US CHIPS Act Explained: Bringing Semiconductor Manufacturing Back Home

US CHIPS Act Explained: Bringing Semiconductor Manufacturing Back Home

The United States government has launched an ambitious effort called the US CHIPS Act to revive the country’s semiconductor manufacturing capabilities. Semiconductors or chips are tiny but mighty components that power everything from smartphones and laptops to advanced defense systems. They are extremely important for America’s economy and national security. However, over the past few decades, the U.S. lost its leading position in chip manufacturing to other nations. The CHIPS Act aims to change that through massive funding and initiatives.

America’s Lost Semiconductor Crown

In the 1960s through 1980s, the U.S. led the world in semiconductor innovation and production. American companies like Intel, Motorola and Texas Instruments pioneered cutting-edge chip designs and state-of-the-art factories called “fabs.” You can imagine fabs as factories where fabrication of semiconductor chips are done.

But that dominance faded starting in the 1990s and 2000s. Countries in Asia like Taiwan, South Korea, Japan, and China started investing heavily in new fabs and building their own chip industries. They had advantages like lower costs, focused supply chains, and strong government support.

By the 2010s, the U.S. share of global chip manufacturing plunged from staggering  37% in 1990 to just 12% in 2021. America became increasingly reliant on imports from Asia for the most advanced chips needed for smartphones, computers, cars and military tech.

Also Read: Almost all semiconductor companies faced melt down in revenues in 2023

Security Risks Add Urgency

This dependency raised serious economic and national security concerns, especially with rising tensions between the U.S. and China. There were fears that if China invaded the self-ruled island of Taiwan, home of the world’s most advanced chipmaker TSMC, it could devastate global tech supply chains.

This potential geopolitical chaos highlighted America’s risky overreliance on foreign semiconductor sources. The CHIPS Act became a top priority to insulate the U.S. from such disruptions by restoring domestic chip production.

Also Read: Semiconductor Fabrication explained 101

US CHIPS Act: Supercharging Semiconductor Investment

At the heart of the CHIPS Act is a $52 billion fund dedicated to reviving America’s semiconductor industry over the next 5 years, This whooping fund of $52 billion will be distributed as explained below:

  • Manufacturing Subsidies: Over $39 billion in subsidies and tax credits for private companies to build brand-new, state-of-the-art chip fabs in the U.S. There’s also money to expand existing fabs.

  • R&D and Workforce: Around $13 billion is allocated for semiconductor research and developing training programs to produce more skilled chip workers.
  • Secure Supply Chains: Funding to establish supply chain transparency rules and partnerships with allied nations to ensure secure chip supplies.

Also Read: US releases 2nd list of semiconductor export bans.

Accessing the Funds Of US Chips Act

The US CHIPS Act funds will be allocated through an application process overseen by the U.S. Department of Commerce. Companies interested in tapping into the manufacturing subsidies, R&D grants or workforce funding must submit detailed plans and proposals.

For the manufacturing subsidies specifically, companies will need to provide thorough business plans demonstrating their proposed investments, projected economic impacts like job creation, plans for workforce development, supply chain security protocols and more.

There are also “clawback” provisions that allow the government to recoup funding if companies fail to follow through on their commitments laid out in their applications.

Also Read: Intel is not actually behind their Flagship Gaudi processors

The Strings Attached with US Chips Act

While the CHIPS Act funds provide lucrative incentives, they come with important strings attached to protect U.S. interests:

  • Companies receiving the manufacturing subsidies must share excess profits with the government if they experience exploding profits.
  • They are prohibited from engaging in stock buybacks or issuing dividends when accepting the subsidies.
  • There are restrictions on investing in expanding chip capacity in countries like China that present national security risks.

So while the CHIPS Act aims to supercharge domestic semiconductor investment and production, it imposes guardrails to ensure the taxpayer funds are spent as intended to benefit America’s economic and security priorities.

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Roadblocks to Overcome in US semiconductor industry.

While the funding is substantial, there are major challenges:

  • Enormous Costs: Building a modern leading-edge chip fab now costs over $10 billion due to the extremely complex facilities and equipment required.
  • Global Competition: The U.S. is far behind chip-making giants like Taiwan and South Korea which have spent decades perfecting their semiconductor ecosystems.
  • Talent Shortage: There is a severe shortage of experienced semiconductor engineers, technicians and other skilled workers needed to run advanced fabs.

Oversight and Implementation

The U.S. Department of Commerce will oversee the disbursement of CHIPS Act funds through its newly formed CHIPS Program Office. An advisory board of prominent industry experts and academics will scrutinize funding decisions, while financial audits aim to ensure the money is spent effectively.

Industry Embracing the Challenge

Major chipmakers have welcomed the CHIPS Act as a much-needed catalyst for U.S. investment. Intel wasted no time unveiling a $20 billion “mega-fab” project in Ohio even before the Act passed. TSMC, Samsung and GlobalFoundries are considering multi-billion fab investments in America over the coming years.

While success is not guaranteed, the CHIPS Act provides the funding jolt the U.S. semiconductor industry felt it desperately needed to begin regaining its footing after decades of decline.

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