The CHIPS Act Signed Into Law

On July 27, 2022, the “Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act” passed a vote in the US Senate (64 to 33) and is expected to be voted on in the House of Representatives. The legislation will provide roughly $55 billion in grants, loan guarantees, and other support to increase US semiconductor production. According to the Washington Post, the total subsidy package is expected to reach $280 billion dollars in appropriated and authorized federal spending over the next 10 years.

These are huge numbers in terms of expenditures, and they come on the back of an announcement that Samsung is investigating a $200 billion worth of new advanced manufacturing capacity in the US, as well as Intel’s announcement of its $20 billion in an Ohio fab.

Now President Biden has officially signed the CHIPS Act into law as of August 2, 2022. The reshoring efforts are starting to look fruitful even without the subsidies, with Intel announcing this week that it will start producing chips for Taiwan’s MediaTek through the company’s new foundry services division. Although the CHIPS Act has been signed by the President, questions still remain as to whether this new round of spending can address the existing national security and supply chain issues well into the future.

What's in the Passed Version of the CHIPS Act?

The CHIPS legislation will promote increased US domestic manufacturing of semiconductors to address supply chain issues and national security concerns, some of which we have discussed on episodes of the Altium OnTrack podcast and in other articles on the Altium Blog. Efforts were made by Senator Todd Young (R-IN) and a bipartisan group of Senators to add to the CHIPS Act a provision that would renew an allowance for deductions of corporate expenditures under Section 174 of the US tax code.

Previously, the CHIPS Act was passed as part of the 2021 National Defense Authorization Act (NDAA) and was slated to include only $52 billion in emergency spending to support domestic semiconductor manufacturing capacity. The House and the Senate originally passed two different bills containing this $52 billion appropriation for the CHIPS Act, and ultimately a compromise was reached that trimmed modified the proposed spending. As of today, the bill was signed into law by President Biden.

The passed legislation includes the following provisions to support semiconductor manufacturing:

• $52.7 billion in emergency funding over five years to develop domestic manufacturing, R&D, and workforce development programs
• Of the above, $39 billion appropriated over five years to build, expand, or modernize domestic manufacturing facilities
• Of the above, up to $6 billion to be used for direct loans and loan guarantees
• An additional $11 billion over five years to support R&D and workforce development programs
• $2 billion for the Microelectronics Commons, a national network for onshore, university-based prototyping and semiconductor workforce training
• $500 million appropriated over five years for coordinating with foreign government partners to support international information and communications technology security
• $200 million over five years for the National Science Foundation to promote the semiconductor workforce
• $1.5 billion for a Public Wireless Supply Chain Innovation Fund

[Source: PricewaterhouseCoopers]

On the national security front, the version of the CHIPS Act that was signed by President Biden includes language that prohibits funds recipients from expanding or building new manufacturing capacity for advanced semiconductors in any country that presents a national security threat to the United States, as defined by current law.

What’s Next for Electronics Manufacturing?

The CHIPS Act has remained an item of speculation and anticipation for many months, and there has been plenty of controversy surrounding the legislation. Just this week, economic data released by the US BEA showed the 2nd straight quarter of real US GDP decline. Investments like the CHIPS Act suddenly seem to be justified by this new development, especially as the political narrative shifts towards fighting inflation and solving long-standing supply chain problems that have persisted since COVID lockdowns.

Now that the CHIPS Act has passed, it will be an important factor that leads to greater supply of integrated circuits and more flexible manufacturing capacity at flagship companies in the semiconductor industry. There may also be an element of cost control here as it will bring some manufacturing capacity closer to end customers (in the US at least), which addresses issues with logistics and shipping costs. These are all good things for North American companies, and we should not be surprised if Europe and other areas of Southeast Asia (including China) benefit from diversification of manufacturing capacity.

However, those of us in the PCB industry know that semiconductor manufacturing is not the whole story in electronics manufacturing, and more chips is meaningless without PCBA production capacity to support national security and supply chain security goals. As we discussed in a recent article outlining the Supporting American Printed Circuit Boards Act of 2022, domestic PCBA production capacity has lagged far behind integrated circuit production capacity.

To learn more about industry efforts to reinvigorate domestic manufacturing and the role of industry groups in lobbying for these initiatives, watch our podcast discussion with John Mitchell, President and CEO of IPC.

In response, companies are looking at continued diversification of their production capacity within Southeast Asia, such as Apple’s announcement that it is moving some of its iPad production capacity to Vietnam. While it is not the level of diversification we would like to see, it reflects a realization that geographic concentration of production capacity brings excessive supply chain risk. We hope that momentum for domestic investments in electronics manufacturing capacity will continue to support geographic diversification.

As supply chain challenges develop and new technology hits the market, you can incorporate these capabilities into your electronics assemblies with Altium Designer®. All Altium users have access to a comprehensive set of supply chain tools that can be accessed through Altium Designer and the Altium 365™ platform.

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