It's Crunch Time for the CHIPS Act


By: Mary Jander

The U.S. Congress is this week weighing the fate of two pieces of legislation geared to funding the American semiconductor industry. And chip vendors are holding their breath.

The CHIPS Act calls for $52 billion in subsidies for the manufacturers of semiconductors, such as Intel (Nasdaq: INTC), Texas Instruments (Nasdaq: TXN) and Micron (Nasdaq: MU). The money would help them to build more factories in the U.S. – mainly in an effort to avoid ceding chip control to Asia.

The FABS Act gives investment tax credits for equipment for those factories. A newer version of the FABS Act would also extend tax credits for chip design as well as implementation, in order to help fund companies such as AMD (Nasdaq: AMD), NVIDIA (Nasdaq: NVDA), and Qualcomm (Nasdaq: QCOM) that design their own chips but fabricate them elsewhere.

The CHIPS Act is moving through the Senate and the FABS Act is in the House of Representatives.

Controversy Swirls Over Chips Bills

Both the CHIPS Act and the FABS Act have been caught up for months in political and industry controversy. On the political side, Republicans opposed the fact that the CHIPS Act was coupled with numerous unrelated spending proposals in the FY 2021 National Defense Authorization Act (NDAA), an annual budget for the military. That opposition dimmed when Democrats agreed to spin out the CHIPS Act as a distinct and separate entity.

Democrats, though, had their own objections to the legislation on the basis that it subsidized a profitable industry capable of supporting itself. Some reportedly even accused Intel and other firms of capitalizing on the worldwide chip shortage to get funding for themselves. As one Twitter commenter put it:

Political squabbling threatens to tank the legislation this week. Some are accusing House Speaker Nancy Pelosi of investing in NVIDIA in order to profit indirectly from the funding – despite the fact that there is no guarantee that NVIDIA would get any funding at all if the FABS Act doesn’t include investment credits for design.

Industry Arguments

On the industry side, fabless semiconductor makers such as AMD, NVIDIA, and Qualcomm have concerns that if the government subsidizes chip manufacturers, it will put them at a disadvantage. As one anonymous source told Reuters:

"You have Intel that might get $20 billion with CHIPS Act plus $5 billion or $10 billion under the FABS Act. So $30 billion goes to your direct competitor, and you don't get a penny? That's going to cause problems in the market.”

Meanwhile, though numerous other semiconductor designers declined to comment, Reuters reporter Stephen Nellis said an AMD spokesperson contacted him to say the company supports the legislation even without the FABS Act design incentive.

The Semiconductor Industry Association (SIA), however, has long promoted the cause of the design incentives. “The FABS Act should include expenditures for both manufacturing and design to help strengthen the entire semiconductor ecosystem,” the association stated.

What’s Riding on This Legislation

Eyes are on the government’s action this week for a number of reasons. One is that several large chipmakers have made investment in new facilities contingent on getting the funding. U.S. Secretary of Commerce Gina Raimondo said last week that semiconductor companies that have pledged to build plants that would add jobs in states such as Idaho and Texas won’t budge until the funding comes through.

Other observers have their eyes on the stock market. If the semiconductor funding fails, they worry stocks will fall.

Meanwhile, the tussles continue in Washington. The outcome is, right now, anybody's guess.