Chip Business Funding: A Closer Look

U.S. President Biden recently unveiled a significant agreement with Intel, involving $8.5 billion in direct funding and $11 billion in loans under the CHIPS and Science Act. According to Semiconductor Intelligence (SI), Intel is set to utilize this funding for wafer fabs in various states including Arizona, Ohio, New Mexico, and Oregon. This move comes as part of the broader CHIPS Act, which aims to bolster the U.S. semiconductor industry with a total allocation of $52.7 billion, including substantial manufacturing incentives amounting to $39 billion.

Prior to the Intel grant, the CHIPS Act had already distributed grants totaling $1.7 billion to key players such as GlobalFoundries, Microchip Technology, and BAE Systems, as reported by the Semiconductor Industry Association (SIA). However, the disbursement of these grants has been relatively slow, with initial grants announced over a year post-passage. This delay has impacted major fab projects in the U.S., attributing it to challenges in finding qualified construction personnel and slowing sales, as highlighted by TSMC and Intel.

On a global scale, various nations have also taken steps to boost semiconductor production. For instance, the European Union passed the European Chips Act in September 2023, earmarking 43 billion euros (US$47 billion) for public and private investments in the semiconductor sector. Similarly, Japan allocated 2 trillion yen (US$13 billion) for semiconductor manufacturing, while Taiwan enacted laws providing tax breaks for semiconductor companies, and South Korea passed bills offering tax incentives for strategic technologies, including semiconductors. China is also expected to establish a $40 billion fund to support its semiconductor industry.

Looking ahead at capital expenditures (CapEx) in the semiconductor industry for the current year, the impact of the CHIPS Act is anticipated to materialize post-2024. Following an 8.2% decline in the semiconductor market last year, companies are exercising caution regarding CapEx in 2024. SI's estimates indicate a 2% decline in total semiconductor CapEx for the year, following a 7% drop in 2023 from the previous year.

Despite the overall decline, major memory companies are gearing up for increased CapEx in 2024, driven by market recovery and the anticipated surge in demand from emerging applications like AI. Samsung plans to maintain relatively flat spending at $37 billion, while Micron Technology and SK Hynix are eyeing significant increases after cutting back in 2023. TSMC, the largest foundry, plans to allocate $28 billion to $32 billion in 2024, with a slight decrease from the previous year. GlobalFoundries expects a substantial cut in 2024 CapEx but plans to ramp up spending in the coming years with new fab constructions.