MEMS and Sensors

An overview of the CHIPS for America Act

30 March 2022
Worldwide semiconductor fabrication capacity as of 2019. Source: Republican Policy Committee

Unless you’ve been living under a rock throughout most of 2021, you’ve noticed all those news reports talking about a semiconductor shortage. There isn’t an engineer anywhere that has not been affected by this shortage in some capacity, ranging from procurement staff at EMS companies down to small design houses trying to source components for their clients. The origin of the shortage reaches back to the early days of the COVID-19 lockdowns in 2020, when international electronics manufacturing capacity was shut down and supply chain crunches were being felt across the board.

In response, the U.S. House of Representatives introduced the Creating Helpful Incentives to Produce Semiconductors (CHIPS) for America Act as HR 7178. The bill was effectively enacted in the FY 2021 National Defense Authorization Act by Congress, and it was later passed in the Senate as part of the U.S. Innovation and Competition Act (USICA) (S.1260) on June 8, 2021. Congress also passed its own version of the legislation as part of the America COMPETES Act on February 4, 2022.

After significant urging by tech industry executives and industry advocacy groups, the bill remains unfunded and has stalled behind defense spending and COVID-19 recovery bills. As there is broad bipartisan support for the legislation, and the bill is expected to pass, it’s worth knowing what is in the legislation and how it is expected to affect the semiconductor industry. As we’ll see shortly, the legislation will have broader effects on the electronics industry in general.

The CHIPS Act overview

Currently, U.S. semiconductor manufacturing capacity stands at 12% of global capacity. Compare this with capacity share in 1990, where the U.S. dominated with 37% market share, according to the Semiconductor Industry Association. The broad goal of the CHIPS Act is to increase American competitiveness by subsidizing new investment in domestic semiconductor manufacturing capacity.

Currently, projected semiconductor CAPEX in 2022 stands at $190 billion, of which over one-third is being spent by Intel and TSMC ($69 billion between both companies). This is on top of a 36% increase in industry-wide CAPEX in 2021. All the big players are spending; the goal of the CHIPS Act is to entice the high-end manufacturers to locate as much of that CAPEX in the U.S. as possible. Intel and TSMC have already committed respectively $20 billion and $12 billion for new U.S. factories, and it remains to be seen if passage of the CHIPS Act will encourage greater direct investment in U.S. manufacturing.

Provisions in the CHIPS Act

At a high level, the CHIPS Act provides for $52 billion in federal funding to support investment in semiconductor manufacturing capacity. The main funding mechanism is tax credits for companies who meet certain criteria, or direct spending on R&D by some government agencies. The provisions in the CHIPS Act are comprehensive, attacking the problem from both design and manufacturing capabilities.

  • An income tax credit for new investments in semiconductor capital equipment or manufacturing facilities, available to be claimed through 2026.
  • Authorizes creation of a Multilateral Semiconductors Security Fund between the U.S. and its international partners for development of “secure semiconductors and secure microelectronic supply chains.” The goal of the fund is to promote:
    • Consistency in policies related to microelectronics
    • Transparency in microelectronic supply chains
    • Alignment in policies toward non-market economies
  • Authorizes the Department of Commerce through NIST to carry out various activities overseeing allocation of investment funding to support semiconductor R&D activities.
  • Authorizes the Department of Commerce to study U.S. industrial base capabilities to support national defense, specifically with respect to the manufacture and design of semiconductors.
  • Enables the Department of Defense to prioritize use of specified available amounts for programs, projects and activities to support R&D in semiconductors and related technologies.

The President shall establish a NIST subcommittee on matters relating to U.S. leadership in semiconductor technology and innovation. This subcommittee shall also develop a national strategy on semiconductor research.

What is the FABS Act?

There is an additional piece of legislation being pushed by the Semiconductor Industry Association, called the Facilitating American-Built Semiconductors (FABS) Act.

The FABS Act “aims to provide tax-based incentives towards the construction, expansion, or modernization of semiconductor fabrication plants (or 'fabs') and processing equipment in the United States.” “Specifically, the proposed subsidy is a 25% tax credit towards the purchase, construction, manufacture, or utilization of a semiconductor manufacturing facility or related equipment that will be used for the design or processing of chips.”

What else is on the table for electronics manufacturing?

The U.S. government is clearly viewing the semiconductor shortage situation and the general drawdown in domestic semiconductor manufacturing capacity generally as both an economic issue and a national security issue. Press releases from Senator Sherrod Brown (OH), Senator Gary Peters (MI), the Republican Policy Committee and other legislators on both sides of the aisle have stated this explicitly in press releases and policy papers.

Based on a recent joint report from the Department of Homeland Security and Department of Commerce, the Biden administration is now taking the same stance on PCB/PCBA production (the full report can be downloaded here). While no legislation has been proposed to support this segment of the electronics industry, there is a clear acknowledgement that onshoring is needed to ensure economic and national security. This new development is promising for the American cohort within the electronics industry, and we can hope it creates a more sustainable supply chain situation in the future.

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