CHIPS Act aims to support thriving semiconductor sector

• CHIPS Implementation Steering Council: On Aug. 25, President Biden signed Executive Order (E.O.) 14080 to guide the implementation of the funding programs for semiconductor chips manufacturing and R&D, under the purview of the Commerce Department (henceforth, Commerce). The E.O. establishes implementation priorities, the launch of CHIPS.gov and an Implementation Steering Council made up of the Secretary of State, Secretary of the Treasury, Secretary of Defense, Office of Management and Budget (OMB) Director, National Cyber Director and the Small Business Administration (SBA) Administrator, among others. The purpose of the Steering Council is to facilitate input across agencies to enable coordination.   
• Strategy Briefing: On Sept. 6, Commerce released a Strategy Briefing highlighting how it intends to guide implementation and special considerations for CHIPS incentive applicants. Notably, the briefing provides details on the establishment of the National Semiconductor Technology Center (NSTC), a public-private consortium intended to drive research and prototyping, investment and workforce development.    
• Industrial Advisory Committee: On Sept. 29, Commerce announced the appointed twenty-four (24) members to an Industrial Advisory Committee (IAC) to assist the Steering Council in its work.   

Once a symbol of American technological superiority, semiconductor manufacturing is now centralized in east and southeast Asia, with the U.S. share of global chip manufacturing declining to 12% from 37% in 1990.2 In order to help the U.S. regain a stronghold in semiconductor production, the CHIPS act creates several economic incentives to catalyze growth. Under the Act, $52.7 billion will be allocated to both manufacturing incentives and R&D for semiconductor manufacturers over five years. Those can be broken into two categories: 

1. Domestic manufacturing incentives ($39 billion):

• $39 billion will be allocated to enable a domestic manufacturing capability (authorized per Section 9902 of the fiscal year 2021 NDAA). The program will provide direct payment subsidies to “covered entities”3 for expanding “semiconductor manufacturing, research, packaging, equipment, and materials capacity in the United States”4 appropriating $19 billion for the program in fiscal year 2022 and $5 billion annually through fiscal year 2026. In addition to financing construction, expansion and modernizing production facilities, incentives can be used for workforce and site development and “reasonable costs” related to operating expenses. Notably, the final version of the Act expanded program eligibility to include downstream material and equipment suppliers.    

2. Other CHIPS for America Act Programs ($13.7 billion): 

• Semiconductor R&D and Workforce Development: $11 billion (authorized per Section 9906 of the fiscal year 2021 NDAA) will be allocated to Semiconductor R&D/Workforce Development programs. The development programs would also support NSTC efforts as well as various initiatives at NIST.  
• CHIPS for America Defense Fund: $2 billion will be allocated to bolster a national microelectronic R&D network.  
• CHIPS for America International Technology Security and Innovation Fund: $500 million will be allocated to help harmonize U.S. efforts with activities from foreign partners and streamline supply chain issues.   
• CHIPS for America Workforce and Education Fund: $200 million will go toward boosting semiconductor workforce development which “faces a need of 90,000 workers by the year 2025”.   

In addition to the aforementioned direct subsidies, Section 107 of the Act creates a 25% advanced manufacturing investment tax credit for qualified investments, defined as investments in “a facility for which the primary purpose is the manufacturing of semiconductors or semiconductor manufacturing equipment. ”The administration will be working with the CHIPS Program Office (CPO) to implement section 9902 of the program to offer policy and stakeholder engagement support across CHIPS Programs.4 Questions about how the tax credit will be implemented concurrently with other Section 9902 incentives will be answered with future guidance from the CPO and the Department of Commerce. The credit only applies for “qualified properties” that enter service after Dec. 31, 2022, and enter construction before 2027. 

The application window will begin February 2023, and the admissions will be on a rolling basis. The funding has specific guardrails and requirements attached, and it is important for interested companies to review eligibility requirements. To be considered eligible, the covered entity needs to enter into an agreement with Commerce secretary that restricts them from engaging with any significant transaction involving the material expansion of the semiconductor industry in China/any other foreign country that would include North Korea, Russia and Iran for 10 years after the award is received.   

For bidding parties to be considered eligible, an applicant would need to have:

• Demonstrated “a documented interest” in constructing, expanding, or modernizing a facility involved in semiconductor manufacturing; 
• Received an offer for a state or local incentive for the project; 
• Made commitments to pay for training and education benefits and participate in programs to expand employment opportunities for economically disadvantaged individuals; 
• Secured commitments from educational and training entities to provide workforce training and job placement programming; 
• Identified the type of semiconductor technology, equipment and materials to be produced at the facility (or the R&D to be performed); 
• Identified the customers or category of customers the applicant will serve; 
• Assessed and developed plans to meet workforce needs; 
• Developed a plan for economic sustainability for the project absent additional federal financial support; 
• Had a plan to identify and mitigate supply chain security risks, including “a lack of geographic diversification” in the applicant’s supply chain; and 
• Implemented policies to “combat cloning, counterfeiting and relabeling of semiconductors. 

On Feb. 28, 2023, the CHIPS Program Office released its first funding opportunity fact sheet targeting “…applications for projects involving the construction, expansion, or modernization of commercial facilities for the fabrication of leading-edge, current-generation, and mature-node semiconductors.” Read more about the application and evaluation process here.