Supply Chain Matters highlights this week’s release of a strategy outline for the recently passed U.S. Chips and Science Act.



In early August, the U.S. Chips and Science Act was signed into law. This legislation was designed to reduce dependence on Asian based suppliers for strategic supply of semiconductor device components and to foster a more domestic based capability for deemed essential device categories. The legislation provides upwards of $77 billion in subsidies and tax credits earmarked to boost both U.S. based research and development as well as domestic semiconductor chip production capabilities. It is a literal first for establishing a strategic U.S. supply chain strategy by means of federal legislation.

In a Supply Chain Matters posting published on the day of signing into law by President Joseph Bidon, we noted the overall significance to high tech, consumer electronics, industrial and automotive supply networks among other industries. We indicated that this legislation was about fostering domestic and partner friendly semiconductor supply chain capabilities and ecosystems. It is further about instituting supply chain risk mitigation and resiliency at a policy level.

This week, the Biden Administration, through the office of the U.S. Department of Commerce, published a strategy document titled: CHIPS for America, A Strategy for the Chips for America Fund.

The Introduction section indicates that the document describes the U.S. Department of Commerce’s implementation strategy for the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Fund. Readers can certainly review this over twenty-page document, but in this posting will include some key highlights.

Identified are four strategic goals related to investment areas:

  • Investing in S. production of strategically important semiconductor chips including those leveraging leading-edge technologies.
  • Assurance of a sufficient, sustainable and secure supply of older and current generation semiconductor chips for national security purposes and for deemed critical manufacturing industries.
  • Strengthening of U.S. based semiconductor research and development leadership to capture the next wave of critical technologies, applications and industries.
  • Growing of a diverse semiconductor workforce capability including strong communities that participate in the prosperity of the semiconductor industry.

This document provides added perspectives on the key strategic initiatives, anticipated timing and funding allocations. They include:

  • Large-scale investment in leading-edge logic and memory manufacturing clusters. This includes proposals for the construction or expansion of production facilities that fabricate, package, assemble and test these components. The Commerce Department expects that upwards of three-quarters of CHIPS incentives, upwards of $28 billion, to be allocated to this initiative. Most of this development and production capability in now concentrated in certain Asian
  • Expanding manufacturing capacity for mature and current generation chips used in defense and deemed critical commercial sectors such as automotive, medical device, information and communications technology. The Commerce Department expects that upwards of 25 percent, or approximately $10 billion, to be allocated to this initiative.
  • Initiatives to strengthen and advance S. leadership in R&D including a new National Semiconductor Technology Center will account for approximately $11 billion in funding under the CHIPS Act.

Outlined are other related initiative guidelines and programs, particularly a National Advanced Packaging Manufacturing Program created to address how the U.S. can compete in advanced semiconductor packaging capabilities domestically which the industry will reportedly feature in upwards of half of advanced devices by 2024.

Further included are accountability, reporting and oversight practices with government funding contingent on appropriateness and long-term economic viability of a proposed effort. The strategy calls for international coordination among various allied nations to reduce geographic concentration in either upstream materials and downstream industries, mitigating a risk of over supply or excess concentration.

U.S. Commerce Secretary Gina Raimondo indicated to business media that the agency will be pushing companies to “go bigger and be bolder” in terms of domestic development and production plans with the use of taxpayer funding. She further warned that guardrails will be in place in that companies cannot use taxpayer funds for stock buybacks. The Commerce Department has the ability to claw back monies if a recipient company fails to start or complete an investment on time, and that those companies that receive U.S. incentives cannot compromise national security by also investing in China. Specifically, no investments in advanced technology within China will be allowed after receiving U.S. government incentives. The Commerce Department clarified that companies can expand their mature node factories in areas such as China to specifically serve that particular market need.


Additional Thoughts

Readers and industry players will of course, have opinions regarding the objectives and scope of this U.S. incentive effort.

Development costs for a modern fabrication or packaging facility amounts to billions of dollars, far more than these specific U.S. incentive numbers. Industry players compete on the ability to offer the most advanced application and production process capabilities and thus investment cycles tend to be more frequent as well as expensive. Other governments in Asia, can and have offered much higher incentives in order to maintain a technology presence, workforce capability and foundation for faster economic growth.

But businesses have to take a step back and absorb the quickly changing forces that are at play, given the learnings that have come from the last two and one-half years of semiconductor global wide shortages. There are now added considerations for punitive business or market access penalties imposed by investments in advanced semiconductor technology in what will be deemed as unfriendly nations.

This is about the reexamination of the multiple tiers of semiconductor and high-tech supply networks in the context of meeting national and industry security and resilience needs. It is further about maintaining access to key markets of product consumption and the avoidance, as much as possible, of any one nation or particular region, as the epicenter for supporting global product demand needs. According to industry trade group, the Semiconductor Industry Association, upwards of 75 percent of chip production capacity currently resides in the East Asia region.

Such efforts are fraught with geopolitical dimensions and key industry players seek to not be locked out of any major sales region. Whereas access to strategic energy supplies were once the basis of global economic and trade forces, semiconductor design, fabrication and supply networks are the new basis of geopolitical motivations and actions.

We have already noted that industry players such as Intel, GlobalWafers, TSMC, Samsung and others have already indicated intentions to increase their production presence in the U.S. and in Europe pending passage of federal level incentives. There are also state and local incentives to consider as well.

Supply chain leaders will now need to weight these ongoing policy dynamics into their strategic sourcing decisions over long-term product development horizons. It can be the basis of a different, more regional based high tech, automotive and other strategic industries in terms of sourcing networks and industry supply dynamics.


Bob Ferrari

© Copyright 2022, The Ferrari Consulting and Research Group and the Supply Chain Matters® blog. All rights reserved.