The highly profitable U.S. semiconductor industry is starting to sound increasingly desperate to get Congress to authorize $52 billion in spending to support domestic chip manufacturing.
The industry, including big players like Intel, worry that lawmakers won’t act on needed measures before the customary August break. If that happens, it means the needed funding votes could be lost in the noise of the fall election cycle which could end in a Republican landslide at the polls and—poof!—the end of a two-year push for needed chip manufacturing funding.
“We’re at a pivotal moment for enactment of semiconductor investments that will greatly benefit the U.S. economy and our national security,” said Daniel Rosso, communications director at Semiconductor Industry Association, via email on Wednesday.
“Every day that passes is another day we risk losing ground to global competitors. That’s why we’re urging Congress to swiftly pass bipartisan innovation and competitiveness legislation that strengthens domestic semiconductor research, design, and manufacturing,” he added.
Intel also posted another appeal for funding approval on Wednesday after CEO Pat Gelsinger had argued in March that “time is of the essence” and further said, “the only way to alleviate the current supply-demand imbalance long term is to increase manufacturing capacity by funding and implementing the CHIPS Act.”
Intel and the SIA both make the case that the U.S. needs to provide the funds because Asian governments, where 80% of chips are produced, are providing substantial incentives to their domestic chipmakers. This means U.S. chip companies are at a 30% to 50% cost disadvantage to their Asian counterparts, they argue.
The request for $52 billion sounds, frankly, bizarre to many onlookers, including some with votes in Congress, when the chip industry is doing very well financially with global revenues increasing more than 20% each month year-to-year for the last 13 consecutive months. In the U.S. alone, chip sales in April actually increased 41%.
IDC on Wednesday issued a note that global chip revenues should reach $661 billion in 2022, up nearly 14% over 2021, also a strong year. IDC also forecast a five-year compound annual growth rate for the global chip sector of nearly 5%.
These recent sales and revenue forecasts are partly due to higher average selling prices by chipmakers. Even so, we hear about chip producers themselves worried about supply chain problems, while we have all become familiar with the refrain that some pickup trucks can’t be purchased because they are missing a certain chip. Other electronics devices have been affected too, and Covid lockdowns in and near Shanghai have not helped. Chips power every modern device, including surgical robot technology, defense satellites, sewage control systems and so on and so on.
While the $52 billion might sound like your rich uncle is asking for a handout, the chip industry does have a point about staying equal with Asian countries when the U.S. has fallen so far behind: In 1990, 80% of the world’s chips were produced in the U.S., a number now down to 20%
The need for spreading chip production across the globe, including in the U.S. and Europe, has serious political consequences, too. Should China invade Taiwan, a major seat of chip production, or North Korea disrupt production in South Korea, OEMs that depend on chips would be thrust into crisis mode. No supply chain manager can plan for the matrix of potential problems. Advanced chips to power future systems to prevent encryption breaking might not become available.
“The point of semiconductor investments and incentives is to make the U.S. a more attractive and competitive location for semiconductor manufacturing, design and research,” SIA’s Rosso added via email. ”It’s not a question of whether chip companies will invest in semiconductor production and innovation to address high demand, but rather where they will invest. Incentives are necessary to ensure the U.S. is home to more of those private semiconductor investments. “
Intel and Gelsinger already deserve a huge thumbs up for planning chip fabs in Ohio that will cost $20 billion or more; it seems likely that Intel would line up to get a piece of that $52 billion pie should it ever pass and get signed into law.
The SIA has revved up its marketing efforts lately in support of both the CHIPS for America Act funding of $52 billion and a 25% investment tax credit for semiconductor manufacturing and design, as called for in the FABS Act. A fact sheet has been recently updated that includes many of the pertinent points and SIA has undertaken a social marketing campaign that seeks consumer support.
More than 100 Senate and House conferees are working to hammer out differences in two competitiveness bills that passed the two chambers—USICA in the Senate and America COMPETES in the House. Both approved $52 billion for chip manufacturing incentives and grants, and research investments, called for in the CHIPS Act. A compromise version is needed that both chambers can approve to send to President Biden for his signature.
SIA wants the FABS Act and its investment tax credit of 25% attached to the eventual compromise bill, alongside the $52 billion.
Clearly, Congress has plenty to consider by the end of July. Creating a bill that can pass along the lines SIA endorses which the president would sign would be a big step for a greater sense of security and stability in a vital sector. The funds would not be distributed right away and it would be a long process, but passage would show the U.S. has the ability to plan and strategize, something sorely needed that would go a long way to inform the public that the “do nothing” Congress is not a fair indictment.
There are plenty of other matters for Congress to consider in coming months, including the outcome of January 6 committee hearings, but a vote to fund the CHIPS Act might tangibly show the ability to look ahead and not just back.