The US has rules for its Chips Act funding, and it includes no overseas expansion for ten years
- The US Commerce Department has imposed new rules on beneficiaries of the US$39 billion funding under the Chips Act.
- Chipmakers cannot expand their capacity in foreign countries for a decade to receive the funds.
- Companies that received over US$150 million in funds must return a portion of any cash flows or returns that exceed their projected amounts by an agreed-upon threshold.
This week, the US Commerce Department kicked off the application process for semiconductor manufacturing subsidies under the landmark Chips Act passed by Congress last year. The department will begin accepting applications in late June for the US$39 billion manufacturing subsidy program; however, it comes with rules and requirements for chipmakers to abide by.
For starters, the US Chips and Science Act provides US$52.7 billion of incentives for American semiconductor research, development, manufacturing, and workforce development. That total includes US$39 billion in manufacturing incentives, US$2 billion for the legacy chips used in automobiles and defense systems, and US$13.2 billion in R&D and workforce development.
Additionally, there is US$500 million designated for international information and communications technology security and semiconductor supply chain activities. The Chips Act also provides a 25% investment tax credit for capital expenses for manufacturing semiconductors and related equipment.
These incentives will secure domestic supply, create tens of thousands of goods-paying, union construction, and high-skilled manufacturing jobs, and catalyze hundreds of billions more in private investment. In announcing the prerequisite of the funding, the Secretary of the Commerce Department, Gina Raimondo, stressed that they would be implementing safeguards to ensure the program is not abused.
Rules for the recipient of the US Chips Act incentives
The US Commerce Department sets two most contentious requirements for the US$39 billion funding recipients. Firstly, chipmakers who receive more than US$150 million in direct funding “will be required to share with the US government a portion of any cash flows or returns that exceed the applicant’s projections by an agreed-upon threshold,” the department said.
The Commerce Department expects “upside sharing will only be material in instances where the project significantly exceeds its projected cash flows or returns and will not exceed 75% of the recipient’s direct funding award.” Secondly, the department prohibits companies that received funding from expanding semiconductor manufacturing capacity in foreign countries of concern for ten years after accepting the fund.
“Recipients will be required to enter into an agreement restricting their ability to expand semiconductor manufacturing capacity in foreign countries of concern for ten years after taking the money,” Raimondo said. It doesn’t take an expert to know that China is an obvious no-no for the US Chips Act fund recipients, especially those with a manufacturing presence in the country.
Besides the two most contentious prerequisites, Raimondo also said that companies must submit a plan outlining workforce needs. In short, applicants seeking more than US$150 million in direct funding must submit “a plan for how they will provide affordable and accessible childcare for their workers.”
Another ruling is that companies that receive funding must also not “knowingly engage in any joint research or technology licensing effort with a foreign entity of concern that involves sensitive technologies or products.” Raimondo said companies must agree to all the restrictions, including prohibiting the use of the money for share buybacks or dividend payments.
“I also want to be clear that no chip dollars can be spent on stock buybacks,” she said. “This is about investing in our national security, not enabling these companies to use our money to increase their profits.” Of course, nobody expected a “free lunch,” but the surprise provisions will force companies to rethink their finances again on US plants.
“Our goal is to make sure that the US is the only country in the world where every company capable of producing leading-edge chips at scale is located,” she said. The rules released so far are said to be general guidelines for companies receiving the funding. The Commerce Department intends to disclose more detailed rules in the coming weeks. “We’re going to be releasing very detailed regulations in the next few weeks that give companies a clearer sense of the red lines,” Raimondo concluded.
- HP and Google will start producing ‘Made in India’ Chromebook laptops
- Digital banks: What’s driving success in Southeast Asia?
- 800 Gbps milestone: NEC’s leap in optical submarine cable technology
- Can Google keep its ‘best search engine’ title as Apple evolves?
- No, overheating iPhones will not explode!