US takes security first focus in doling out $39bn chip funding

As President Joe Biden’s administration prepares to accept requests for $39bn in funding to jumpstart US production of microchips, his commerce chief emphasised the programme’s focus is strengthening national security rather than boosting struggling chipmakers.The US next Tuesday will unveil applications for the manufacturing part of the funding under the Chips and Science Act passed last year and will be "crystal clear” in its selection criteria, Commerce Secretary Gina Raimondo said."I expect there will be many disappointed companies who feel that they should have a certain amount of money. The reality is the return on our investment here is the achievement of our national-security goal,” Raimondo told reporters.She spoke ahead of a speech in Washington on Thursday where she laid out the broad vision for the programme through 2030. The plan is to try to return manufacturing to the US by building at least two new clusters of leading-edge logic-chip manufacturing, with a supplier ecosystem and research and development facilities, employing thousands of workers.US defence capabilities — from hypersonic weapons, drones and satellites — depend on the supply of chips that currently aren’t produced in the US, she said in the speech. The US share of global chip manufacturing is down to 12% from 37% in 1990, Raimondo said."America needs to design and produce the world’s most advanced chips right here in America,” she said.Congress passed the law last year after pandemic lockdowns and supply-chain disruption laid bare US reliance on chips from Asia and particularly Taiwan, the target of frequent threats from China. The shift arose over decades of companies focusing on peak efficiency, making the US reliant on other countries for chips used in everything from cars to military equipment.Many chipmakers are suffering steep drops in revenue and profit as computer and phone producers in particular cut orders to work through large stockpiles of unused parts. Most aren’t forecasting a rebound until the second half of the year, at the earliest. Many have already mapped out for investors the improvements to their balance sheet they expect from public money grants and tax relief."The purpose of this legislation isn’t to subsidise companies because they’re struggling in a cyclical downturn,” said Raimondo. "It isn’t to help companies necessarily become more profitable in America.”Raimondo’s assertion may also heighten the competition among chipmakers as they try to persuade the government that they’re the most worthy recipients of grants that will help them build and equip new factories, facilities that can come with a bill of more than $20bn each. New facilities: Right now, the industry in the US is fragmented among a number of geographic areas, mostly around facilities operated by Intel Corp, formerly the world’s largest chipmaker. Intel is building new plants in Arizona, where rival Taiwan Semiconductor Manufacturing Co is opening a new facility north of Phoenix. Intel’s largest current cluster is near Portland, Oregon and it’s planning a new site in Ohio.Samsung Electronics Co, the world’s largest chipmaker by revenue, is investing in its existing site in Austin, Texas. Companies such as Texas Instruments Inc and GlobalFoundries Inc are also expanding in locations ranging from the Dallas suburbs to Lehi, Utah and upstate New York. Those two companies and others such as memory maker Micron Technology Inc don’t specialise in what’s normally classified as "leading-edge logic.”The $39bn of funding over five years is small compared with the investment needs for the industry overall and the goal of returning production from overseas. It’s also a rare foray into industrial policy by the US, which doesn’t have a history of recent success compared with rival economies in Asia. Raimondo said in her speech on Thursday that the US government needs the private sector to invest along with it, bringing in at least $500bn in additional funding for manufacturing and research and development.Historic investment: The act will be judged based on whether it enables the US to build a reliable and resilient semiconductor industry, and whether those implementing it are good stewards of taxpayer money, Raimondo said on Thursday. The US isn’t aiming for self-sufficiency in chips or make all the semiconductors it uses, but rather to win the innovation race and protect its national security and economic future.The US also needs to reduce prohibitive barriers to entry for startups in the chip industry, Raimondo said, lamenting that funding for technology hardware makes up only 3% of US venture capital, down from 20% in 2005. Raimondo also highlighted the importance of export controls, warning that "very bad things can happen” if technologies reach malign actors.The commerce chief places the new Chips and Science Act in the arc of historical investments made by the US government, including the nuclear programme of the 1940s and President John F. Kennedy’s promise in the early 1960s to put a man on the moon.Just as the moon mission spurred a doubling in the number of American doctoral scientists and engineers, the US needs colleges and universities to triple the number of graduates in semiconductor-related fields over the next decade. The law includes $11bn for research and development, beyond the $39bn in financial assistance to manufacturers.At the same time, semiconductor-manufacturing plants, called fabs, provide opportunities for high-paid jobs that don’t require a college degree, Raimondo said.The chips programme presents "a once-in-a-generation chance for the United States to marshal all of our resources and mobilise around a common goal,” she told reporters."My job here isn’t to displace the private sector; it’s to lay the foundation to allow American businesses to do what they do best; innovate, scale and compete,” Raimondo said.