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On August 9, 2022, the US CHIPS and Science Act was officially signed into law. Now, two years later, the Biden administration is close to completing the plan to allocate $39 billion in subsidies under the CHIPS Act. The world's five largest wafer foundries, including Intel, TSMC, Samsung, Micron and SK Hynix, have pledged to invest in chip factories in the United States. However, the United States aims to produce one-fifth of the world's most advanced processors by 2030, but the current level of achievement is about zero. In addition, the US chip industry still faces problems such as limited subsidies, talent shortages and uncertainties brought about by the US election, and greater tests are still to come.

The central figure in the implementation of the US Chip Act and the development of the chip industry is Mike Schmidt, who is in charge of the 175-person Chip Program Office (CPO) of the US Department of Commerce. The team is composed of talents from Washington, Wall Street and Silicon Valley. Their main task is to reduce dependence on Asia, especially Taiwan, China, because microelectronic components power everything from microwave ovens to missiles.

《CHIPS Act》Can cover nearly half of the wafer fab costTo be issued by the end of 2024

The U.S. is on the right track in many ways, but it hasn’t been easy. Hundreds of companies spent months haggling, and even U.S. officials themselves disagreed over which parts of the chip economy needed the most help. They chose to award the largest initial subsidy, $8.5 billion, to Intel, a company that U.S. Commerce Secretary Raimondo called an “American champion.”

In early August this year, the US government said it would provide SK Hynix with a $450 million subsidy and a $500 million loan to build advanced chip packaging and research facilities in Indiana. The project will enhance the US's production capacity in key parts of the artificial intelligence (AI) supply chain. US officials called it a milestone in rebuilding the US semiconductor manufacturing industry.

In addition, the U.S. Department of Commerce awarded subsidies of $6.6 billion to TSMC, $6.4 billion to Samsung, and $6.14 billion to Micron.

U.S. Commerce Department officials recently said that with the addition of SK Hynix's grant, the U.S. Chip Act has now allocated more than $30 billion of the $39 billion in funds, including $75 billion in loans.

A senior administration official said the $39 billion from the CHIPS Act has not yet been distributed to companies, but is expected to start being disbursed by the end of the year. The Commerce Department will reportedly decide how to allocate the remaining funds around the same time.

Nearly 100 companies pledged to invest $400 billion to increase wafer production capacity to 14% by 2032

The Semiconductor Industry Association (SIA) predicts that the U.S. share of global wafer fab capacity will rise from the current 10% to 14% by 2032. Without the CHIPS Act, this share will drop to 8%.

Mike Schmidt said in an interview that both American and foreign companies are now "massively investing in semiconductor manufacturing in the United States," which is a huge milestone in itself. "If you could go back two years ago and tell us that we would be at this level now, I would 100% choose it."

In a statement on the second anniversary of the CHIPS Act, President Biden said: "Since I took office, companies have announced nearly $400 billion in investments in U.S. semiconductor manufacturing, thanks in large part to the support of the CHIPS Act. These investments have created more than 115,000 manufacturing and construction jobs in our semiconductor industry. By 2032, the United States is expected to account for nearly 30% of the world's supply of cutting-edge chips, up from zero two years ago."

Biden claims that while there is still a lot of work to be done, the CHIPS Act is bringing chip manufacturing back to the United States, strengthening the global supply chain, and ensuring that the United States continues to lead the world in artificial intelligence and other technologies that homes, businesses, and the military rely on every day.

The U.S. priority is to ensure the construction of at least two large manufacturing clusters for producing cutting-edge logic chips, the "brains" of devices. In the past few years, nearly 100 companies have pledged to invest about $400 billion in construction projects in the United States, more than half of which are from TSMC, Intel and Samsung, which are planning to build a series of new chip manufacturing centers or fabs.

But the road to chip construction in the United States is full of difficulties.

Samsung and Micron's memory plans are "incompatible"

Most semiconductors from fabs like TSMC, Intel, Samsung, etc. will be packaged through Asia. U.S. officials also want to have a large-scale advanced packaging base, which is the process of packaging chips and connecting them to other hardware.

The CPO has been unable to convince TSMC to bring packaging capabilities to its Arizona plant, according to people familiar with the matter. Even though suppliers are building factories nearby, many chips will be shipped overseas for key processes. This is true for much of the U.S. semiconductor ecosystem. A senior Commerce official warned that the dynamic "creates supply chain and national security risks that we cannot accept."

Asked how many U.S.-made chips could be packaged here under current plans, Schmidt didn't give a specific number. "The supply chain will remain global," he said, adding that the U.S. has established a "solid foothold." So far, the CPO has funded five packaging-related projects, including one that will focus on chips shipped from South Korea.

U.S. officials seek to increase cutting-edge DRAM memory, which processes data storage and is critical to the artificial intelligence boom. But the Biden administration has hit a wall on how to introduce the memory chips.

Samsung floated the idea of ​​building a memory factory in Texas as part of a broader investment plan that would more than double its current commitments, but CPO decided not to fund it, the people said.

Instead, officials have focused their ambitions on Micron's memory chip projects in Idaho and upstate New York. Micron plans to build as many as four wafer fabs in the Syracuse area over the next 20 years. But the CPO is seeking projects that will begin production by the end of the decade and is funding only the first two fabs. That will "provide the foundation" to make continued investment attractive, Schmidt said.

But full construction of Micron's plant is far from certain. According to a letter seen by the media, the Environmental Protection Agency is concerned that Micron's proposed plant is "not currently compliant" with the Clean Water Act. It points to significant impacts on wetlands and says Micron is developing (but has not yet submitted) a comprehensive mitigation plan. The company said the New York site "may have impacts on wetlands," adding that permit applications are in progress.

"American Champion"Troubled Washington risks widening

Then there's Intel.

Pat Gelsinger, the CEO of embattled Intel, has tied an ambitious turnaround plan to CHIPS Act funding and has called for a “CHIPS II” expansion. The highlight of that expansion is a sprawling complex in Ohio that Intel says will be the world’s largest chipmaking plant and that Biden has called “Dreamland.” Getting there has been a challenge. The state’s semiconductor ecosystem is patchy, and it’s unclear whether Intel has found customers.

The Silicon Valley pioneer disclosed serious business problems earlier this month as it planned to cut about 17,500 jobs amid falling sales and its stock price fell to its lowest level in nearly a decade.

Even after announcing layoffs and cutting the company's long-admired dividend, Gelsinger said Intel remains committed to its manufacturing roadmap. Mike Schmidt mentioned those comments when asked about Intel's recent earnings report. If there are setbacks, the CHIPS Act has a built-in insurance policy: Companies don't receive funds until they meet certain construction and production benchmarks, and if a project is never completed, the CPO can recoup funds that have already been disbursed.

"The company is prioritizing core investments that build the foundation for our future, and we are committed to existing U.S. projects in Arizona, New Mexico, Ohio and Oregon," Intel said in a statement.

But if Intel fails to meet its goals, the risk is even greater. The company is also the sole beneficiary of a $3.5 billion CHIPS Act program to produce advanced electronics for the military, the so-called Secure Enclave. The plan aims to create a separate, enclosed area within Intel factories to produce semiconductors for top-secret defense purposes. The plan has caused an uproar in Washington, in part because it shifts responsibility for defense semiconductors to a single company.

But the real drama began in February, when the Department of Defense notified the Commerce Department that it would no longer cover $2.5 billion in costs for the secure enclave. Days later, lawmakers directed the CPO to shoulder the entire burden. The CPO ultimately helped make up the shortfall by canceling a commercial R&D program, meaning it could no longer fund a $4 billion project for Applied Materials, based in the heart of Silicon Valley.

To many in government and industry, the episode seemed like a classic example of Washington getting what it deserves.

$84 billion in major investments delayed or put on holdUS election adds uncertainty to industry

Intel is vital, but it is not everything. The more fundamental question is whether the United States can maintain momentum in the broader cause.

A survey found that of the manufacturing project investments worth more than $100 million announced in the first year of the implementation of the CHIP Act, a total of $84 billion in projects were postponed ranging from two months to several years, or suspended indefinitely, accounting for about 40%.

Businesses said worsening market conditions, slowing demand and a lack of policy certainty in a high-stakes election year had led them to change their plans.

“Every project is costing more than expected because of labor and supply chain,” said Craig McFarland, mayor of Casa Grande, Arizona.

TSMC has delayed the start-up of its second U.S. fab by two years. Suppliers have also reconfigured projects, with Changchun Group delaying its $300 million plant by two years and KPCT Advanced Chemicals pausing construction of its $200 million plant.

In addition, some of the delays are policy-driven. The slow rollout of the US government’s CHIPS Act to fund semiconductor projects and the lack of clarity in the Inflation Reduction Act (IRA) rules have stalled many projects.

Electrolyzer maker Nel Hydrogen has paused construction of a $400 million plant in Michigan due to uncertainty over hydrogen tax credit rules, and Georgia battery parts maker Anovion has delayed construction of an $800 million plant by more than a year due to unclear IRA electric vehicle regulations.

Beyond that, there are a host of factors weighing on the broader U.S. business landscape. Industry leaders have been warning that $39 billion isn’t actually that much; companies will need to find at least 160,000 employees; and the upcoming U.S. presidential election will only add to the uncertainty.

Even under optimistic forecasts, the U.S. semiconductor industry will be short of 59,000 engineers over the next five years, and possibly as many as 77,000, according to McKinsey & Company. The real concern is that without immigration reform and a cultural shift to attract more Americans to hardware innovation, the U.S. may build a lot of factories but struggle to stay ahead.

Donald Trump's likely victory in November's presidential election has added to uncertainty. While most IRA-related manufacturing investments have gone to Republican-controlled districts, the bill did not receive votes from members of Congress. At campaign rallies, the former president vowed that he would "end" the IRA if elected.

Two years have passed since the US government's $39 billion chip industry subsidy plan was announced. The impact of the plan is becoming increasingly apparent: large companies producing advanced process chips have received a boost, but money is not everything. The implementation of the CHIPS Act is full of challenges. With the basic allocation of the CHIPS Act funds completed, the real test has begun. (Proofread by Sun Le)