example, as part of the funding application process, the agency has received over 530 statements of interest from companies in 42 states. The department also received 120 pre-applications and full applications for funding.