Business & Finance

Impact of the CHIPS Act on the Semiconductor Manufacturing Industry

It goes without saying that the lack of semiconductors has had a significant effect on a number of global businesses, including the production of automobiles, smart devices, consumer goods, and more. Additionally, the need for semiconductor chips is increasing as the digital world changes.

Everyone agreed that something needed to be done to address the current chip shortage. The CHIPS Act, a $280 billion package that includes $52 billion in funds to increase domestic semiconductor manufacturing, was signed recently by US President Joe Biden. By enacting the law, investments in science, technology, and research and development will be made. These should strengthen American manufacturing, supply chains, workforce, and national security. In the end, the Biden administration wants to establish the United States as a global leader in future sectors.

Companies including Micron, Qualcomm, and GlobalFoundries have now committed almost $50 billion in further investments in American semiconductor production, increasing the total business investment to close to $150 billion. These announcements have been sparked by the passing of the CHIPS Acts.

The CHIPS act allocates $52 billion to new semiconductor programs and offers a 25% tax credit for American factories creating semiconductors or chipmaking machinery. The funding consists of $11 billion for federal semiconductor research projects and $39 billion for grants available to chip manufacturers, equipment and material suppliers, and both.

The CHIPS act, which was recently signed, is intended to eventually ease the semiconductor scarcity. But what does this imply for producers of semiconductors? 

Industry Reaction to the CHIPS Act’s Enactment

The CHIPS Act’s passage has been welcomed by the industry as a whole. It was passed by Congress as a chance to strengthen American semiconductor manufacture, design, and research. If you want to know more about manufacturing jobs, ask TruPath.

Result #1: Increased Security

The CHIPS Act forbids recipients of funds from boosting semiconductor production in China and other nations that pose a threat to American security. Some analysts believe that the CHIPS Act’s strategic significance extends beyond merely raising American chip output. They see it as a step that enhances American security against a variety of geopolitical dangers, like China’s prospective annexation of Taiwan. Additionally, maintaining “in-house” semiconductor manufacturing will naturally increase security because a U.S.-based supply chain has fewer risk elements.

Result #2: Increased Redundancy

There are calls for redundancy throughout the whole chip supply chain. This includes substrate producers and other raw material suppliers—not only for the finished chips. In order for leading chipmakers to generate the finished product, manufacturers that supply those components will need to step up their game. Therefore, companies that produce semiconductors can lessen the effects of supply disruptions in several ways. They can actively manage supply risks, conduct supplier and supply risk assessments, enhance supply redundancy, and, when practicable, expand regional supply sources.

Result #3: Increased Volatility

According to some analysts, the supply chain reorganizations that are occurring in the midst of national security expansions, geopolitical unrest, and interventions in monetary and fiscal policy are causing revenue and cash flow instability. That, in turn, is putting semiconductor manufacturers at greater risk than ever. However, building redundant supply networks to regionalize manufacturing may initially lower efficiency and may lead to brief recurrent periods of increased instability. Additionally, a downturn may disrupt semiconductor supply and demand, resulting in a surplus capacity that might last for years. Chip manufacturers also run the risk of overinvesting in production capacity in advance of a recession.

The CHIPs Act Won’t Immediately End the Chip Shortage

The CHIPS Act’s passage represents a positive move, but it won’t alleviate the widespread scarcity of semiconductors right now. The Act’s overall goal is to keep up with China’s investment in semiconductors rather than address the current supply chain problems. The Act will result in the construction of chip factories. However, they won’t be finished for several years, and the majority of the financing may not go toward the older chips that are currently in short supply.