What Benefits does the CHIPS Act have for Medium-Sized Businesses

Published: Dec 12, 2022
Topics: Technology

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The Creating Helpful Incentives to Produce Semiconductors and Science (“CHIPS”) Act of 2022 was signed by President Joe Biden on August 9, 2022. It will allocate $52.7 billion in grants over the next five years to increase American chip manufacturing and aims to solve supply chain vulnerabilities, promote the building of new semiconductor manufacturing facilities, and compete with other nations' heavily funded sectors. According to McKinsey & Company, it is estimated that the worldwide demand will keep growing, becoming a $1 trillion industry by the end of the decade.^[1]

Despite the fact that semiconductors were created in the United States, roughly only 11% of worldwide production is carried out here. The CHIPS Act is attempting to jump-start domestic semiconductor manufacturing. The U.S. Department of Commerce will invest over $50 billion over five years, including $39 billion in manufacturing subsidies, to accelerate and drive domestic chip production. In addition, a 25% investment tax credit is in place for capital costs incurred in the production of semiconductors and associated technology, which is expected to be worth $24 billion over the next ten years.

Although the impression is that large domestic semiconductor manufacturing corporations carry out the majority of the work, in reality, small and medium-sized manufacturers drive production in the United States since they are spread out across the nation and will also generate a significant number of new jobs. In addition to committing their own considerable resources, potential applicants are encouraged to explore creative financing structures to tap various sources of capital.

Investments made in the semiconductor manufacturing have created the National Semiconductor Technology Center (NSTC) innovation hub which was formed by Albany’s NY CREATES and IBM Research, which exists to foster collaboration between businesses, academic institutions, and governmental organizations.

IBM and similar organization are counting on the CHIPS Act to improve their ability to have a reliable source of semiconductors to develop their products, as semiconductors are the foundation that drives many technological products and services. Under this initiative, IBM Research believes that the vertical value of the chips will enable the technology industry to grow faster and significantly reduce time to market and cost.

Transform the Industry

Microchip-dependent medium-sized businesses will particularly profit from the CHIPS Act. Medium-sized firms sometimes need more funding to make significant upfront expenditures. The CHIPS Act’s impact would extend well beyond the semiconductor sector since so many industries rely on computer chips, according to Russell Harrison, acting managing director of the Institute of Electrical and Electronics Engineers' U.S. division (IEEE-USA). ^[2]

This increase in domestic semiconductor manufacturing could support various businesses, including digital manufacturing (small, medium, and large). It would also lower the likelihood of future supply chain disruption for the numerous products and equipment, including mobile IoT devices, vehicles, and manufacturing robots, which depend on semiconductor chips.

Eligibility

The domestic manufacturing incentives funding is open to applications from semiconductor manufacturers and producers of semiconductor materials and equipment that want to build, renovate, or expand U.S. semiconductor facilities. Foreign organizations may apply, but funds must be utilized in the United States and cannot go to "foreign entities of concern."

The White House has published a fact sheet regarding the CHIPS Act.

Moving Forward

The CHIPS Act may be a new opportunity for many businesses. The new incentive program may require companies to make a careful analysis into the value and benefits of the opportunity and leverage it to their advantage so they can improve their position in the market. It may also require rethinking a firm's strategy, including a plan for digital transformation, capital project management, and financial planning. Determining whether a firm qualifies for the many benefits provided by the CHIPS Act may take time and effort. To apply, avoid confusion, and remain current on the requirements, it is advised to speak with a specialist.

[1] https://www.mckinsey.com/industries/semiconductors/our-insights/the-semiconductor-decade-a-trillion-dollar-industry

[2] https://www.mckinsey.com/industries/semiconductors/our-insights/the-semiconductor-decade-a-trillion-dollar-industry