US Senate Passes CHIPS Act Temperature Check, but Challenges Linger

By Agam Shah

July 19, 2022

The U.S. Senate on Tuesday passed a major hurdle that will open up close to $52 billion in grants for the semiconductor industry to boost manufacturing, supply chain and research and development.

U.S. senators voted 64-34 in favor of advancing the CHIPS Act, which sets the stage for the final consideration of the bill. It is one of several maneuvers involved before the final CHIPS act passes.

The CHIPS (Creating Helpful Incentives to Produce Semiconductors for America Act) legislation was introduced in response to the shortage of computer chips used in computers, cars, medical devices and military equipment. The U.S. economy took a $240 billion hit in 2021 as a result of the chip shortages, Ohio senator Rob Portman said in a bill debate on the floor on Tuesday (July 19).

Chip companies in the last few weeks have intensified lobbying the U.S. government to pass the CHIPS Act. It was originally authorized last year as part of the National Defense Authorization Act (NDAA), which called for improvements in manufacturing and research and development of semiconductors in the U.S. The CHIPS Act, if passed, will include language from legislation in the House and Senate to open up funding to the semiconductor industry.

The next steps would be for the Senate to pass a final vote on the modified CHIPS Act, which is being called CHIPS plus, and then pass it down to the House. Senators have urged quick passage of the final bill, but the time is tight, or it could face further delays.

The Senate will need to do another vote on the final bill in the coming days and then the House needs to vote before it adjourns on July 27, Reva Goujon, senior manager at Rhodium Group, told HPCwire.

The procedural vote was designed to take the Senate’s temperature on whether there are at least 60 votes for a “CHIPS plus” bill, Goujon said.

“Now comes the question of what goes into the ‘plus’ of ‘CHIPS plus’. There appears to be consensus for the $52 billion chips funding, tax credits, and potentially authorizations for science agencies,” Goujon said.

The bill has been viewed as favoring Intel, which is establishing factories. But it’ll be important to see whether the final bill addresses funding for fabless chip design firms and what specific conditions are attached to funding, Goujon said.

For example, earlier proposals that have been circulating include guardrails that would ban recipients for chips funding from making investments to expand chip manufacturing capacity in countries of concern, namely China.

“The threshold that has been discussed is to exempt this restriction for manufacturing for chips at >28nm nodes. Senator Bernie Sanders has also pushed for restrictions on stock buybacks,” Goujon said.

The guardrails being debated that prohibit <28nm fabs in China by companies that receive CHIPS Act funding are rubber stamps that achieve nothing, said Dylan Patel, founder of SemiAnalysis, a semiconductor research and consulting firm.

“No company was planning to do that in China. The guardrail doesn’t change that most of Intel’s or Texas Instruments’ test and packaging is done in China and will continue to be done in China. What use are new fabs for national security if they have to go to China for test and packaging anyways?” Patel told HPCwire.

Intel has been heavily lobbying for the passage of the CHIPS Act to partially fund new factories, including a new $20 billion factory near Columbus, Ohio. Taiwan Semiconductor Manufacturing Co. and Samsung, which are building plants in the U.S., also have been lobbying to pass the bill as soon as possible. Chipmakers have said failure to pass the bill would lead to delays in starting the plants.

“We look forward to working with them toward final Senate passage and then swift approval in the House. This is America’s window of opportunity to re-invigorate chip manufacturing, design and research on U.S. shores, and Congress should seize it before the window slams shut,” said John Neuffer, CEO of the Semiconductor Industry Association, a consortium and lobbying group representing semiconductor firms, in a statement released Tuesday.

But the CHIPS Act doesn’t have bipartisan support. The bill is largely supported by Democrats and U.S. president Joe Biden, but faces opposition from many Republicans, who are trying to use it as leverage to pass bills not connected to semiconductors. Senate leader Mitch McConnell voted no on the Tuesday vote.

Investments in American R&D will incentivize more companies to build plants in states like Ohio, instead of in other locations like European countries, said Maria Cantwell, a Democrat senator from Washington state, during a speech on the Senate floor on Tuesday.

Senator Cantwell (D-Wa.) on Senate floor July 19, 2022

“We have a chip shortage today, and it’s costing our economy and … increasing inflation. We know that there is going to be a chip demand that is going to be three-fold from where we are today in the very near future. If we don’t start building here, we’re not going to catch up,” Cantwell said.

The U.S. makes about 12 percent of the semiconductors shipped worldwide, down from 37 percent in 1990, the Semiconductor Industry Association said in its annual 2021 report.

Cantwell hit upon key points when urging the Senate to vote “yes” on bringing the CHIPS Act to the floor. Most of the semiconductors are now being acquired by the U.S. from abroad, and funding for the semiconductor industry is in U.S. national security interests, Cantwell said.

“So much of that development is happening overseas, it’s happening in Taiwan, and it’s happening in Korea, and they’ve had game on for a while… and literally took a page out of what the United States has done to attract and keep industry here,” Cantwell said.

Governments around the world have been acting significantly faster in wooing semiconductor companies to establish local operations. The European Commission in February proposed the European Chips Act, which it passed in May, and directs billions of dollars in public and private funding to strengthen the local semiconductor industry. Intel has also announced plans to establish a fab in Magdeburg, Germany, which could begin operations in the latter part of the decade.

Critics contend that the CHIPS Act is more of a government giveaway to corporate America, and that it would add to the already bloated deficit.

“The CHIPS Act is nothing more than corporate welfare under the guise of addressing the lingering chip shortage. American taxpayers need not be responsible for padding the pockets of corporations by way of a $76 billion giveaway,” said right-wing advocacy group FreedomWorks in a statement.

The CHIPS Act isn’t paid for, with American taxpayers footing the bill of building new factories. But the U.S. needs to be self-sufficient on chips instead of relying on Taiwan and China, so the cost is worth it in terms of the long-term security and supply-chain benefits, said Gina Raimondo, a secretary for the U.S. Department of Commerce, in an interview with PBS Newshour.

“The United States is denying semiconductors to Russia. And as a result, their satellites and military equipment are literally falling out of the sky, because they don’t have semiconductors. That can be us,” Raimondo said, adding “I think $52 billion is really a drop in the bucket, so that we can… have peace of mind and national security.”

The intent to invest in U.S. chip manufacturing is also to increase overall U.S. resilience to supply chain shocks for critical inputs that wire the U.S. and global economy, said Rhodium Group’s Goujon.

“As the last two years illustrate, those disruptions can come in many forms, from pandemics to climate disasters to geopolitical conflict,” Goujon said.

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