US President Joe Biden against semiconductor background

Biden’s requirements to chip makers winning funding raise industry questions

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The conditions for awarding $39bn (£32.3bn) in subsidies for domestic semiconductor production have made the funds less attractive, industry sources said.

The Biden administration has released its plans to begin accepting applications in late June for its silicon manufacturing subsidy programme, including requirements for companies to share excess profits and explain how they plan to provide affordable childcare.

Companies winning funding are also prohibited from using the 'Chips and Science' funds for dividends or stock buybacks, and must provide details of any plans to buy back their own shares over five years.

Although no companies have said they would scrap expansion plans to build in the US, industry sources told Reuters that the unexpected provisions make the funds less attractive.

The most contentious part of the conditions seems to be the profit-sharing requirements, which would mean each company would have to negotiate separate agreements with the US government.

“I believe this is going to cause heartburn for companies," one chip industry executive told Reuters, requesting anonymity to discuss sensitive matters. "It’s unknown what the market is going to do. This grant would limit their flexibility.”

The US's 'Chips and Science' law is expected to provide $39bn (£32.3bn) in funding for semiconductor chips manufacturing and research, as part of the Biden administration's efforts to make the US more competitive with China. 

The law also includes an investment tax credit for chip plants estimated to be worth $24bn (£20bn).

In order to access the funds, Commerce Secretary Gina Raimondo said companies must submit a plan that includes an outline of workforce needs.

Applicants must address six program priority areas including plans "to commit to future investment in the US semiconductor industry, including to build R&D facilities in the United States". 

They should also "create opportunities for minority-owned, veteran-owned, and women-owned businesses; demonstrate climate and environmental responsibility; invest in their communities by addressing barriers to economic inclusion; and commit to using iron, steel, and construction materials produced in the United States".

Additionally, those applicants seeking more than $150m in direct funding must submit "a plan for how they will provide affordable and accessible childcare for their workers", Raimondo said. 

"We're going to be doing our own diligence. We're not writing blank cheques to any company that asks," Raimondo said. "We're making companies open their books."

White House economic adviser Heather Boushey said the announcement "is emblematic of using public incentives to simultaneously deliver on building strategic supply chains for our economic and national security while also investing in our care infrastructure".

Democratic Senator Jack Reed praised the profit-sharing plan, saying chips funding is "not a free handout for multi-billion dollar tech companies... There is no downside for companies that participate because they only have to share a portion of future profits if they do exceedingly well".

Republican House Science Committee Chair Frank Lucas criticised the childcare and revenue-sharing provisions, saying they exceed authority granted by Congress. He says Commerce is "focusing less on the urgent need for chip production and more on attempting to impose their labour agenda on this critical industry".

Industry insiders said even some of the provisions that were widely expected – such as giving priority to applicants who agree to stop share buybacks for five years after getting a grant – could be tough for some firms. 

"If that's a precursor to more and deeper things [government officials] would be looking for in a negotiation stage, there's some criticism there that it could make it more challenging to do things," another source told Reuters. 

For chip companies that already planned on offering child care to their factory workers, the additional requirements to offer similar benefits to construction workers building new plants are “a bit of a distraction, but it’s all manageable”, they said, adding that it may "slow down what people are trying to do".

Another issue that was raised is the concern that building new chip plants will probably get more expensive in the US, where costs are already higher than places such as Taiwan and Singapore.

Since the shortage began in 2020, the economic losses caused by the lack of semiconductors can be measured in billions of dollars.

Over the past two years, the chip shortage has forced Ford, Jaguar Land Rover, Volkswagen, General Motors, Nissan, Daimler, BMW, Renault and Toyota to shut factories, scale back production or exclude high-end features such as integrated satellite navigation systems, which rely on sophisticated semiconductor technology.

Last year, Raimondo warned that the global semiconductor crisis is expected to last through 2023 and perhaps longer. 

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