WASHINGTON — In early January, a New York public relations firm sent out an email warning about what it characterized as a threat to the federal government’s program to revitalize the US semiconductor industry.
The message, received by The New York Times, accused Silicon Valley chip titan Intel of trying to win subsidies under the CHIPS and Science Act for new factories in Ohio and Arizona that would sit vacant. Intel had said in a recent earnings call that it would build its facilities with the expensive machinery needed to make semiconductors when demand for its chips increased.
The question, the email said, was whether officials would give funds to the companies that outfitted their factories early on “or if they would give the majority of CHIPS funding to companies like Intel.”
The firm declined to name its client. But it has worked in the past for Advanced Micro Devices, Intel’s longtime rival, which has raised similar concerns about whether federal funds should go to companies planning to build empty cases. An AMD spokesman said he had not reviewed the email or approved of the public relations firm’s efforts to lobby for or against a specific company receiving funding.
“We fully support the Science and CHIPS Act and the Biden administration’s efforts to boost semiconductor research and manufacturing in the country,” the spokesperson said.
Rival semiconductor suppliers and their customers rallied last year when they lobbied Congress to help prop up US chipmaking and reduce vulnerabilities in the crucial supply chain. The momentum led lawmakers to pass the CHIPS Act, which includes $52 billion in subsidies to businesses and research institutions, as well as $24 billion or more in tax credits, one of the largest infusions into a single industry in decades.
But that unity is beginning to crack. As the Biden administration prepares to start handing out the money, CEOs, lobbyists and lawmakers have begun lobbying to make their funding case, in public and behind closed doors.
In meetings with government officials and in a public filing, Intel questioned how much taxpayer money should go to its foreign-based competitors, arguing that American innovations and other intellectual property could be funneled out of the country.
“Our IP is here, and that’s not insignificant,” said Allen Thompson, Intel’s vice president of US government relations. “We are the champion of the United States.”
The global race for computer chips
States, cities and universities have also gotten involved, hoping to attract subsidies and jobs that manufacturing sites and new research and development are expected to generate.
Chip vendors, their suppliers and the trade associations that represent them together spent $59 million lobbying last year, according to OpenSecrets tracking, compared with $46 million in 2021 and $36 million in 2020, as they tried to ensure for Congress to approve its funding. .
Some of those activities have now been shifted to make sure companies get the most of it.
“Everybody wants their piece of the pie,” said Willy Shih, a management professor at Harvard Business School who follows semiconductor problems. He said it wasn’t surprising that companies were asking tough questions about competitors, which could be helpful to the Commerce Department in setting policy.
“We haven’t done something of this scale in the US in a long time,” he said. “There is a lot at stake.”
How the Biden administration distributes the funds in the coming months could shape the future of an industry that is increasingly seen as a driver of both economic prosperity and national security. It may also influence the vulnerability of the United States to foreign threats, particularly the possibility of a Chinese invasion of Taiwan, where more than 90 percent of the world’s advanced chips are made.
Since American researchers invented the integrated circuit in the late 1950s, the share of American manufacturing has dropped to around 12 percent. Most American chip companies, including AMD, focus on designing cutting-edge products while outsourcing expensive manufacturing to overseas foundries, most of which are located in Asia.
Taiwan Semiconductor Manufacturing Company developed the foundry concept in the 1980s and dominates that market, followed by Samsung Electronics. Intel, which designs and manufactures its own chips, lagged behind TSMC and Samsung in manufacturing technology but has vowed to catch up and build its own foundry business to make chips for customers.
Industry concentration has left it particularly vulnerable to supply chain disruptions. During the pandemic, shortages of low-end “legacy” chips used in cars forced automakers to repeatedly close factories, sending prices soaring.
The CHIPS Act aims to rectify some of these shortcomings by allocating $39 billion in grants for new or expanded American factories. The Commerce Department said roughly two-thirds of the money will go to cutting-edge semiconductor makers, a category that includes TSMC, Samsung and Intel. All three companies have already begun construction on major expansions to their US facilities.
The remaining third is expected to go to legacy chips, which are widely used in cars, home appliances and military equipment.
Another $11 billion in funding is expected to go toward building a handful of chip research centers across the country. Government and academic institutions in Texas, Arizona, Georgia, Indiana, Florida, and Ohio have submitted documents outlining why they should be considered for funding. Even little Guam has raised its hand.
One challenge for the Commerce Department will be to distribute the money broadly enough across the country to create several thriving “ecosystems” that can bring together raw materials, research and manufacturing capacity, but without undermining the effort by spreading it too thin. With dozens of companies, universities and other players interested in getting a stake, the funding could be quick.
Commerce Secretary Gina Raimondo told reporters Wednesday that the goal was to create “at least two” new clusters of next-generation chip manufacturing capacity, as well as facilities that produce other types of semiconductors. Each group would employ thousands of workers and support a network of companies that supply the raw materials and services they need.
“We have very clear national security objectives, which we must achieve,” Ms. Raimondo said, noting that not all chipmakers will get what they want. “I suspect there will be a lot of disappointed companies that feel they should have a certain amount of money, and the reality is that the return on our investment here is the achievement of our national security objective. Period.”
Competition has intensified as the Biden administration prepares to release ground rules for applications next week. The grants, which can be as much as $3 billion or more per project, could begin distribution this spring.
Executives say huge spending by governments in South Korea, Taiwan, China and elsewhere has helped shape the global chip industry. And the current momentum of US policy could disrupt the market again, giving some companies advantages that allow them to outperform their competitors.
Most chip companies, in publicly discussing the subsidies, have emphasized the common goal of boosting US production. But clear differences have emerged between them. Many are described in the more than 200 submissions that companies, organizations, universities and others submitted to the Commerce Department last March.
Beyond praising the merits of their own manufacturing plans, some applicants argued that rival projects deserved less funding or should face strict limits on how they operated, though few companies mentioned their competitors by name.
Intel, along with other US-based companies such as GlobalFoundries and SkyWater Technology, raised concerns about foreign-owned companies, including whether their US factories could continue to operate in the event of a crisis in their home country. origin.
Intel has argued that foreign investment is welcome, but that its long-standing focus on chip design, research and manufacturing in the United States meant it should receive special consideration.
But competitors argue that investing heavily in Intel could be a long shot for the US government, and some Biden administration officials have questioned whether Intel can go ahead with plans to catch up with competitors technologically. The company has suffered a sharp drop in sales and announced on Wednesday that cut your stock dividend.
US officials have also stressed the need to support a US expansion of TSMC, in part because it produces crucial cutting-edge chips for the military.
TSMC, which has initiated a $40 billion investment in two advanced factories in Arizona, responded in its filing that “preferential treatment based on the location of a company’s headquarters” would not be an effective or efficient use of US money. AMD, one of TSMC’s biggest customers, has advocated for its expansion into the US.
AMD and Intel, both based in Santa Clara, California, have competed fiercely for the market for microprocessor chips.
In its March filing, AMD raised concerns about whether anonymous competitors had shown they could effectively operate as a foundry and make cutting-edge chips. Intel has had problems on both counts. And AMD highlighted the risk that grant recipients won’t spend that money right away to outfit their factories with equipment.
“Any facility receiving federal assistance must be operational upon completion of construction,” AMD wrote. “A facility that sits idle or is held in reserve for surges in demand should immediately lose any federal funding.”
Intel’s Mr. Thompson declined to comment on the email. But he defended the strategy of “smart capital” articulated by Patrick Gelsingerthe CEO of Intel, who has emphasized building chassis out-of-the-box and then investing in outfitting them according to market demand.
Intel continues to follow that strategy with construction projects in Arizona, New Mexico and Ohio, to ensure that its new facilities are built “in line with the market,” Thompson said. But Intel has no intention of using government money to “basically build cases,” he said. “The goal is to ensure that we have the ability to support our customers.”
Ana Swanson reported from Washington and Don Clark from San Francisco.
