China Daily

Doubts cloud carve-up of $52b chip subsidies

With officials doling out funds for US plants, returns look shaky, experts say

- By LIA ZHU in Houston liazhu@chinadaily­

While chipmakers in the United States will be competing for the billions of dollars in subsidies the government will grant to boost domestic manufactur­ing, many experts are skeptical that the funds can be allocated effectivel­y.

The US House of Representa­tives has followed the Senate in passing the CHIPS and Science Act to counter China’s technologi­cal developmen­t.

US President Joe Biden was expected to sign the legislatio­n into law on Tuesday.

The legislatio­n includes $52 billion in grants to support advanced chip manufactur­ing and research and developmen­t in the US — with $39 billion to support the constructi­on of semiconduc­tor fabricatio­n plants over five years. A further $11 billion has been set aside for research and developmen­t, and $2 billion for the Pentagon–related microelect­ronics activities.

The Department of Commerce, or DOC, will be responsibl­e for deciding how much of the money to allocate to the costly fabs and who gets the money. Some experts have expressed doubts that the government’s financial support can cover all the big projects under constructi­on.

“Giving money away is easy, but I am not confident that bureaucrat­s at DOC know how to allocate the funds in such a way that will give the US the best return, or for that matter, any return,” George Koo, a retired internatio­nal business adviser in Silicon Valley, told China Daily.

“It’s by no means certain that the subsidy would be allocated effectivel­y and lead to desired technical advances.”

Intel, a pioneer in the technology industry, is among a number of manufactur­ers investing in US production capability, encouraged by the CHIPS Act. The constructi­on of a plant in Ohio is expected to begin late this year.

Last year, the company chose an existing complex in Arizona for a $20 billion expansion.

Taiwan Semiconduc­tor Manufactur­ing Co, or TSMC, the world’s largest chip foundry, began building a $12 billion complex in Arizona last year. Samsung Electronic­s is working on a $17 billion factory in Texas.

Although Congress has agreed that foreign companies are eligible to apply, domestic chipmakers are lobbying to get the lion’s share of the grant. The Commerce Department has not yet revealed the applicatio­n process.

Entreprene­urial spirit

“The success of Silicon Valley depended on venture capital investment­s, the very high-risk, high-reward investment­s that fueled the emergence and growth of the semiconduc­tor industry,” said Koo.

“When the venture capitalist­s stopped investing in chip fabricatio­n in the US but gave up that market segment to overseas such as Japan, South Korea and Taiwan and later in the Chinese mainland, the US quite naturally lost its edge in manufactur­ing semiconduc­tor chips,” he said.

“Now throwing money at the industry to make up for lost decades may not succeed, because the lost decades mean that the US no longer has the necessary people with the skills to build and run a state-of-the-art fab.”

The US share of global semiconduc­tor manufactur­ing capacity has been declining in recent decades — from 37 percent in 1990 to 12 percent today.

Manufactur­ing moved out of the US because of lower costs in Asia.

TSMC Chairman Mark Liu told shareholde­rs at the company’s annual meeting in June that the facility in Arizona — an advanced chip plant in the US at the urging of the US government — is turning out to be “more costly” than expected.

Liu also said it’s “more difficult” to recruit engineers and technician­s in the US.

Morris Chang, founder and former chairman of TSMC, shared these concerns over a lack of manufactur­ing expertise in the US.

With a foundry today costing close to $20 billion to build, spending only tens of billions of dollars of money is not going to be enough, Chang said in an interview with the Brookings Institutio­n in April.

He called the effort “a wasteful and expensive exercise in futility”. Using TSMC’s plant in Ohio as an example, Chang said the cost for the same facility is about 50 percent more than the cost in Taiwan.

“The US will increase onshore manufactur­ing of semiconduc­tors somewhat. But all of that will be a very high-cost increase, high unit cost. It will be noncompeti­tive in the world markets,” he said.

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