On September 6, 2022, the U.S. Department of Commerce (“Commerce”) released its Implementation Strategy for the Helpful Semiconductor Production Incentives (“CHIPS”) Fund for America, outlining how Commerce will implement and disburse over $50 billion in funding authorized under the recently enacted CHIPS Act.
In July, Congress passed the CHIPS Act with bipartisan support, and President Biden signed it into law soon after. Proponents hailed the CHIPS Act as improving US competitiveness in an industry that is critical to many commercial and defense applications. CHIPS will provide more than $50 billion for U.S. semiconductor research, development, manufacturing and workforce development, including $39 billion in manufacturing incentives and $2 billion for legacy chips used in automobiles and defense systems. It allocates $13 billion for research and development (“R&D”) and funding or workforce development incentives, and $500 million for information and communications technology security international markets and semiconductor supply chain activities. It also provides a 25% investment tax credit for capital expenditures related to the manufacture of semiconductors and related equipment.
Recipients of CHIPS funds are subject to various requirements, including a ban on using funds for share buybacks and a restriction on entering into certain transactions in China or another “foreign country of concern” for a period of 10 years after receiving CHIPS funding. This latter restriction is backed by a funding clawback authority and notification regime, establishing something akin to a “reverse CFIUS” for participants.
Because the law gives Commerce broad discretion over implementation, the agency’s new strategy and forthcoming additional guidance will warrant careful study by industry participants. In its strategy document, Commerce identified three initiatives that the CHIPS for America Fund will support:
- First, Commerce will use approximately $28 billion in funding to expand domestic production of advanced logic and memory chips. Applications will be reviewed by a new CHIPS Program Office (“CPO”), which will also provide advance information on proposed applications.
- Second, Commerce will use approximately $10 billion in funding to expand U.S. manufacturing capacity for mature and current-generation chips, new and specialized technologies, and industry suppliers, including for semi- conductors used in automobiles, medical devices and defense systems.
- Third, commerce will invest $11 billion through a CHIPS R&D program in initiatives such as a national semiconductor technology center and a national advanced packaging manufacturing program.
The strategy says Commerce will issue a funding announcement by February 2023 outlining more specific criteria for applicants. In the meantime, the Department of Commerce has identified certain CPO valuation factors. These include encouraging proposals that leverage private capital and using creative funding structures, as well as prioritizing performance-based proposals that use state and local incentive packages.
With bipartisan support and interest in these initiatives, Commerce will likely continue to prioritize the implementation of CHIPS as one of the Biden administration’s flagship initiatives, while strengthening export controls and administering the new technology supply chain import restrictions.