CHIPS & Science Act Pours Billions into Semiconductor Manufacturing – What’s Next?
A breakdown of what’s in the new CHIPS and Science Act and what to expect in the semiconductor industry over the coming months.
The CHIPS and Science Act, a $280 billion package aimed at domestic semiconductor manufacturing and R&D, officially became law earlier this month. As its name suggests, the legislation primarily targets chip manufacturers—providing $52 billion in subsidies for producing semiconductors for key markets like electric vehicles, consumer electronics and defense applications.
Overall, the CHIPS Act will cost $47.5 billion through 2026 and $79 billion over 10 years, according to the Congressional Budget Office. The legislation’s main appropriations include $39 billion in financial incentives to build, expand or modernize domestic semiconductor fabrication facilities (or “fabs”); $11 billion for semiconductor research and development programs; $2 billion for producing legacy chips for defense-specific applications; and $1.5 billion to create a wireless supply chain fund for open-architecture mobile broadband projects. The law also creates a 25% investment tax credit to cover the capital expenses for building semiconductor manufacturing facilities and related equipment.
The CHIPS Act and the Supply Chain
The CHIPS Act is ostensibly meant to spur a more resilient domestic supply chain to compete with China, whose generous government subsidies gradually lured American chipmakers overseas over the last few decades. The U.S. currently claims a tiny slice of the world’s semiconductor production footprint, which is largely concentrated in China and Taiwan.
Per data from the SIA, America’s share of global manufacturing capacity shrank from 37% in 1990 to 12% in 2020. That gap still exists today, with the U.S. only accounting for four of the 39 new fab projects announced worldwide last year.
The cost of building semiconductor fabs ranges from $5 billion to $20 billion or more, a significant capital investment even for industry giants with tens of billions of dollars in annual revenue. As companies decide whether or not to take advantage of the CHIPS Act’s billions in appropriations, the coming months will likely see a slew of announcements for new or expanded chip fabrication facilities.
The Semiconductor Industry Association (SIA), which represents 98% of the U.S. semiconductor industry by revenue and nearly two-thirds of non-U.S. chip firms, applauded the bill’s passage last month.
In a statement, the SIA said the new funding will “create hundreds of thousands of American jobs [and] spur hundreds of billions of dollars” in chip company investments in the U.S.
Two years ago, the SIA and Boston Consulting Group estimated that federal manufacturing grants and tax relief totaling $20–$50 billion could attract 19 new fabs over the next decade—a 27% increase from 70 commercial fabs currently.
More Companies to Add Domestic Production Capacity
Since the CHIPS and Science Act passed earlier this month, two leading companies announced nearly $45 billion in additional investments for domestic manufacturing.
Idaho-based Micron Technology revealed plans to invest $40 billion in U.S. memory manufacturing over the next 10 years, expecting to begin production in the second half of the decade. The company’s announcement cited the anticipated grants and credits provided through the CHIPS Act. Micron President and CEO Sanjay Mehrotra stated, “This legislation will enable Micron to grow domestic production of memory from less than 2% to up to 10% of the global market in the next decade, making the U.S. home to the most advanced memory manufacturing and R&D in the world.”
Also this month, California-based semiconductor firms GlobalFoundries (GF) and Qualcomm announced an extension of their current manufacturing contract, with the latter agreeing to purchase an additional $4.2 billion in chips from GF’s fab in upstate New York (bringing its total commitment to $7.4 billion through 2028).
GF President and CEO Thomas Caulfield mentioned the CHIPS Act in the company’s announcement on Aug. 8, stating that the deal “secures Qualcomm Technologies as a key long-term customer through 2028 in our most advanced fab in upstate New York, which together with U.S. CHIPS and state funding, will fuel expanding GF’s US manufacturing footprint.”
Construction Already Underway for Several Chip Fabs
Several leading chip companies are in the process of building new fabrication facilities across the country. And with new funding for plant expansions, construction activity could ramp up in the coming months.
Intel announced last year that it would invest $20 billion to add two new fabs at its campus in Arizona, with production slated for 2024. And earlier this year, the company committed another $20 billion to build two processor factories in Ohio, which are expected to come online in 2025.
For the Ohio fabs, Intel said its total investment could grow to $100 billion over the next decade as it builds out a “mega-site” with eight chip fabs. However, Keyvan Esfarjani, Intel’s senior vice president of manufacturing, supply chain and operations, stated that the “scope and pace of Intel’s expansion in Ohio will depend heavily on funding from the CHIPS Act.”
A rendering of Intel’s upcoming processor plant in Ohio. Image used courtesy of Intel
Meanwhile, Texas Instruments broke ground on its $6.5 billion 300-millimeter semiconductor wafer fabrication plant in north Texas last May. The company said its total investment could reach $30 billion and expand to four fabs over time as demand grows. Production of analog and embedded processing chips from the first plant is expected to begin in 2025.
The Taiwan Semiconductor Manufacturing Company (TSMC), one of the world’s top chip companies, recently completed the construction of its $12 billion chip plant in Arizona. The 5-nanometer semiconductor fab is expected to start production in 2024 at a capacity of 20,000 wafers per month.
Also, South Korean electronics giant Samsung is reportedly proposing a $190 billion expansion in Texas, adding 11 potential chip plants to its existing $17 billion development.
A shot of TSMC’s upcoming 5-nanometer semiconductor fab in Arizona. Image used courtesy of TSMC
More chipmakers are expected to ramp up their U.S.-based manufacturing capacity over the coming years, but whether they take advantage of the CHIPS Act depends on their overall global strategy. A recent analysis from PricewaterhouseCoopers notes that since the law prevents companies from expanding in China or other nations posing a national security threat, they should carefully consider whether the value of federal funding would sufficiently offset geographical manufacturing constraints.
Feature image used courtesy of Intel