What is the "CHIPS Act" and what does it mean for American semiconductor companies?

5 minutes

In the same month as this letter was sent (February 2021), the Whitehouse Press Secretary, J...

In the same month as this letter was sent (February 2021), the Whitehouse Press Secretary, Jen Psaki, stated that Biden had plans to take on a comprehensive review of supply chains and critical goods.

The month before, the CHIPS for America Act, part of the FY 2021 National Defense Authorization Act, had already been approved in principle, albeit without funding. 

Eleven months down the line, the House of Representatives is yet to pass the CHIPS act, with members saying they want to create their own bill. 


What is the CHIPS Act?

The aptly named Act stands for 'Creating Helpful Incentives to Produce Semiconductors for America Act' the premise of which is 'to restore American leadership in semiconductor manufacturing.'

This is planned to be achieved through enabling advanced R&D, increasing federal incentives, securing the supply chain, and building long-term economic competitiveness and national security. 

The proposed funding equates to $52 billion, triple what was spent developing and manufacturing the COVID-19 vaccine.

Specific mandates within the bill include supporting:

  • Advanced microelectronic packaging.

  • Manufacturing microchips utilising 3-nanometer transistor (or more advanced) processes.

  • Supply chain and security verification using metrology.

  • Automation and virtualisation of maintenance for semiconductor machinery.


Why the CHIPS Act now?

It’s unusual for the US to get involved with industrial policy, but given the national significance of chip tech, you can see why they are making an exception. 

The ongoing semiconductor shortage undoubtedly contributed to the need for this kind of Act, and now. With the majority of the USA’s chips being manufactured overseas, the pandemic and shipping crisis unveiled a glaring problem for America. 

Another driving force has to be the geopolitical conflicts. Not only did China's previous stockpiling of chips heat tensions with the US further, but its evident expansion within the semiconductor sphere suggests the country could become the largest manufacturers of semiconductors worldwide. 

And China isn't the only country making plans to increase its grip on the Semiconductor market. For example, the government in Korea is discussing subsidising $65 billion to its chip sector. 

Japan has created a special fund of $6.8 billion in support of semiconductor manufacturers. This move is undoubtedly in line with Japan's prime minister's campaign to mould the country into a 'global chip factory'.

Mario Drahi, Italy's prime minister, has stated that governments must commit to a European Union plan to raise its share of global semiconductor production by up to 20% by 2030.

If America doesn't make plans and execute them soon, they risk being left behind.


What does the CHIPS Act mean for the Semiconductor companies in the USA?

While we mentioned earlier that the US could be at risk of falling behind in terms of manufacturing semiconductors, their overall position within the market is by no means weak. 

The USA and its allies either dominate or hold a strong position in other aspects of the semiconductor sector, including:

  • Design

  • EDA (Electronic Design Automation)

  • Core IP

  • SME (Semiconductor Manufacturing Equipment)

Where the country is more vulnerable are areas such as fabrication and foundries. 

Building a fab can cost anything between one and four billion dollars. And so, if some of the $52 billion from the CHIPS Act were to go towards building sites to manufacture semiconductors, this would strengthen an area the US is considered lacking in compared to other countries. 

Additionally, building new fabs, if that’s the direction this goes in, means job opportunities for semiconductor specialists living and working in the US.

In keeping with the Act's aim to restore American manufacturing leadership, advanced research and development is also a focus. The CHIPS Act proposes studies and surveys be carried out to highlight industry problems and support education in 'relevant' fields. 

This could work towards reducing the skills shortage by enticing more students to study the necessary topics and become industry disruptors. Moreover, if the budget also includes upskilling, the US might also be able to reduce the number of skilled workers leaving the industry, strengthening the country’s position even more. 

While previous government intervention (SEMATECH) didn't yield the desired results for the semiconductor industry, if handled well, the CHIPS Act could be a substantial driving force for semiconductor companies in the USA.


Will the CHIPS Act be passed?

The CHIPS Act, part of the US Innovation and Competition Act, was passed in June by the senate and had bipartisan support. However, it has been stalled by the House of Representatives.

At a recent online event, the Senior Director for International Economics and Competitiveness, Peter Harrell, stated that they are doing everything they can to get the CHIPS Act over the line. 

Gina Raimondo, the Commerce Secretary, is also urging the Act to be passed.

With multiple people pushing forward to get the Act established, all we can do for the time being is wait it out and stay abreast of developments.

MRL stays up to date with semiconductor industry news. Keep checking back for the latest.