Chipmakers in the U.S. have started crying foul over the slow pace of the legislation of the CHIPS Act, which was expected to inject $52 billion into the struggling sector. According to the Wall Street Journal (WSJ), Intel (INTC) has already pulled the plug on the groundbreaking of a new Ohio chip factory in protest of Congress’s slow passage of the bill.
$52 Billion CHIPS Act & Expansion Plans
Intel is not the only company basing its expansion plans on the $52 billion subsidy program. According to Fortune.com, Taiwan Semiconductor Manufacturing (TSM) is currently building a factory in Arizona based on U.S. incentives. According to the Washington Post, Samsung also intends to build a $17 billion facility in Texas.
The WSJ reports that political wrangling in Congress leaves tens of billions of dollars’ worth of factory projects in limbo. Many chip companies, led by Intel and Micron Technology (MU) are reluctant to initiate chip factory expansion plans until Congress passes the $52 billion incentive package.
Micron plans to spend up to $150 billion in the next decade to ramp up chip production. It has already opened talks with multiple states to add production capacity. However, government incentives are crucial to supporting expansion plans.
High U.S Chip Production Costs
The proposed $52 billion subsidy program is designed to revitalize U.S. chip production. Manufacturing in recent years has shifted to Asia, where companies have enjoyed incentives and lower costs. In a report to the WSJ, Micron’s Chief Executive Officer (CEO), Sanjay Mehrotra, says federal government support is important to bridge the overseas 35% to 45% cost gap.
While the CHIPS Act will be the center of attention in Washington this week, the big question is whether big projects will stall if Congress does not approve the $52 billion incentive program. According to Fortune, making an attempt to bring the majority of chip production into the United States cannot be a long-term goal due to high production costs.
Wall Street’s Take
The Street is confident about the stock, with a Hold consensus rating, based on five Buys nine Holds, and six Sells. The average Intel price target of $48.19 implies 24.78% upside potential from current levels.
TipRanks data shows that financial bloggers’ opinions are 78% Bullish on INTC, compared to a sector average of 64%.
Key Takeaway for Investors
Congress approving the $52 billion incentive program should help support Intel and Micron expansion plans. The growing demand for chips to power various sectors provides a solid target market from which the companies will benefit a great deal.
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