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Home / Blogs / The CHIPS Act: impacts and implications

Neon Shortage And Global Chip Crisis

The CHIPS Act: impacts and implications

Aug 30, 2022

Resilinc Editorial Team

Reshoring, Semiconductor, Supply Chain Resiliency Management

Despite receiving “aye” votes from 24 Republicans in the House and 17 in the Senate, the CHIPS and Science Act has been denounced by influential leaders of both parties. Bernie Sanders and Ted Cruz criticized its $76 billion in subsidies and tax incentives for semiconductor manufacturers to build domestic chip fabs, saying that the act gives taxpayer funds too freely to profitable corporations. WSJ tech columnist Andy Kessler called it politically driven “industrial policy” that focuses on fabs and ignores the complex global interdependencies of the semiconductor value chain. Tech journalist and CNBC commentator Jon Fortt said it responds to a supply shortage that’s already winding down with the slowing economy.

Most unhappy about the CHIPS Act is the Chinese semiconductor industry association, which—along with the Chinese government and media—denounced the act for violating fair trade principles and discriminating against China’s chip industry. Under the CHIPS Act, subsidy recipients must agree not to invest in Chinese semiconductor production—except for legacy ≥ 28-nm chips—for 10 years. “That could set back China’s initiatives to reduce reliance on imported chips, which cost the country more than foreign crude oil,” wrote SCMP tech reporter Che Pan.

The CHIPS Act is indeed aimed at countering China’s growing strength and sophistication in semiconductor manufacturing. This includes preparing America and its allies to avoid the massive disruptions in chip value chains that would follow a Chinese invasion of Taiwan, which hosts global chip leader TSMC. “We have to become less dependent on China for critical technologies,” tweeted former Trump Administration defense secretary Mike Pompeo—echoing Democratic messages supporting the CHIPS Act.

Regardless of differing views on its efficacy and fairness, the CHIPS Act has already influenced semiconductor investment decisions. In August, Intel announced a unique $30 billion deal with infrastructure investor Brookfield Asset Management to finance its Chandler, Ariz., chip-making facilities. GlobalWafers and Intel have stated that their planned semiconductor plants in Texas and Ohio might not have proceeded without the legislation.

And Financial Times reports that South Korean chip giants Samsung and S.K. Hynix are rethinking “their exposure to China.” According to FT, a senior Korean official said even planned Korean investments in Chinese chip facilities will likely be abandoned, suggesting that “Washington’s efforts to encourage leading chipmakers to pivot away from China and towards the U.S. were bearing fruit.”

What does this all mean for supply chain managers responsible for procuring semiconductors? In the short term, not a lot. “The soonest we can expect to see the new law’s impact on U.S. semiconductor supply chains is three to five years,” said Resilinc CEO Bindiya Vakil in a recently issued special report The CHIPS Act: Impacts to the Future Semiconductor Supply Chain. “That’s the time it takes for wafer fabrications to be fully built, capacity created, and quality stabilized to begin manufacturing at scale.”

Vakil also echoed the theme articulated by CHIPS Act critic Kessler: chip fabrication is only one part of the complex global semiconductor value chain. “We’ll also need to secure the specialized equipment to construct wafers,” said Vakil. “Right now, the lead time for this equipment is 12-14 months.”

Of equal concern: labor and drought issues that may slow down or impede plans for U.S. chip production, according to the special report. “Fabs require thousands of engineers to operate along with technicians, construction workers, and researchers,” notes the report. And while the CHIPS Act will put funding into STEM programs, the workforce challenge will be significant to accomplish the envisioned expansion of domestic semiconductor manufacturing capacity.

Potential impacts of drought and climate change on chip factories can be seen in Taiwan, where chip makers narrowly avoided production cutbacks in the island nation’s extreme droughts last year. Intel and TSMC are both investing heavily in water recycling and treatment facilities for the fabs they’re developing in water-stressed Arizona.

As always, Resilinc recommends OEMs dependent on microchips work to ensure their visibility into multiple tiers of their supply chains. The semiconductor shortages of the last two years could likely not have been avoided by even the most robust supply chain risk management systems. But those companies taking supply chain visibility and mapping seriously will have many advantages over less prepared competitors to respond to future disruptions and take advantage of shifting supply networks for semiconductors and other parts and materials.

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