In Call for Chips Incentives, U.S. Sets Sights on Taking Back Manufacturing Share of Key Technologies

WASHINGTON, February 28, 2023 – The Commerce Department’s call for applications Tuesday for billions in funding to manufacture semiconductor chips is an attempt to bring packaging of the key technologies back to the United States, alleviate supply chain concerns that have wreaked havoc since the start of the pandemic on consumer products and infrastructure builds, and combat national security threats.

The call for applications – the first of several – will be focused the construction, expansion or modernization of commercial semiconductor manufacturing plants. Later this year, the department will hold separate funding opportunities for semiconductor materials and manufacturing equipment and research and development facilities. The department is asking for statements of interest to be submitted starting Tuesday to gauge interest in those later programs.

Much of the money from the legislation, which became law last summer, will be concentrated on the manufacturing component of the life of the semiconductor, which is key to development of computing, critical infrastructure and automobiles. The department has noted that while the U.S. is a global leader in chip design and research and development, it has relinquished position on manufacturing to east Asia, which it said has pioneered methods of manufacturing the chips in a way that makes financial sense. It estimates that the U.S. semiconductor manufacturing accounts for about 10 percent of commercial global production.

But the department has just $52.7 billion to play with – $39 billion for semiconductor incentives, $13.2 billion for research and development and workforce development, and $500 million for strengthening global supply chains. The limited supply of funding from the Chips and Science Act means Commerce’s CHIPS Program Office will be running a tight ship when it comes to delivering the money.

“Trade-offs will be necessary. Not every applicant will receive funding, and many projects will not receive as much support as applicants request,” according to a “vision for success” document released Tuesday. “CHIPS funding will not be used as a crutch to help companies endure temporary slumps. Instead, the CHIPS Program Office will be laser-focused on advancing U.S. economic and national security objectives.”

The incentives funding will be in either direct funding, loans or loan guarantees. Direct funding is expected to range between five to 15 percent of project costs. In total, the program office expects the incentives available to not exceed 35 percent of project costs.

In other words, the program is banking on private investment and other sources of funding to carry a burden. The department said it expects applicants to be offered an incentive from their state or local government and is encouraging them to claim the Advanced Manufacturing Investment Credit administered by the Treasury Department and the Internal Revenue Service.

Moratorium on working with foreign countries of concern and other stipulations

Because of the limited funding available, the department said in a fact sheet that applicants are barred from using the money to pay dividends to shareholders or buying back their own stock. In fact, the department said it will require all applicants to “detail their intentions” on stock buybacks over five years as part of the review process.

The department has put in place other stipulations. A key component of the program is to address national security threats and to ensure that those threats don’t seep into the manufacturing process.

As such, the department is requiring successful applicants agree “not to engage in any significant transaction involving the material expansion of semiconductor manufacturing capacity in any foreign country of concern for the 10-year period beginning on the date of the award, except under certain limited conditions.” The department said it will work with foreign governments to provide clarity on the “purpose and practical impact of these guardrails.”

In addition, recipients of more than $150 million in direct funding will be required to share with the government a portion of any cash that exceeds the applicant’s projections above an established threshold. As part of the workforce component, the department will also require applicants wanting more than $150 million to put in place affordable, reliable and high-quality childcare.

In terms of logistics, the office said the money will be drip fed when the project reaches construction and operational milestones, which gives the department an opportunity to monitor progress and ensure compliance. Any joint work with a foreign entity identified as a national security threat will result in the termination of all funding, the department noted.

Later this year, the department said it will release its strategy for the implementation of the National Semiconductor Technology Center, a public-private consortium intended to gives stakeholders an opportunity to address challenges and opportunities.

“Today’s Notice of Funding Opportunity is a crucial step to unleashing the promise of the CHIPS and Science Act to create good-paying jobs right here at home and end our dangerous dependence on semiconductors manufactured abroad,” Energy and Commerce committee ranking member Frank Pallone, Jr., D-N.J. said in a statement.

“I commend President [Joe] Biden and Secretary [Gina] Raimondo for their dedication to boosting domestic manufacturing of chips, strengthening our supply chains, and unleashing the next generation of innovation. I look forward to continuing to work together with the Administration to successfully implement this historic legislation,” he added.

The precursor to the Chips and Science Act was a June 2021 report from the White House that found the U.S. is “dangerously dependent on specific countries for parts” of products, such as semiconductors.

A number of semiconductor manufacturing plants have been announced or emerged in recent months, including Intel’s $20 billion facility in Ohio, Micron’s $15 billion plant in Idaho, and Wolfspeed’s $5 billion semiconductor plant investment in North Carolina.