Representatives of the Semiconductor Industry Association (SIA) were joined by those from big silicon firms in writing a letter to U.S. President Joe Biden urging him to help reduce American dependence on chip imports. Intel's former chief Mr. Robert Swan, AMD's chief Dr. Lisa Su and Qualcomm's Steve Mollenkopf were signatories of the letter, with representatives from NVIDIA Corporation, Broadcomm Inc, IBM also showing their support for the proposal.
Semiconductor Industry Executives Request Tax Break Funding In CHIPS For America Initiative
The gist of the letter surrounded the industry leaders stressing the need for the new administration to work with Congress for funding chip manufacturing initiatives outlined in the "Creating Helpful Incentives to Produce Semiconductors for America" or the CHIPS for America subsection of the National Defense Authorization Act (NDAA) which became public law at the start of this year.
In their letter, members of the SIA stressed the need for government funding for semiconductor manufacturing and research. Apart from facilities operated by Intel Corporation, all of the latest chips sold by American companies are manufactured outside the U.S. on leading-edge 7nm and 5nm process nodes belonging either to the Taiwan Semiconductor Manufacturing Company (TSMC) or Samsung Electronics's foundry arm Samsung Foundry.
This reliance, which is also the case for other countries, came into the spotlight this year as automobile manufacturers all over the globe remain unable to procure sufficient chips to meet the recovering demand for cars, especially in China.
The letter, dated February 11th, was signed mostly by CEOs, with only NVIDIA, IBM and Broadcom being the exceptions from the list of 20 companies. It stressed the importance of semiconductors for national security and the economy while lamenting that America does not offer "significant incentives and subsidies to attract new semiconductor manufacturing facilities" and that government investment in the country for chip research has been relatively flat over the years.
After highlighting this, it then proceeds to highlight these two reasons as risking U.S. leadership in 5G and artificial intelligence and stresses the need to urgently move forward with the CHIPS for America Act. This Act promises Federal incentives for chip design and manufacturing, and the SIA, combined with the aforementioned industry executives, believes that the incentives are best met through grants and tax breaks.
What Is CHIPS For America?
The fact that the industry representatives urged President Biden to provide tax breaks and grants is not surprising when we consider the recent progress Congress has made in passing laws that aim to energize leading-edge chip production in the U.S. Back in July this year, a group of bipartisan lawmakers introduced the original CHIPS for America Act which provided tax credits as high as 40% for chip manufacturing equipment funded by the taxpayer.
Specifically, the portion of the Act that relates to manufacturing equipment reads:
(c) Qualified Semiconductor Equipment.—For purposes of this section, the term ‘qualified semiconductor equipment’ means any property—
“(1) which has been identified by the Secretary, in consultation with the Secretary of Commerce, as machinery or equipment that is designed and used to—
“(A) manufacture or process semiconductors, or
“(B) perform research with respect to semiconductors,
“(2) which is placed in service in the United States by the taxpayer, and
“(3) with respect to which depreciation (or amortization in lieu of depreciation) is allowable.
It then goes on to provide tax credits for setting up chip fabrication facilities and highlights the areas which will be applicable for the break.
Yet, while the CHIPS for America Act is under process in Congress, a similarly named provision was adopted as public law by the legislature at the start of this year. This provision was part of the NDAA for the fiscal year 2021, which outlines the spending goals of the United States Department of Defense (DoD).
Title XCIX of the 2021 NDAA also titled CHIPS for America commits significant federal resources for stimulating chip production in the United States. It requires the Secretary of Commerce through the Department of Commerce to establish a fund that provides assistance to companies for investing "in facilities and equipment in the United States for semiconductor fabrication, assembly, testing, advanced packaging, or research and development."
This assistance is capped at $3 billion for individual projects and should any company be interested in a larger cheque, they will have to demonstrate to the Commerce Secretary that the funding will increase domestically manufactured chips to maintain American economic competitiveness and meet U.S. national security needs.
During the course of this funding, the entities using the money will not be allowed to engage in joint research or technology licensing with foreign entities that have violated American laws and for products deemed critical for national security. The awardee's performance in using the funds to positively impact the U.S. share of global microelectronics production will also be evaluated as a condition for receiving the funds.
3nm Research In U.S. To Be Spearheaded By New National Semiconductor Technology Center
While $3 billion is a striking figure which reflects the massive capital expenditure necessary for chip production, it pales in comparison to what the unpassed CHIPS Act has in store. This Act, if passed, would authorize the Commerce Secretary to appropriate to $10 billion each for manufacturing 3nm chips and below, supply chain security and verification and creation of a Manufacturing USA institute that aids American chip resurgence. Additionally, the $10 billion for each of these three categories will be available each year starting from 2021 to 2025, according to the text.
While the NDAA's CHIPS section doesn't outright authorize $10 billion in taxpayer funds, it does mention the 3nm manufacturing node. Right now, the only American company with the equipment needed to produce 5nm chips is Intel, whose 5nm is thought to be comparable with the Taiwan Semiconductor Manufacturing Company's (TSMC) 3nm node – for which TSMC's already started plant construction.
3nm makes its way into the NDAA through Section 9906 titled 'Advanced Microelectronics Research and Development'. Part (c) of this section directs the Secretary of Commerce to coordinate with the Secretary of Defense to establish a National Semiconductor Technology Center. This will be dedicated to developing and prototyping advanced chip technologies for securing the American domestic chip supply chain through a public-private partnership.
One of the functions of the center will be, according to the NDAA:
To establish an investment fund, in partnership with the private sector, to support startups and collaborations between startups, academia, established companies, and new ventures, with the goal of commercializing innovations that contribute to the domestic semiconductor ecosystem, including—
(i) advanced metrology and characterization for manufacturing of microchips using 3 nanometer tran- sistor processes or more advanced processes[EMPHASIS ADDED]; and
(ii) metrology for security and supply chain verification.
While the CHIPS title expands the federal government's focus on reclaiming the chip crown for America, it isn't the first such program. The Defense Advanced Research Projects Agency's (DARPA) Electronic Resurgence Initiative is another program that aims to develop key chip technologies domestically.
British design house Arm Ltd. is a beneficiary of this program, through which the company will provide access to all of its commercial chip design architecture and intellectual properties for DARPA use. Arm is currently subject to an acquisition attempt by NVIDIA, with multiple companies across the U.S. having objected to the deal, as they join their counterparts in the United Kingdom and China, citing fears of anticompetitive behavior.