The CHIPS and Science Act, signed into law by President Joe Biden in August 2022, has been in place for over two years. While companies like Intel and Microchip have progressed with incentive agreements and investment plans, their experiences underscore the Act's challenging and complex implementation process.
The CHIPS Act has drawn global semiconductor leaders, including TSMC, Samsung Electronics, Intel, GlobalFoundries (GF), SK Hynix, and Micron, to commit significant investments in expanding US production. With incentives like subsidies, loans, and tax breaks, the Act aims to reduce financial pressures on these large-scale projects.
A May 2024 report from Boston Consulting Group (BCG) and the Semiconductor Industry Association (SIA), cited by Bloomberg, projects US wafer fab capacity will triple by 2032, achieving the fastest global growth over the decade. Its global capacity share could climb from 10% to 14%, but without the CHIPS Act, this figure might fall to 8%. However, significant risks accompany this investment surge.
Uncertainty looms over Intel and US semiconductor policy
Donald Trump's victory in the November presidential election raises concerns about potential shifts in US semiconductor policy under the new administration in 2025, casting uncertainty on companies' willingness to pursue planned investments.
Intel, the sole US firm with advanced semiconductor manufacturing capabilities, was poised to lead domestic supply chain revitalization. However, its foundry division—key to its IDM 2.0 strategy—remains deeply unprofitable. CEO Pat Gelsinger, the architect of IDM 2.0, has stepped down amid widespread layoffs and leadership turmoil.
Intel has secured up to US$7.865 billion in CHIPS Act subsidies, but the funds, tied to incremental milestones, are unlikely to resolve its financial woes. Doubts persist over the company's capacity to deliver on its multi-billion-dollar expansion plans amid ongoing challenges.
Microchip's withdrawal highlights CHIPS Act hurdles
In January 2024, Microchip announced a non-binding Preliminary Memorandum of Terms (PMT) with the US government to secure US$162 million in subsidies for expanding microcontroller production and other mature-node semiconductor technologies.
Amid significant revenue declines, Microchip brought back Steve Sanghi as interim CEO in November 2024. Sanghi, known for leading the company to 121 consecutive profitable quarters from 1991 to 2021, replaced Ganesh Moorthy to navigate the firm through mounting financial challenges.
Under Sanghi's leadership, Microchip announced the closure of its Fab 2 wafer facility in Arizona and suspended CHIPS Act subsidy negotiations with the US government. This marked the first withdrawal from a CHIPS Act incentive program since its enactment, dealing a significant blow to the US semiconductor strategy.
Sanghi acknowledged that when Microchip applied for the subsidy a year ago, the industry anticipated persistent wafer fab capacity shortages, fueling continuous expansion. However, the current overcapacity has shifted the dynamics. He emphasized that government subsidies cover only a small fraction of expansion costs, leaving companies to shoulder the majority of financial responsibilities.
Sanghi's comments underscore a major challenge for the CHIPS Act: the semiconductor industry's volatile boom-and-bust cycles. With wafer fab projects requiring years to complete, predicting market conditions or a company's financial stability during that period becomes nearly impossible.
Government subsidies, while beneficial, cover only a small fraction of expansion costs, forcing companies to bear the majority of financial burdens. Businesses naturally adjust investment plans based on evolving market conditions, often deviating from initial commitments to the US government. With funds allocated under flawed investment assumptions, the CHIPS Act's impact is likely to fall short of expectations.
