Intel has postponed the groundbreaking ceremony for its new semiconductor manufacturing complex in Ohio – due, or so it says, to uncertainty over government subsidies under the CHIPS Act, which is still stuck in Congress. The ceremony had been scheduled for July 22.
First proposed almost a year and a half ago, the CHIPS Act would provide $52 billion worth of investments and incentives for semiconductor production and R&D in the United States. This is intended to help offset the support chip makers receive in Asia and Europe and help bring manufacturing back to America.
The Chips Act time-line runs as follows:
- January 2021: The U.S. Congress passed but did not fund the original Creating Helpful Incentives to Produce Semiconductors for America Act (CHIPS Act for short) as part of the National Defense Authorization Act.
- June 2021: The Senate passed a much broader US Innovation and Competition Act, which included the CHIPS Act.
- February 2022: The House of Representatives passed the America COMPETES Act, which also included the CHIPS Act.
- June 2022 (as of this writing): The House and Senate have still not reconciled their different versions of the legislation. Optimists hope they will do so in the next few weeks. Pessimists think that they might not get around to it until after the November elections.
The delay seems to be a matter of priorities, complicated by America’s historical aversion to “picking winners” through industrial policy – unless the winner is the military industrial complex.
In May, President Biden signed a bill providing $40 billion in military and other assistance to Ukraine. This passed Congress almost without debate.
And on June 22, the House Appropriations Committee approved the Fiscal Year 2023 Defense Appropriations bill, which provides total funding of $762 billion, a $32 billion increase over 2022.
In this context, the $52 billion CHIPS Act is a modest proposal, particularly in view of American fears of losing advanced industries to China.
When it announced the Ohio project last January, Intel said it was planning an initial outlay of more than $20 billion for two factories and total investment of as much as $100 billion for eight factories over the coming decade if the complex were fully built out.
But on June 23, Intel issued the following statement:
We are excited to begin construction on a new leading-edge semiconductor manufacturing plant in Ohio and grateful for the support of Governor DeWine, the state government and all our partners in Ohio. As we said in our January announcement, the scope and pace of our expansion in Ohio will depend heavily on funding from the CHIPS Act. Unfortunately, CHIPS Act funding has moved more slowly than we expected and we still don’t know when it will get done. It is time for Congress to act so we can move forward at the speed and scale we have long envisioned for Ohio and our other projects to help restore US semiconductor manufacturing leadership and build a more resilient semiconductor supply chain.
Other American tech companies, the Semiconductor Industry Association (SIA), the SEMI association representing the electronics manufacturing and design supply chain industry, Secretary of Commerce Gina Raimondo and President Biden are also frustrated with the inability of Congress to get the job done.
Back in February, Raimondo said in a video interview with Bloomberg that she had met with Congressional leaders. She reported that “everyone is focused on getting it done, getting it done quickly and getting it to the President’s desk.” That was a bit premature.
Perhaps we should ask: Is Intel simply fishing for subsidies?
That does not seem to be the case. CEO Pat Gelsinger has returned Intel to its traditional focus on manufacturing, shifting away from the outsourcing and share buy-backs favored by Wall Street. He is on a crusade to regain the technological lead his company has lost to TSMC. And while subsidies are always welcome, Intel does not really need the money.
If the construction of factories in Ohio is delayed, it will most likely be due to insufficient demand for the chips that would be made there. Intel has already started building two new factories in Arizona. That might be enough for a while if inflation and rising interest rates drive the economy into recession.
Gelsinger also wants to rebuild the American semiconductor industry, with a complete industry supply chain in the US.
Morris Chang, founder and former CEO of TSMC, says that cannot be done. Last October, he told a tech industry forum in Taiwan: “Even after you spend hundreds of billions of dollars, you will still find the supply chain to be incomplete, and you will find that it will be very high cost, much higher costs than what you currently have.”
Chang’s judgement is almost certainly correct, but without the $52 billion provided by the CHIPS Act, U.S. semiconductor manufacturing would be that much more likely to keep losing ground.
Only about 12% of the world’s semiconductors are made in America now, down from 37% in 1990. According to the SIA, this is “mostly because other countries’ governments have invested ambitiously in chip manufacturing incentives and the US government has not.”
Intel increased its capital spending from $14.3 billion in 2020 to $18.7 billion in 2021 and has budgeted $27 billion for 2022. But TSMC is planning to increase its spending from $30 billion in 2021 to $40 billion – $44 billion this year. Samsung Electronics is reported to be taking a flexible approach, but it spent $36.3 billion last year and seems likely to outspend Intel again this year, too.
Market research organization IC Insights is forecasting worldwide semiconductor industry capital spending of $190 billion this year, of which these top three companies are likely to account for about 50%. But Intel’s share is only 14%.
Both TSMC and Samsung have decided to build new semiconductor factories in the United States – TSMC in Arizona and Samsung in Texas – so the spending differential is not an unmitigated loss for American manufacturing capacity. But it does show who is driving industry growth.
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