US to see rising investments in chip ecosystem despite project delays

Despite delays in grants offered by the US government and weak demands for end products that hurt global semiconductor firms, US states are likely to benefit from the onshoring chip ecosystem, and the US may witness surging investments in semiconductors as a share of the manufacturing industry.

The US Commerce Department announced US$1.5 billion in grants for GlobalFoundries' expansion project in New York, marking the third beneficiary under the CHIPS Act since its introduction in 2022. Billions of grants will likely be offered to chip majors like TSMC, Intel, and Samsung Electronics in the coming weeks, reports Bloomberg.

Although the US enjoys its leadership in the semiconductor ecosystem, including IC design, equipment, and EDA, East Asian economies have advantages in chipmaking, packaging, and testing. In 2022, the US government set aside US$39 billion in direct grants, loans, and loan guarantees worth US$75 billion to encourage manufacturers to set up facilities in the country by introducing the CHIPS and Science Act.

According to the US Bureau of Economic Analysis, FDI inflows the US received in the semiconductor and other electronic components sector account for 1.5% of FDI inflow into the manufacturing sector in the US in 2015, which grew to over 41% in 2022, as chipmakers expected carrots and sticks from the US government to reduce its reliance on imports from rivals and areas with geopolitical risks.

According to data from the Semiconductor Industry Association, Arizona, where TSMC, Intel, and Amkor announced investments, see 15 new semiconductor projects, accounting for over one-third of new projects announced over the past years. Four new projects were announced in Texas and New York, respectively. Meanwhile, four investments, including two for expansion and two for new projects, were announced in California, the major semiconductor ecosystem with over 100 existing facilities for R&D, design, and manufacturing.

Fran Hagarty, a US Regional economist at S&P Global Market Intelligence, said in an analysis that California, Texas, Oregon, and Arizona accounted for nearly half of total semiconductor manufacturing employment in the US. Other states, including states in the Midwest, such as Indiana, Kansas, and Ohio, also drew several large projects.

Still, the US ambition to revive its chipmaking sector faces challenges as TSMC, Intel, and Micron expected delays in their new or expansion projects in the US due to the prolonged time to receive US grants and high inventory issues with negative impacts across the electronics industry.

Source: BEA, February 2024

Source: SIA, February 2024