The Biden administration is on the verge of distributing $39 billion in grants under the landmark Chips and Science Act, a bipartisan initiative aimed at revitalizing the domestic semiconductor industry. This act, passed two years ago, marks the most ambitious US industrial policy since World War II. The goal is to reestablish sophisticated chip production within the United States, targeting companies such as Intel Corp., Micron Technology Inc., Taiwan Semiconductor Manufacturing Co. (TSMC), and Samsung Electronics Co. A key objective is to manufacture 20% of the world’s most advanced processors domestically by 2030, up from virtually none today.
The progress has been substantial but fraught with challenges. Hundreds of firms have vied for funding, leading to complex negotiations. US officials have debated which sectors of the chip economy to prioritize, ultimately awarding the largest preliminary grant to Intel. However, Intel recently disclosed significant business challenges, including plans to cut over 15,000 jobs due to declining sales and stock values.
The broader question is whether the US can maintain momentum in this ambitious undertaking. Industry leaders have cautioned that $39 billion is insufficient on its own. The country needs to find over 160,000 workers and is heading toward a potentially disruptive presidential election.
Mike Schmidt, head of the Commerce Department’s Chips Program Office (CPO), is at the forefront of this effort, aiming to reduce dependency on Asian chip production. Schmidt’s team, consisting of talent from Washington, Wall Street, and Silicon Valley, has made notable progress. Major investments in US semiconductor manufacturing have been secured, with nearly 100 companies pledging around $400 billion for new facilities. Over half of this investment comes from TSMC, Intel, and Samsung, which are building new fabrication centers for cutting-edge technology.
Despite this progress, many chips will still be processed in Asia. Efforts to persuade TSMC to add packaging capacity to its Arizona site were unsuccessful, meaning many chips will be sent overseas for key steps in the manufacturing process. This reliance on global supply chains poses national security risks that the US aims to mitigate.
The administration also faces challenges in promoting memory chip production, a sector with low profit margins. While Samsung proposed a large-scale investment in Texas, the CPO opted to support Micron’s projects in Idaho and New York, influenced by political considerations and strategic priorities.
Intel remains a critical player, with plans for a major chipmaking facility in Ohio. However, Intel’s recent financial struggles cast doubt on its ability to meet these ambitious goals. The Chips Act includes provisions to ensure companies meet construction and production benchmarks before receiving funds, with mechanisms to reclaim disbursed funds if projects falter.
In addition to Intel’s challenges, the act funds a $3.5 billion program for advanced military electronics, the Secure Enclave, to be managed by Intel. However, funding issues and bureaucratic hurdles have complicated this effort.
Real progress includes companies breaking ground on new facilities across the US. However, delays due to environmental reviews and logistical issues have slowed some projects. The CPO is also addressing labor provisions and negotiating terms to ensure compliance with federal standards.
A critical aspect of the initiative is workforce development. The semiconductor industry faces a potential shortfall of 59,000 engineers and 69,000 technicians over the next five years. Training programs and partnerships with educational institutions are essential to address this gap and ensure a skilled labor force for new facilities.
As the administration finalizes grant allocations, political uncertainties loom. The upcoming presidential election could impact the continuity of the Chips Act’s implementation. Despite these challenges, the bipartisan nature of the act provides some stability, with even former opponents recognizing its achievements.
Mike Schmidt remains optimistic, emphasizing the importance of trust and strong relationships with industry partners to navigate the complexities of this ambitious program.
