the systems view blog

Applying our perspective to industry topics and trends

August 15, 2022

What the Signing of the U.S. CHIPS Act Means for Semiconductor Manufacturers

It’s no secret that the semiconductor shortage has had a massive impact on various industries across the globe—from car manufacturing to smart devices to consumer products and more. And as the digital landscape evolves, semiconductor chips are needed more than ever.

The world has been in agreement that something needed to be done about the current lack of chips. Last week, U.S. President Joe Biden signed the CHIPS Act—a $280 billion package that includes $52 billion in funding to boost domestic semiconductor manufacturing. The signing of the act will make technology investments that will strengthen American manufacturing, supply chains, workforce, and national security, and invest in research and development, science, and technology. Ultimately, the Biden administration seeks to position the U.S. as a leader in the industries of tomorrow.

Spurred by the passage of the CHIPS Acts, companies like Micron, Qualcomm, and GlobalFoundries have now announced nearly $50 billion in additional investments in U.S. semiconductor manufacturing, bringing total business investment to nearly $150 billion.

The CHIPS act provides a 25% tax credit for U.S. facilities that produce semiconductors or chipmaking equipment and $52 billion in funding for new semiconductor programs. The funding includes $39 billion for grants available to chip manufacturers as well as semiconductor equipment and materials suppliers and $11 billion for federal semiconductor research programs.

The History of the Semiconductor Shortage

The shortage began with the COVID-19 pandemic, with a convergence of various problems. In addition to long-standing issues within the industry, like insufficient capacity at semiconductor fabs, the pandemic introduced unprecedented challenges with supply chains.

A Semiconductor Supply Chain report from the U.S. Department of Commerce released in January 2022 revealed the demand for chips was 17% higher in 2021 than two years prior. According to the U.S. government, median inventory has fallen from 40 days to fewer than 5 days. In a report, Deloitte said it expects the semiconductor shortage to last until early 2023, and some experts predict it will be until 2024 for levels to return to normal.

At the same time, global semiconductor sales are predicted to rise to $574 billion in 2022, according to the Semiconductor Industry Association. The 300mm silicon wafer market is expected to reach $10.570 billion by the end of 2027, growing at a CAGR of 5.1% over the next five years.

The signing of the CHIPS act aims to ultimately alleviate the semiconductor shortage. But what does this mean for semiconductor manufacturers? Let’s take a look at the industry’s response and some potential outcomes and impacts of the act on semiconductor fabs.

Industry Response to the Signing of the CHIPS Act

The industry overall is pleased with the signing of the CHIPS Act. SEMI—the industry association representing global electronics design and manufacturing supply chain—applauded the signing and said it will secure landmark investments to bolster semiconductor manufacturing and R&D infrastructure.

SIA—a trade association that represents the U.S. semiconductor industry—agrees, and said that by passing the CHIPS Act, Congress has risen to this great challenge and seized an opportunity to fortify American semiconductor manufacturing, design, and research.

Outcome 1: Boosted Security

The CHIPS Act prohibits funding recipients from expanding semiconductor manufacturing in China and other countries that are a security threat to the U.S. According to a TechTarget article, some experts see the strategic importance of the CHIPS Act going beyond simply increasing American chip production. They see it as a move that better ensures the security of the U.S. against a range of geopolitical threats, like the potential takeover of Taiwan by China, for example. Further, keeping semiconductor manufacturing “in house” will enhance security naturally, as a U.S.-based supply chain has less risk factors than complex global ones.

Outcome 2: Calls for Increased Redundancy

With the signing of the Act also comes calls for redundancy across the entire chip supply chain for substrate makers and other raw materials providers—not just for the finished chips. Efforts will be needed to bolster the efforts of manufacturers who provide the necessary components leading chipmakers need to produce the final product. Semiconductor manufacturing companies can mitigate the impact of supply disruptions by proactively managing supply risks, by conducting supply and supplier risk assessments, increasing supply redundancy and developing regional supply sources where practical.

Outcome 3: Heightened Volatility

According to Fitch Ratings, semiconductor manufacturers are facing more volatility and uncertainty than ever, due to revenue and cash flow instability from supply chain reconfigurations that are taking place during national security expansions, geopolitical instability, and monetary and fiscal policy interventions. Regionalizing manufacturing by building duplicate supply chains will initially reduce efficiency, and may result in short recurring periods of heightened volatility. Chip manufacturers may risk overinvesting in production capacity heading into an economic slowdown, and a downturn may affect semiconductor supply and demand, resulting in excess capacity that could persist for years to come.

A Caveat: CHIPs Act Won’t Immediately Solve Chip Shortage

Although a step in the right direction, the signing of the CHIPS Act won’t immediately solve the pervasive semiconductor shortage. Overall, the Act is primarily focused on keeping up with China’s investment in semiconductors—not solving the present issues with the supply chain, says PwC. The chip factories that will be built due to the Act won’t be complete for several years, and the bulk of the funding may not go toward legacy chips, which account for the current ongoing shortage.

The Takeaway: Keep an Eye on Changes & Choose a Parter to Help Navigate Them

Overall, the signing of the CHIPS Act will present semiconductor companies with an opportunity to capitalize on manufacturing—however, to get the most out of it will require rethinking strategy while accounting for digital transformation, capital project management, and financial planning. With ongoing challenges like geopolitical uncertainty and dramatic market shifts, semiconductor manufacturers should keep an eye on the constantly changing climate and familiarize themselves with the funding process to get ahead of the immense competition that is sure to arise after the signing.

The right partner and equipment can help you be ready for the myriad of changes the CHIPS Act will bring. For over four decades, AES’ SEMI-GAS® systems has been serving the innovative and evolving requirements of the semiconductor industry with high quality, production-ready equipment, systems, and services. Contact us to learn more about how we can help you uphold excellence in your semiconductor processes and output—no matter what changes are on the horizon.


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