An Investment Boom Triggered
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The CHIPS and Science Act of 2022, which includes nearly $53 billion in funding to encourage the domestic manufacture of semiconductor chips, appears to be working as intended.
The new law provides is intended to expand domestic production of the foundational technology, which acts as the brains of computers. To that end, it has already triggered an investment boom, with U.S. and foreign manufacturers unveiling more than 40 projects for total investments close to $200 billion, according to the Semiconductor Industry Association, a trade group.
Signed into law last August, the bipartisan legislation called for every aspect of computer chip production to be brought back to the U.S. Additional stipulations include private-public partnerships as well as the involvement of higher education institutions.“CHIPS” stands for “Creating Helpful Incentives to Produce Semiconductors.”
The law is a prime piece of President Biden’s industrial policy and part of a push to ensure America’s economic and technology leadership over China.
Just last week, EMP Shield announced that it would spend $1.9 billion on a computer chip manufacturing facility to be built on 300 acres in Burlington, Kansas. The company, which focuses on protecting electronic devices from destructive magnetic pulses, will create more than 1,200 jobs at the new facility.
EMP Shield plans to have four production lines operating in approximately 235,000 square feet of facilities in the new industrial park that will produce thousands of chips per week.
The Commerce Department is expected to soon begin handing out $39 billion in subsidies to semiconductor makers, later opening the process to companies, universities and others to apply for $13.2 billion in research and workforce development subsidies.
The CHIPS Act also provides an investment tax credit for up to 25 percent of a manufacturer’s capital expenditure costs.
Also last week, Commerce Secretary Gina Raimondo said funds from the $53 billion Chips Act will be used to create at least two semiconductor manufacturing clusters by 2030. The aim is to create ecosystems that would bring together fabrication plants, research-and-development labs, final packaging facilities for the assembly of chips and the suppliers needed to support each phase of the operation.
“When we are done implementing this by 2030, America will design and produce the world’s most advanced semiconductor chips,” she told reporters in a briefing last week. The Commerce Department will soon disclose further details on how companies can apply for funds.
Where those clusters will be located has yet to be announced, but Arizona, Ohio and Texas would likely be at the forefront based on investment plans to date by Intel Corp., South Korea’s Samsung Electronics Co. and Taiwan Semiconductor Manufacturing Co.
“Each cluster will include a robust supplier ecosystem, R&D facilities to continuously innovate new process technologies, and specialized infrastructure,” Raimondo told students at Georgetown University’s School of Foreign Service. “Each of those clusters will employ thousands of workers in well-paying jobs.”
Intel has said it would invest $20 billion each in facilities in Chandler, Ariz., and New Albany, Ohio. TSMC has a $40 billion project underway in Phoenix, and Samsung Electronics is investing $17.3 billion in a plant in Texas. Micron Technology Inc. and Texas Instruments also have disclosed investment plans in New York and Texas respectively.
Ms. Raimondo has described the process as a “race” among states. “Every governor, every state legislature, every president of public universities in every state ought to be now putting their plan of attack together,” she said in August during a visit to Arizona State University’s tech research and development center. “This is going to be a competitive process.”
Industry advocates have expressed concerns about whether funding might be spread out too thinly, or if the U.S. would be able to field enough skilled workers to build and operate new facilities. Ms. Raimondo said the government would press chip companies to join with high schools and community colleges to train more than 100,000 new technicians in the coming years.
As companies shifted factories overseas in search of cheaper labor and production costs, the U.S. share in global semiconductor production has fallen to around 10 percent from 37 percent in 1990. The U.S. no longer mass-produces the most advanced chips, defined as those smaller than 5 nanometers, while Taiwan, at the center of geopolitical tensions with China, accounts for 85 percent of those.
Ms. Raimondo has reiterated the government’s plans to invest $11 billion in what it calls a National Semiconductor Technology Center.
“The vision for it is an ambitious public-private partnership where government, industry, customers, suppliers, educational institutions, entrepreneurs, and investors converge to innovate, connect, and solve problems,” she said.
Arizona is in a Lead Position
Arizona, which is vying for subsidies along with Texas, New York and Ohio, has been home to semiconductor makers since the 1940s and has 115 chip-related companies, whereas there is one major manufacturer in Ohio.
Arizona has also led the nation in chip investments since 2020, with the announcements of two new chip-making plants by TSMC and two additional factories from Intel that will cost a combined $60 billion.
State leaders had helped persuade the companies to open the facilities by offering big tax breaks and water and other infrastructure grants. They also promised to expand technical and engineering education in the state.
State officials and chip companies helped shape the CHIPS Act to include federal tax credits, subsidies, and research and workforce grants. TSMC expanded its lobbying staff to 19 people from two in two years, and Intel spent more than $7 million in lobbying efforts last year, the most it had spent in two decades. Arizona State University spent $502,000 on lobbying last year, also the most in two decades.
In December, TSMC announced a second factory that would bring its total investment in Arizona to $40 billion.
But What About Water?
Semiconductor plants use a lot of water, so why is Arizona building these "fabs" when it is facing a 23-year drought? The answer, according to the chip manufacturers, is that they recycle water and that very little is lost.
In its "Arizona RISE Report," Intel claims to have restored and returned more than 95 percent of the water that it uses. The company says it has reduced its water use, thereby conserving 3.1 billion gallons of water in 2021.
TSMC says its two Arizona fabrication plants will be the "greenest semiconductor manufacturing facility in the United States," the company said in a press release.
TSMC says it planning to achieve "near zero liquid discharge," meaning that the future plants' water supply would essentially be a closed loop, and would only need a minimal water supply from cities to run.
My take: The Colorado River is drying up at a startling rate. And yet the Southwest has experienced some of the strongest economic and real estate growth in the country in recent years, drawing hundreds of thousands of new residents and spurring the development of new homes at the same time that drought has worsened.
About 1,000 residents of Rio Verde Foothills, which previously bought its water from Scottsdale, were cut off from that supply in January when Scottsdale decided it needed the water for its own residents.
Is this the kind of environment where chip companies should be building these massive facilities? I truly have my doubts despite their lauded conservation/recycling efforts.
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BBA offers objective insight to communities and companies. We help communities build a better investment environment and companies find the better communities to invest in. For more information, contact me, Dean Barber, at dbarber@barberadvisors.com. Need a speaker? I can be there for you.
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