In a historic move, President Joe Biden has given his consent to the $280 billion CHIPS and Science Act on August 9. The bill has been applauded by many lawmakers, union officials, local politicians and business executives.
On the signing day, President Biden mentioned in his speech that “the CHIPS and Science Act supercharges our efforts to make semiconductors here in America. America invented the semiconductor, and this law brings it back home.”
The bill is expected to enhance the competitiveness of the U.S. semiconductor industry by addressing issues such as supply-chain disturbances that are causing chip shortages. The persistent chip shortages have been hurting the manufacturing of several consumer products, like smartphones, gaming consoles, and automobiles.
Who Will Benefit from the CHIPS Act?
Under the bill, more than $52 billion are allocated for U.S. companies that are involved in manufacturing computer chips.
The bill will provide a four-year 25% tax credit to motivate companies to build plants in the United States and make investments in the U.S. semiconductor industry. The tax credit is projected to be valued at about $24 billion.
However, in order to be eligible for subsidies, the companies will be banned from expanding their semiconductor manufacturing capacities in China for 10 years post receiving a grant to build a plant in the United States, according to a Bloomberg report.
Amid COVID-19 uncertainties and geopolitical crises, the bill also aims to reduce companies’ dependence on Asian manufacturers like China and Taiwan for semiconductor chips. This bill also marks a shift in the political landscape, so that policymakers are focusing on modifying domestic legislations instead of imposing sanctions on Chinese companies.
Moving on, the bill will also spend billions of dollars to enhance the competitiveness of the United States in other technology areas by funding scientific research and development.
It is worth noting that the act could prove to be more beneficial for companies like Intel Corporation (NASDAQ: INTC), which manufacture their own chips, unlike Advanced Micro Devices (NASDAQ: AMD) , a semi-designer, which outsources the production of its chips.
CHIPS Act: New Investments, New Jobs
The White House has claimed that the bill will “unlock hundreds of billions more” in private spending in the U.S. semiconductor industry.
Notably, computer memory and data storage manufacturer Micron Technology, Inc. (NASDAQ: MU) announced that it will invest $40 billion in the United States over the next decade to expand leading-edge memory manufacturing in various phases.
The investment is expected to create 40,000 new jobs, develop supply chain resilience and improve the capabilities of U.S. national security. The White House estimates that this investment is expected to boost the market share of United States in memory chip production to 10% from just 2%, per a CNBC article.
Furthermore, Intel is aiming at strengthening its units in Arizona and build a new plant in Ohio along with other projects that can require spending amounting to billions of dollars, per The Wall Street Journal article.
Qualcomm, Inc. (NASDAQ: QCOM) has also entered a deal to secure more than $4 billion of the manufacturing capacity of the contract chip maker, GlobalFoundries Inc., through 2028.
Jump Start for the U.S. Semiconductor Industry
According to the White House, the United States is responsible for manufacturing only around 10% of the world’s semiconductors supply. Meanwhile, East Asia makes about 75% of global production which involves most of the top-tier chips, per a CNBC article.
Apart from the disappointing statistics, the COVID-19 highlighted the huge dependency of America on foreign lands for supply of chips. This also raised concerns regarding the national security of America.
Although the bill has components and initiatives that should help in strengthening the U.S. semiconductor industry, the dull outlook for the space provided by the major industry players is raising concerns.
Micron recently informed its stakeholders that it expects to report lower revenues in the current quarter due to sluggish demand for computer memory chips. Citing the slowdown in PC market as a concern, Intel has also slashed its full-year guidance. It also posted disappointing earnings results for the second quarter. Furthermore, Nvidia (NASDAQ: NVDA) has also recently lowered its revenue guidance due to ongoing macroeconomic headwinds.
The near-term prospects might be appearing dull due to slowdown in demand for PC, graphics cards, automobiles and smartphones, but the long-term potential of the sector remains strong. Notably, the bill is expected to help America gain its well-deserved position as one of the most successful manufacturers of the next-generation chips.
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