Chips go into everything, from smartphones to computers and even cars. They are fundamental to our modern world, but despite their importance, geopolitical changes and shattering events like the COVID-19 pandemic that affect silicon prices revealed how fragile the United State’s wafer and chip manufacturing sector is.
In August 2022, the CHIPS and Science Act was passed with the goal of boosting the U.S. competitiveness in chip manufacturing. It’s been nearly two years since the passage of this sweeping legislation, and billions of dollars in semiconductor production nationwide have been invested so we can start examining its effects.
The CHIPS and Science Act provides $52 billion in manufacturing and research grants to address supply chain vulnerabilities and promote semiconductor production in the United States. A 25% investment tax credit was also provided for the reshoring of chip manufacturing.
For many years, the chip industry has used a foundry model, in which one business designs chips and another undergoes the task of manufacturing them. Furthermore, historically, countries like China, Taiwan, and South Korea have been used to handle manufacturing and testing processes.
According to a Congressional Research Service report, companies with headquarters in the United States accounted for 22% of the world's chip manufacturing capacity in 2020, followed by South Korea (20%), Taiwan (19%), China (15%), and Japan (12%).
However, when COVID hit, America’s dependence on Chinese and East Asian production became clear as supply chain issues arose.
Improving competitiveness against other nations is a major driving force behind the politics of the CHIPS Act's onshoring of chip manufacturing. The investment's overall goal was to position this nation to produce about 20% of the most advanced logic chips worldwide by the end of the decade.
In April 2023, the government also founded the National Semiconductor Technology Center, a public-private partnership devoted to semiconductor research and development.
The Commerce Department began allocating funds for CHIPS in December 2023. Now, more than half of the $52 billion subsidy for the semiconductor industry has been disbursed to the domestic semiconductor industry.
So far, 23 projects have been funded by 13 companies in 14 states, creating more than 33,000 manufacturing jobs.
Foreign corporations establishing facilities in the United States make some of the largest investments in semiconductor manufacturing. Taiwan Semiconductor Manufacturing Co., for instance, is investing over $65 billion, including $6.6 billion from CHIPS funding, to construct three factories in Phoenix.
The biggest recipients of investments have been Intel, TSMC, and Samsung Electronics.
In March, INTEL received $8.5 billion under the CHIPS Act to finance the construction of four factories in four states, aiming to become the world's second-largest foundry by 2030. As previously indicated, the U.S. government gave TSMC $6.6 billion in funding, and Samsung completed the top three with $6.4 billion.
Projects associated with CHIPS have so far been dispersed throughout the United States.
A memorandum of terms between Wolfspeed, Inc. and the U.S. Department of Commerce was signed in October of this year. The agreement proposes up to $750 million in direct funding under the CHIPS and Science Act.
The investment will create more than 5,000 jobs in North Carolina and New York and build the largest silicon carbide 200mm ecosystem in the world. This would lower silicon prices and help ensure a steady domestic supply of semiconductors.
While the CHIPS Act funds have already begun being allocated, some shortcomings of the bill have come to light.
For instance, no government funding was intended for other chip research facilities—that is, the “design” phase of chip manufacturing. Investments only relate to the development or expansion of semiconductor fabrication facilities.
Moreover, the real effects of this legislation can’t be assessed. Building new chip facilities is difficult and takes time. Therefore, any significant increase in domestic silicon production will probably show up over the next few years, along with any potential price effects.
The Act has, nevertheless, already sparked large investments in the semiconductor industry. As domestic production increases, these advancements are anticipated to improve supply chain resilience. They may ultimately result in more stable or lower silicon prices.
Several factors influence silicon prices, including technological advancements, energy prices, and global demand. Although the CHIPS and Science Act is a significant step in bolstering American semiconductor production, its direct impact on silicon prices will depend on how well its programs are implemented and the state of the economy as a whole.
Silicon prices are very volatile, partly because its supply chain is widespread across the entire planet, and it is falling victim to changes in global commerce and political conflicts. The goal of the CHIPS Act was precisely to contribute to freeing the United States of this global uncertainty regarding semiconductors.
While we’re far from seeing its real impact, some of its effects can begin to be visualized as fabs start being built and new jobs are created. In the meantime, here at Wafer World, we’ll continue tracking its effects on silicon prices. If you’re interested in learning more about our products, reach out!
