Semiconductors have evolved from devices found only in advanced electronics to become an integral part of almost every electronic device that companies rely on. From the trucks that deliver our products and the computers we use to send emails and track sales, to the coffee machines in the break rooms, businesses can’t escape some relationship with semiconductors. The chip industry is embroiled in nearly all aspects of the US economy, including electronics critical to national security, such as defense, cyber security, healthcare, and the domestic energy industry. To help encourage investment in the US semiconductor industry, President Biden signed the more than $50 billion CHIPS Act in August of 2022.
There are several factors that potentially contributed to the passage of the CHIPS Act:
1. Worldwide chip manufacturing slowed in 2020 due to the COVID lockdown, as well as increased sales in the work-from-home electronics, virtual learning and healthcare industries, leading to a supply/demand imbalance.
2. The US share in global semiconductor manufacturing has declined from 37 percent to just 12 percent since 1990. Rising labor costs and regulation have made it about 25–50 percent more expensive to build and operate a semiconductor facility in the US than abroad.
3. Today, 75 percent of the world’s chip manufacturing is concentrated in East Asia. Investment-attracting policies coupled with attractive manufacturing wages have caused this region of the world to dominate global chip production.
The Chips Act is a bold play by the US government to attract chip manufacturing investment in the US and reduce our dependence on East Asian chips. The cornerstone of the CHIPS Act is the “Advanced Manufacturing Tax Credit” (AMTC) of 25 percent of the depreciable assets of any “advanced manufacturing facility” linked to semiconductor production. Additionally, projects that qualify for CHIPS Act funding will also receive “coordinated permission” between federal agencies to speed up the more than one-year permits required to begin construction on construction facilities.
The $52 billion CHIPS Act is predicted to stimulate more than $140 billion in direct investment before the construction cutoff date. By comparison, South Korea recently offered up to 50 percent in investment tax credits for new semiconductor facilities, offering more than $151 billion in investment commitments between now and 2030 from a major chip maker. Such government incentives and favorable operating structures have helped make South Korea the No. 2 global producer of non-memory semiconductors and the No. 1 in memory semiconductors.
Similarly, Taiwan sits safely in the No. 1 global position for overall semiconductor production, accounting for about 63 percent of global chip production between 2020 and 2021. While Taiwan did not readily give away large tax incentives as South Korea, the government did partake in prompting the creation of several semiconductor companies in the 1980s, and then housed them in a dedicated “science park”. Similar to Silicon Valley tech companies, this group of small chip makers competed, innovated, and eventually grew into some of the largest semiconductor companies in the world. In 2020, Taiwan’s largest chip producer has grown to capture 54 percent of the global semiconductor manufacturing market, by far the largest in the world. Considering the historic success of investment announcements already worth $60 billion in chip facilities in 2022 and tax incentives to the semiconductor industry, it is expected that the CHIPS Act will increase the US’s global share in semiconductor production and the US on foreign chips. Will reduce dependency.
Such a step-change expansion of the US semiconductor manufacturing industry over the next 5 to 10 years could have a transformative impact on the states and communities that receive wafer fab investments. Increase in technical talent development, expansion in infrastructure, response by academia to meet the demand to a particular degree and movement by semiconductor industry suppliers are some possible examples of local effects.
If you think your business may be eligible for CHIPS Act funding, keep an eye on government regulations, guidelines, and updates on how to qualify and make sure your overseas operations don’t affect your eligibility. As new production facilities grow in the coming years, we can expect the global chip shortage to narrow. Leaders must understand how specific types of semiconductors affect their business operationally and financially, closely follow current and projected supplies, and correct at least some degree of global chip shortages driven by the pandemic. are ready for.