Assessing the Success of the US Chips Act: A Closer Look

According to Semiconductor Intelligence, the question of whether the US Chips Act has been successful in increasing investment in semiconductor wafer fabs in the U.S. is being asked. To answer this question, Semiconductor Intelligence provides a table below that showcases major U.S. fab projects announced in recent years.

The total near-term investment for these projects amounts to $142 billion. It is worth noting that most of these projects were announced prior to the passage of the Chips Act. However, it is likely that these companies anticipated future U.S. government subsidies, as indicated by the subsidies listed in the table, which are provided by state and local governments. Good Jobs First, an organization that tracks government financial assistance to businesses, keeps a record of these subsidies.

Now, let's examine each company to determine whether these fabs would have been built in the U.S. without the expectation of U.S. government assistance.

TSMC

TSMC, the largest semiconductor wafer foundry based in Taiwan, currently operates six 300mm wafer fabs, all of which are located in Taiwan except for one in Nanjing, China. TSMC's third-quarter 2023 report reveals that 69% of its revenue came from companies based in North America, primarily the U.S. This has put pressure on TSMC from both the U.S. government and its U.S. customers to establish a fab in the U.S.

It is likely that this pressure, combined with the hope of U.S. government funding, influenced TSMC's decision to build a fab in Arizona. TSMC is reportedly seeking around $15 billion in funding through the CHIPS Act. Additionally, TSMC is planning an $11 billion wafer fab in Dresden, Germany, in a joint venture with Bosch, Infineon, and NXP. The German government had planned to contribute approximately 5 billion Euros ($5.4 billion) towards this fab, but a recent court ruling has cast doubt on the availability of these subsidies.

Texas Instruments

Texas Instruments (TI) currently operates 300mm wafer fabs in Dallas, Texas; Richardson, Texas; and Lehi, Utah. The Lehi fab was acquired from Micron Technology and converted by TI to produce analogue ICs. While TI has previously established fabs in Europe and Asia, in recent years, it has exclusively built fabs in the U.S. The proposed Sherman fabs in Texas, which are approximately an hour's drive from TI's headquarters, are expected to receive about $2.4 billion in subsidies primarily through tax breaks provided by the city, school district, and county.

Although any funds received through the CHIPS Act would be a bonus for TI, it is likely that the company would have proceeded with building the new fabs in Sherman even without the Act's assistance.

Samsung

Most of Samsung's fabs are located in South Korea. However, the company established a fab in Austin, Texas, in 1996, which operates as a wafer foundry. Samsung has also announced plans to build a fab in Taylor, Texas, approximately 45 minutes from Austin, which will also function as a wafer foundry. Over the next 20 years, Samsung intends to invest $230 billion primarily in memory fabs in South Korea.

The Taylor fab will receive approximately $1.2 billion in local subsidies from the area's governments. The proximity to Samsung's Austin fab and the local incentives were likely the primary drivers for the decision to establish the Taylor fab. While funds from the CHIPS Act may have played a role, it is probable that Samsung would have proceeded with building the fab in Taylor even without the Act's funding.

Intel

Intel operates major U.S. fabs in Chandler, Arizona; Hillsboro, Oregon; and Rio Rancho, New Mexico. The company also has fabs in Leixlip, Ireland; Jerusalem, Israel; and Kiryat Gat, Israel. Intel is currently constructing a new fab in Kiryat Gat with approximately $3 billion in Israeli government subsidies. Additionally, the company plans to establish a fab in Magdeburg, Germany, with around $11 billion in German government aid. However, the availability of the German funding is uncertain, similar to TSMC's situation.

For its fab in New Albany, Ohio, Intel will receive about $2.4 billion in local aid. The Ohio fab was announced in January 2022, before the passage of the CHIPS Act, but when its passage seemed likely. Intel has demonstrated a willingness to establish fabs outside of the U.S. when provided with the right incentives. The CHIPS Act funds were certainly a significant factor in the decision to choose the Ohio location.

Micron Technology

Micron Technology operates fabs in Boise, Idaho; Taichung, Taiwan; Hiroshima, Japan; and Singapore. The overseas fabs were acquired through Micron's business acquisitions, including Rexchip Electronics in Japan, Intotera Memories in Taiwan, and Texas Instruments' memory business in Singapore. Micron plans to expand its fabs in Taiwan and Japan.

The Japanese government will subsidize Micron's new Hiroshima fab with approximately $1.3 billion. Micron also intends to build new fabs in Boise, Idaho, and Clay, New York, over the next few years. The New York fabs will receive about $6.4 billion in state and local incentives. These new U.S. fabs will produce DRAMs, which Micron currently manufactures only in Taiwan and Japan. The decision to establish the Idaho and New York fabs was announced after the passage of the CHIPS Act in September and October of 2022.

Considering Micron's willingness to expand its overseas fabs, it is evident that the CHIPS Act funds played a significant role in the decision to establish the Idaho and New York fabs.

In conclusion, Semiconductor Intelligence poses the question of whether the CHIPS Act was a determining factor in locating these new fabs in the U.S. According to their analysis, TSMC, Micron, and Intel were likely influenced by the Act, while TI and Samsung would have made their fab location decisions without it. The impact of the CHIPS Act on future fab decisions remains to be seen.

When companies decide to build new fabs, their decisions are based on anticipated capacity needs. Various factors, such as proximity to company headquarters, infrastructure, workforce, political stability, customer proximity, and logistics, influence the choice of fab locations. While government subsidies may influence the country and location within the country for a fab, they are generally not the primary driving factor.

According to Semiconductor Intelligence's estimates for semiconductor capex in 2023, the total amount is approximately $156 billion, representing a 14% decrease from 2022. Most companies seem to be adhering to their plans, with the exception of Intel, which is expected to have a higher capex of around $24 billion for the full year.

TSMC, the largest spender, confirmed its 2023 capex target of $32 billion, a 12% decrease from 2022. Few companies have disclosed their capex plans for 2024.

Micron concluded its 2023 fiscal year in August with $7.0 billion in capex. Their guidance for fiscal 2024 capex is slightly above the previous year's figure.

Infineon, which ended its fiscal year 2023 in September with 3 billion euros ($3.2 billion) in capex, plans to increase capex to 3.3 billion euros ($3.6 billion). Semiconductor Intelligence's preliminary estimate for 2024 total capex suggests a 10% to 20% increase from 2023, ranging from $172 billion to $187 billion.