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Conventional wisdom holds that the series of incentives instituted by a number of successive US administrations to re-shore chipmaking capacity would, in time, produce the desired results. However, a prominent cog in the global semiconductor supply chain, Applied Materials (AMAT), now appears to be taking a diametrically opposite view by substantially discounting the plethora of these recently instituted incentives.
For the benefit of those who might not be aware, Applied Materials is a major provider of specialized tools that are used to deposit thin films of materials on a given silicon wafer substrate. As such, the company represents an essential node within the global semiconductor supply chain, with around 80 percent of an iPhone's components undergoing some sort of processing via equipment furnished by Applied Materials.
This brings us to the crux of the matter. Applied Materials CFO, Brice Hell, made a shocking claim at a recent conference call, going so far as to claim that the series of incentives instituted over the past few years to encourage the re-shoring of semiconductor supply chains within the US would only "matter a little bit," and that too "at the margin."
"And we would say no. At the highest level, demand is driven by PCs, data centers, smartphones, and all that those incentives do is have a customer instead of building in Taiwan, they're going to build in the U.S. So the view was it mattered a little bit at the margin, but it didn't matter in total."
Despite the skepticism emanating from the highest echelons of Applied Materials, the company does intend to invest around $200 million in Arizona, which only builds upon its cumulative investment of over $400 million in the US to boost its domestic manufacturing capacity.
Do note that, in what is the proverbial stick to the incentives carrot, the Trump administration has threatened steep tariffs on all semiconductor players who do not establish a material manufacturing footprint in the US.
This comes as the Trump administration recently took an $8.9 billion stake in Intel by converting the yet-to-be-disseminated federal grants into equity investments.
Perhaps in a bid to make it slightly more convoluted for Intel to spin off a majority stake in its foundry division, the US government has negotiated a 5-year warrant that would be priced at $20 per share, giving the government the right to purchase an additional 5 percent of Intel common shares should the company sell over 49 percent of its foundry business.
The Trump administration is also reportedly mulling similar deals for some of the other semiconductor industry players.
Meanwhile, Applied Materials CFO recently also admitted to taking a hit to its market share in China, courtesy of an order backlog worth around $400 million from companies that are currently on the so-called Entities List of the US Department of Commerce, which is a compilation of all individuals and companies that are deemed to pose a threat to the national security of the United States.
As a refresher, Applied Materials recently put on a strong showing for its fiscal Q3, reporting a year-over-year increase of 8 percent in its net revenue to $7.3 billion.
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