The CHIPS Act is creating a frenzy of activity around its over $200 billion in financial incentives and additional tax breaks. To stop China from becoming an advanced power in semiconductors and to maintain its global technological position, the US government is spurring a wartime footing in investment in the US.
What a mess this is going to be? Not for the companies that are going to get money from the US government. About $39 billion is up for grabs in grants that will go directly to chip makers in this country, about a third of it to legacy chip companies. The New York Times has a story today that hints at a frenzy of lobbying behind the scenes to stop companies like Intel hoarding grants for themselves. There really isn’t much clarity as to how policymakers will divide the $39 billion between fabrication and assembly, testing, and packaging. There doesn’t seem to be much detail on the shape of new supply chains in a post-CHIPS Act world, ie, are we sure this is not just going to create new supply chain problems in the future that we have not anticipated in our haste?
Intel is earmarked to spend $20 billion on two fabs in Columbus, Ohio; TSMC is investing $40 billion in building out manufacturing in Arizon; Micron is putting in $20 billion to build capacity in Syracuse, New York, and it may end up spending $100 billion by the end of the decade; a report in the Austin American-Statesman suggests that Samsung may up spending $200 billion building 11 fabs in Texas.
So, we’re in the middle of a downturn. Intel, for example, cut its dividend payouts by 65%, which is a very big deal, and is facing a cash crunch, and here we are with the possibility the company getting more than its fair share of funds. All the while, policymakers are saying, we don’t care about the market, we care about implications to the nation. If it is not a real trade war then it is, as some of have suggested, a trade cold war. But there are no parameters for victory or success, no measures of what needs to be achieved.
But, China isn’t Russia: we’re not fighting ideological battles in third world countries and putting troops on the ground in Europe. We’re going to give a whole bunch of money to companies that are having problems, some of their own making, with the expectation that the people who got those companies to this point are going to use that money to magically advance a national agenda while they are struggling to keep their investors happy.
In the meantime, Chinese manufacturers are not sitting on their hands and hoping for the best. They’ve got some significant impetus behind them and the manufacturing know-how to fight hard. And, they can undercut the competition in a way that would be unsustainable for any US company. In other words, they are ready to fight now while the US builds with some uncertainty for a future that is not quite defined.
“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 demand increases should immediately forfeit any federal funds.”
The New York Times
The knock-on effect to the display industry is happening already: low cost panel shipments go up, prices come down; Samsung stalls on display investments while it ramps up investment in other areas; manufacturing equipment prices are going up across the board, supply is squeezed, and sanctions are biting future planning for everyone because the global supply chains for displays have not chained much in the last year. Let’s be frank, display technology is not considered strategic and, as a result, it is going to pay the price for a shift in resources in manufacturing, as well as a cornered Chinese manufacturing industry that is fighting to stay in the game.
