CHIPS Act app process kicks off for $52B in federal grants, loans

Formal US government rules to apply for $52.7 billion CHIPS Act funds were posted online Tuesday, laying out terms for the first time how chipmakers and others must apply to receive grants, loans or government-backed financing.

Multiple chipmakers from the US and abroad are expected to file for a portion of the funds and some -- including Intel and TSMC-- have already proposed massive private projects that could be eligible for some government relief. Most direct funding awards are generally expected to range from 5% to 15% of project capital expenditures.

There is no fixed limit, however, on the loans or loan guarantees a project may receive. The program expects the total amount of an award, including direct funding and principle on loans or loan guarantees, will not exceed 35% of project capital expenditures.

  The rules laid out in a fact sheet also prevent award winners from significant expansion of chip manufacturing for a decade in “countries of concern,” which could include China, given recent trade and diplomatic tensions, but no countries have been identified thus far.

The awards application process is being coordinated by the CHIPS Program Office within the US Department of Commerce, which is responsible for administering $39 billion of the total for semiconductor incentives.  An additional $13.2 billion is earmarked for R&D and workforce development with another $500 million for efforts to strengthen global supply chains.

The initial funding opportunity announced Tuesday seeks applications for construction, expansion or modernization of commercial facilities for front and back-end fabrication of leading-edge, current generation and mature-node semiconductors. Added funding opportunities for materials and manufacturing equipment facilities will be announced in late spring and for R&D facilities will be announced in the fall.

The process divides the initial funding application process two ways: The initial funding opportunity for leading-edge facilities accepts pre-applications and full applications on a rolling basis starting March 31. Then, for potential applications for current-generation, mature-node and back-end production facilities, the government recommends making pre-applications starting May 1, with full applications June 26.

“CHIPS awards are meant to complement—rather than crowd out—private investment and other sources of funding, and applicants are highly encouraged to bring capital to the table,” according to the CHIPS for America fact sheet.   Applicants will be required to demonstrate the funding they request will “incentivize investments in facilities and equipment in the United States that would not occur in the absence of the incentives.”

Also, applicants are required to have been offered an incentive from a state or local government and are encouraged to have claimed an Advanced Manufacturing Tax Credit, which is a separate incentive overseen by the US Department of Treasury and IRS.

The application process is broken into five parts: statement of interest; pre-application (optional); full application; due diligence; and award preparation and issuance.

The CHIPS for America program again set out its priorities, including economic and national security and development of a highly skilled, diverse workforce. Any applications requesting more than $150 million in funding must provide a plan for affordable, accessible, reliable and high-quality child care for the workers at facilities and construction workers.

To protect taxpayer dollars, any company that receives more than $150 million in direct funding will be required to share with the US government a portion of any cash flows or returns that exceed the applicant’s projections by an agreed-upon threshold.

The program office states also it will ensure no company can use CHIPS funding to undermine national security. “Applicants will have to return the full amount of an award if they knowingly engage in any joint research or technology licensing effort with a foreign entity of concern that raises national security concerns,” the Program Office stated.

 Also, award winners must agree not to engage in certain significant transactions involving expanding semiconductor manufacturing capacity in a country of concern for 10 years.  The fact sheet does not name any foreign entities “of concern” although is clear the Biden administration has established sanctions on US companies selling technologies to China and has urged allied countries to impose similar conditions on tech companies as well. US-China relations have also been tense in recent days with the shooting down of a Chinese balloon over US waters and concerns over whether China will provide offensive weapons to Russia in the war in Ukraine.

The Department of Commerce is expected to soon release additional information on its national security guardrails.

Some companies have raised concerns that the trade policy with China could bifurcate production of chips and related products between East and West countries that would last for decades, hurting the ability to innovate. Chip executives worry if Taiwan were to come under greater control by China in coming years, that access would end access to cutting edge chips made by TSMC and others there.

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