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First funding opportunity announced for commercial
front-end and back-end semiconductor fabrication
facilities.
- Projects involving construction, expansion or modernization of
commercial facilities to produce leading-edge, current-generation
and mature-node semiconductors are now eligible for funding. - Fabless companies should consider partnering with production
facilities including for R&D to benefit from current and
subsequent rounds of funding. - With applications being accepted on March 31, 2023, securing
state incentives, workforce training commitments and meeting other
unique workforce related criteria will be key to a successful
outcome.
On February 28, 2023, the first funding opportunity opened under
the Creating Helpful Incentives to Produce Semiconductors and
Science Act (CHIPS Act), federal legislation that appropriated
$52.7B in federal funding to boost the semiconductor industry,
including $39B in semiconductor manufacturing incentives.
The first funding opportunity is for projects to construct,
expand and/or modernize commercial facilities to produce
leading-edge, current-generation and mature-node semiconductors.
This includes both front-end wafer fabrication and back-end
packaging, testing and assembly. Funding will include direct
funding (through grants and cooperative agreements), loans and loan
guarantees, and there is no fixed amount for how much any given
project can receive. The funding opportunity for equipment
facilities and semiconductor materials will be released in the late
spring, and one for research and development facilities will be
released this fall.
The application process for commercial facilities incentives
will be rigorous and highly competitive—with program
administrators evaluating applications against adherence to
baseline eligibility requirements but also against six priority
areas: (1) economic and national security; (2) commercial
viability; (3) financial strength; (4) project technical
feasibility and readiness; (5) workforce development; and (6)
broader impacts, including future planned investments in the
domestic semiconductor industry, community investment, creation of
opportunities for minority-owned, veteran-owned and women-owned
businesses, climate and environmental responsibilities, and
commitment to using iron, steel and construction materials produced
in the United States.
Through this initial funding announcement along with the future
expected announcements, a wide range of businesses stand to benefit
from CHIPS Act dollars, including not only semiconductor
manufacturers, equipment and materials manufacturers and R&D
facilities, but also suppliers, vendors, investors and end-users.
Further, while the funding is targeted towards manufacturing and
R&D facilities, fabless semiconductor firms may
consider joining consortiums with manufacturers and others to take
advantage of downstream benefits.
For eligible chips manufacturers—along with others in the
semiconductor ecosystem—now is a critical time to assess the
opportunity and move forward with an application. Key details are
included below.
What is the CHIPS and Science Act?
In August 2022, Congress passed the bipartisan CHIPS Act which
directs $280B in spending over ten years, with the majority of this
funding provided for scientific and R&D objectives through
programs administered by the National Science Foundation,
Department of Energy and other agencies. Of these funds, $52.7B is
directed to boost the domestic semiconductor industry, including
$39B in semiconductor incentives, $13B in R&D and workforce
development, and $500M to strengthen global supply chains. Another
$24B is provided through tax credits for chip production.
$39B in Semiconductor Manufacturing Incentives
The CHIPS Act allocates $39B for incentives—in the form of
grants, cooperative agreements, loans and loan guarantees—for
semiconductor manufacturing. The funding—administered by the
CHIPS Program Office within the U.S. Department of
Commerce—will be distributed to (1) attract large-scale
investments in advanced technologies such as leading-edge logic and
memory, and (2) incentivize expansion of manufacturing capacity for
mature and other types of semiconductors.
The funds will be distributed through a series of competitive
funding opportunities. The first opportunity—released on
February 28, 2023—is for commercial fabrication facilities.
Additional funding opportunities will be available for equipment
and materials manufacturing facilities and R&D facilities.
Baseline Eligibility Criteria
Funding will be available to private companies, non-profit
organizations and consortia thereof. Eligible organizations must be
able to substantially finance, construct or expand a U.S. facility
that fabricates, assembles, tests, packages, produces or researches
either semiconductors, semiconductor materials, or equipment used
in the manufacturing of semiconductors. However, CHIPS Program
Office guidance—and the specifications set forth in the first
funding opportunity announcement—make clear that baseline
eligibility is only the first step. Ultimate success in securing
incentives will hinge on a host of other factors. Further, FAQs
clarify that the eligibility of foreign entities to apply for and
receive CHIPS incentives will be at the sole discretion of the
Commerce Department. Foreign companies are advised to seek guidance
from the CHIPS Program Office pursuant to submitting a statement of
interest.
Funding Opportunity—Commercial Fabrication
Facilities
The first funding opportunity—announced on February 28,
2023—seeks applications for projects involving the
construction, expansion or modernization of commercial facilities
for the fabrication of leading-edge, current- generation and
mature-node semiconductors. This includes both front-end wafer
fabrication and back-end assembly, testing and packaging.
This funding opportunity will provide direct funding (through
grants and cooperative agreements), loans and loan guarantees.
There will be no fixed amount for how much direct funding a project
can receive, but most direct funding awards are expected to range
between five and 15% of project capital expenditures. There is
similarly no fixed limit on loans or loan guarantees, and
applicants may request loans or loan guarantees to provide debt
financing that is not available on comparable terms on the private
market.
The Application Process
The funding announcement described a five-part application
process including (1) a statement of interest, (2) a
pre-application, (3) a full application, (4) CHIPS Program Office
due diligence, and (5) award preparation and issuance.
Pre-applications and full applications for leading-edge
facilities will be accepted on a rolling basis beginning March 31,
2023. Pre-applications for current-generation, mature-node and
back-end production facilities will be accepted on a rolling basis
beginning May 1, 2023, and full applications for these categories
will be accepted beginning June 26, 2023. Statements of interest
are accepted immediately.
Evaluation Priorities
Applications will be reviewed through the lens of six priority
areas:
- Economic and National Security: Incentives will be directed to
projects that increase domestic semiconductor production and
strengthen global supply chains, as well as projects that further
national security interests by, for example, providing the
Department of Defense with access to onshore access to
semiconductors. - Commercial Viability: Incentives will go to applicants with
plans for reliable cash flows and continued investment to make sure
the facility remains active for the long-term. - Financial Strength: Applicants must submit a detailed financial
model for projects and maximize private-sector contributions. - Technical Feasibility and Readiness: Applicants must provide
clear plans, including major construction and operational
milestones and construction rights and permits. Projects that can
meet environmental and permitting requirements in a timely manner
will be prioritized. - Workforce Development: Applicants must commit to developing and
maintaining a highly skilled, diverse workforce, including by
hiring economically disadvantaged workers. Applicants are
encouraged to engage government organizations, educational
institutions, unions, industry associations and others to meet
workforce needs. - Broader Impacts: A CHIPS program goal is to extend the
incentives benefit through communities. As such, projects will be
evaluated based on applicants’ plans to commit to future
investment in the semiconductor industry; create opportunities for
minority-owned, women-owned and veteran-owned businesses;
demonstrate climate and environmental responsibility; invest in
communities by addressing barriers to economic inclusion; and
commit to using iron, steel and construction materials produced in
the U.S.
Additional Requirements
Applicants must:
- Demonstrate that the funding will incentivize facilities and
equipment in the United States that would not occur otherwise. - Be offered an incentive from a state or local government.
- Secure commitments from training entities and institutions of
higher education to provide workforce training. - Agree not to use CHIPS funds for dividends or stock buybacks.
All applicants must further detail their intentions with respect to
stock buybacks over five years.
Applicants seeking more than $150M in funding must further:
- Submit a plan to provide affordable child care for
workers. - Share cash flows or returns that exceed the applicant’s
projections by an agreed-upon threshold with the federal
government.
Restrictions on Investments in China
Pursuant to the CHIPS Act, an awardee “may not engage in
any ‘significant transaction’. . . involving the
‘material expansion’ of ‘semiconductor manufacturing
capacity’ in China or any other foreign country of
concern” over the ten-year period after receiving an award.
The CHIPS Program Office is expected to issue additional detail on
the specific scope of this restriction.
This restriction on Chinese investments covers both the
“covered entity” receiving the federal funding, as well
as that entity’s “affiliated group,” which means one
or more chains of includible corporations connected through stock
ownership with a common parent. Generally, at least 80% of stock,
by both voting power and value, must be owned by the parent or by
another corporation in the chain.
The restrictions on Chinese investments do not apply to (i)
existing facilities or equipment used to manufacture legacy
semiconductors or (ii) the material expansion of legacy
semiconductor manufacturing that predominantly serves the market of
a foreign country of concern. A “legacy semiconductor” is
defined as a “semiconductor technology that is of the
28-nanometer generation or older for logic.”
This restriction creates a critical decision point for companies
that do business in both the United States and China. Indeed, the
CHIPS Act incentives are designed to serve as a catalyst for
companies to choose the United States for all large-scale
investments in the near-term.
The Advanced Manufacturing Investment Credit
Applicants are encouraged to claim the Advanced Manufacturing
Investment Credit, which provides a federal tax credit for
qualifying capital investments in a facility for which the primary
purpose is the manufacturing of semiconductors or semiconductor
manufacturing equipment.
State and Local Incentives
Under the CHIPS Act, applicants must be offered a state and
local incentive to support their project. The intent behind this
rule is to ensure that projects benefit for a range of support, not
just federal incentives. In practice, this requirement means that
applicant success will be tied to the availability and level of
support provided by their state, setting off furious competition
across the country.
Many states—and even local governments—have begun
announcing various incentive packages, ranging from state and local
tax credits to state-run grant programs to support workforce
development initiatives. A key issue will be how states with a high
population of eligible applicants—like California—will
respond to the requirement.
Next Steps for Applicants
This first funding opportunity marks a pivotal moment for
companies seeking to invest in semiconductor manufacturing to
benefit from CHIPS Act dollars. Because applications will be
evaluated on a rolling basis it is crucial for interested companies
to start preparing statements of interest and application packages.
Further, companies must carefully hone their application packages
to meet the nuanced application requirements and rigorous
evaluation process. This will require interfacing with industry
partners, local, state, federal and other institutional
stakeholders, to secure required commitments.
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