The VON Evolution Conference will address the intersection between Telecom, AI, 5G and Blockchain: Broadband breakfast

WASHINGTON, February 28, 2023 – The Commerce Department’s announcement Tuesday of billions in funding to manufacture semiconductor chips is an effort to bring packaging of the key technologies back to the United States, ease 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 tender – the first of several – will focus on the construction, expansion or modernization of commercial semiconductor manufacturing facilities. Later this year, the department will have separate funding opportunities for semiconductor materials and manufacturing equipment and research and development facilities. The department requests that declarations of interest be sent from Tuesday to gauge interest in the later programmes.

Much of the money from the legislation, which became law last summer, will be concentrated on the manufacturing component of the semiconductor’s lifetime, which is key to the development of computing, critical infrastructure and cars. The department has noted that while the United States is a global leader in chip design and research and development, it has ceded its lead in manufacturing to East Asia, which it said has pioneered methods of producing the chips in a way that makes economic sense. It estimates that US semiconductor production accounts for about 10 percent of commercial global production.

But the department only has $52.7 billion to play with — $39 billion for semiconductor incentives, $13.2 billion for research and development and workforce development, and $500 million to strengthen global supply chains. The limited availability of Chips and Science Act funding 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 all applicants 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 businesses weather temporary downturns. Instead, the CHIPS program office will be laser-focused on advancing U.S. economic and national security goals.”

The incentive financing will be either direct financing, loans or loan guarantees. Direct funding is expected to vary between five and 15 percent of project costs. Overall, the program office expects that the available incentives will not exceed 35 per cent of the project costs.

In other words, the program is tapping private investment and other sources of funding to carry a burden. The department said it expects applicants to be offered an incentive by their state or local government and encourages 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 provisions

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 buy back their own shares. Indeed, the department said it will require all applicants to “detail their intentions” to buy back shares over five years as part of the review process.

The department has introduced other provisions. A key component of the program is to address national security threats and ensure that these threats do not penetrate the manufacturing process.

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

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

As for logistics, the office said the money will be drip-fed as the project reaches construction and operational milestones, giving 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 termination of all funding, the department noted.

Later this year, the department said it will release its strategy for implementing the National Semiconductor Technology Center, a public-private consortium that will provide stakeholders with an opportunity to address challenges and opportunities.

“Today’s notice of funding opportunity is a crucial step in unleashing the promise of the CHIPS and Science Act to create good-paying jobs here at home and end our dangerous dependence on semiconductors manufactured abroad,” said the ranking member of the Energy and Commerce Committee. Frank Pallone, Jr., DN.J. said in a statement.

“I commend the president [Joe] Biden and secretary [Gina] Raimondo for their dedication to increasing domestic chip production, strengthening our supply chains and unleashing next-generation innovation. I look forward to continuing to work with the administration to successfully implement this historic legislation,” he added.

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

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