CHIPS Act is ‘just gravy on top’ for TI
Texas Instruments said it was investing in more chip production in North Texas with or without the CHIPS Act. But Thursday’s vote in the U.S. House clears the way for the company to benefit once the act is signed into law.
In November 2021, Texas Instruments selected Sherman as the site of a chip-making campus with up to four plants worth up $30 billion.
The company, which produces the analog chips inside everything from pickup trucks to factory equipment, broke ground in Sherman this May. It received sizable tax breaks from local governments for the project.
Texas Instruments also has two manufacturing sites in Richardson, including a second $3.1 billion investment that will soon be ready to support production.
The CHIPS Act had not yet passed the House when company executives reported secondquarter earnings on Tuesday, but all signs pointed toward support for the bill, and banking analysts asked company leaders about it.
“On the CHIPS Act specifically, it’s great to see a strong bipartisan support of U.S. semiconductor manufacturing that will boost domestic chip production and improve the industry’s ability to remain competitive,” said Rafael Lizardi, Texas Instruments chief financial officer and senior vice president. “These provisions will be meaningful and support our manufacturing road map.”
The analog chip manufacturer said it was not anticipating CHIPS revenue in prior financial forecasts. Before the incentives passed, it expected between $4.9 billion and $5.3 billion in revenue next quarter with an effective tax rate of 14 percent.
The CHIPS Act includes a 25 percent advanced investment tax credit, which will likely lower Texas Instruments’ effective tax rate.
Last quarter, the company’s profit margin was around 70 percent of revenue.
Lizardi also said on Tuesday’s call that Texas Instruments should receive benefits from both the grant and investment tax rate portions of the bill.
Earlier this year, during the first-quarter earnings call, Texas Instruments CEO Rich Templeton said site locations were chosen based on cost effectiveness and efficiency, indicating that the Texas Instruments expansion project would have been stateside even without support from the federal CHIPS Act.
“If there is indeed a CHIPS Act, or hopefully even a FABS Act, it’s all just gravy on top,” Templeton said.
In a March investor conference with Morgan Stanley, Templeton said geopolitical risks highlighted by the war in Ukraine contributed to the choice of site locations.
“We make and put road maps together in locations that we think are going to serve the owners and our customers well over the long term,” Templeton said. “You want them as resilient as possible for geopolitical environments. You want geographical diversity.”
He also said energy cost was a selling point for plans to build in North Texas.
“We like it because it’s going to be in very cost effective areas when you look at energy cost and what energy costs are going to do and the leverage we get for scale in the North Texas area,” Templeton said.
Still, Templeton embraced extra support from the U.S. before the House and Senate votes.
“CHIPS Act to me is very simple,” he said. “We think it’s wise for the U.S., and if it does 1 / 8pass3 / 8, we’ll take advantage and we’ll get some benefits from it. And if it doesn’t we still have a great road map that we’re going to be thrilled to have for the long term.”
Other companies in the industry warned U.S. projects may come to a standstill without CHIPS Act funding.
Intel said it may halt its $100 billion-dollar expansion outside Columbus, Ohio, if the bill did not pass. Last month, semiconductor wafer producer GlobiTech agreed.
“We’re in the same boat with Intel,” president Mark England told the Dallas Morning News. “We don’t feel secure about the decision until the concrete dries.”
CHIPS Act supporters say the much-needed funding will strengthen semiconductor supply chains and onshore manufacturing to the U.S. while opponents cite increased cost to taxpayers and disproportionate subsidies to the high-profit technology industry.
The bill passed 243-187 in the House with most Texas Republican members voting against it.