The US$39 billion funding allocation under the CHIPS and Science Act (CHIPS Act) is nearing completion.
However, greater challenges lie in revitalizing the domestic semiconductor manufacturing supply chain. This includes Intel's operational difficulties, a continued reliance on Asia for packaging, a shortage of skilled labor, and environmental factors.
Is Intel's execution enough?
According to Bloomberg, Intel has linked its turnaround plan to securing subsidies under the CHIPS Act. However, the company faces operational challenges, such as the recent disclosure of plans to lay off 15,000 employees.
Despite these difficulties, Intel CEO Pat Gelsinger stated that he remains committed to Intel's wafer manufacturing product roadmap. The company will continue to build wafer manufacturing campuses in Ohio, which President Biden has called a "field of dreams."
However, the success of this campus remains uncertain. Ohio lacks a mature semiconductor ecosystem, and it is unclear if Intel has secured any customers.
Mike Schmidt, head of the US Commerce Department's CHIPS Program Office (CPO), noted that the CHIPS Act has built-in insurance mechanisms if setbacks occur, meaning companies won't receive subsidies until they meet specific construction and production benchmarks. If projects are never completed, the CPO can reclaim the subsidy funds.
Intel will face greater risks if it fails to deliver on its promises. Intel is also the sole expected beneficiary of a US$3.5 billion CHIPS Act subsidy aimed at manufacturing advanced electronic products for the US military, known as the "secure enclave" project.
The project involves creating an independent, locked-down area within Intel's factories to produce semiconductors for top-secret defense purposes. This has sparked controversy in Washington, partly because Intel has outsourced the responsibility to another company.
While most CHIPS Act commitments remain mere promises, there have been instances of funding being put to use. The CPO stated that the first production supported by the CHIPS Act could begin by the end of 2024, though it did not specify which company. The CPO aims to allocate the remaining billions of dollars in funding by the end of 2024.
Packaging still dependent on Asia
Packaging capacity is a major weakness for the US, which remains reliant on the Asian supply chain. According to sources, the CPO has been unable to persuade TSMC to shift its packaging capacity to Arizona.
Although suppliers are building facilities near TSMC's Arizona plant, many chips will be sent overseas for packaging, which will likely be the case for most US-made chips. US Commerce Department officials have warned that this poses unacceptable supply chain and national security risks.
Schmidt pointed out that the supply chain will continue to be globalized, but the US has already established a foothold. The CPO has funded five packaging-related projects, including a US$450 million subsidy awarded to South Korea's SK Hynix in early August to establish an advanced packaging and R&D facility for high-bandwidth memory (HBM) in West Lafayette, Indiana.
Labor shortages unresolved
The CPO also faces challenges related to the labor force, labor rights, and wages required for domestic semiconductor manufacturing. Although the Biden Administration supports unions benefiting from CHIPS Act subsidies, semiconductor manufacturers in the US have not yet reached beneficial agreements in their negotiations with those unions.
However, this has not prevented major chip manufacturers from receiving CHIPS Act subsidies. Schmidt believes the CPO has made significant progress in a short period of time.
Wafer manufacturing requires a large workforce. McKinsey & Co. optimistically estimates that the US semiconductor industry will still face a shortage of 59,000 engineers over the next five years, and the shortage could reach as high as 77,000. The pessimistic forecast for technicians is similarly a shortage of 69,000.
McKinsey & Co. suggests it is possible to avoid a long-term shortage of technicians by transferring technical personnel from similar industries. States like Ohio have large pools of workers with transferable skills, but Texas lacks such skilled labor.
The CPO stated that since the passage of the CHIPS Act, over 80 semiconductor-related programs have been launched or expanded at universities. However, the question remains whether the expansion is happening quickly enough.
In Arizona and Oregon, Intel has hired 220 students through its Quick Start program, offering them two-week industry internships. However, most of the approximately 900 graduates in Arizona have not yet found jobs related to chips, as new plants have not yet been built and become operational.
