USA Gives Chip Supplier $162 Million to Support Critical Industries

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On Thursday, the Biden administration announced plans to award $162 million in federal funding to Microchip Technology, an Arizona-based semiconductor company that serves the automotive, defense, and other industries.

USA Gives Chip Supplier $162 Million to Support Critical Industries
USA Gives Chip Supplier $162 Million to Support Critical Industries

 

The arrangement is the second announced under a new initiative aimed at ensuring a reliable supply of semiconductors for American companies. The Biden administration announced a $35 million award for BAE Systems, a defense contractor, last month.

Microchip will be able to enhance its manufacturing of semiconductors used in automobiles, airplanes, appliances, medical gadgets, and military products as a result of the investment. The administration stated that the grant would result in the creation of more than 700 construction and manufacturing jobs.

“Today’s announcement with Microchip is a significant step forward in our efforts to strengthen the supply chain for legacy semiconductors used in everything from cars to washing machines to missiles,” Commerce Secretary Gina M. Raimondo said in a statement.

Microchip intends to invest $90 million in modernizing and expanding a factory in Colorado Springs, as well as $72 million in expanding a site in Gresham, Oregon. The money, according to the administration, will help Microchip quadruple its output at the two sites and reduce the company’s dependency on overseas facilities to help create its goods.

Although the company’s semiconductors aren’t cutting-edge, they are critical components of practically every military and space program. Microchip is a trusted foundry in the military and one of the leading providers of semiconductors to the defense industrial base. According to US officials, it also plays an essential role in industries that are important to the national economy.

This significance became more apparent during the pandemic, when a global chip shortage focused attention on domestic suppliers such as Microchip. Automakers and other firms hurried to obtain supplies as overseas chip facilities were shut down to help limit the virus. As a result, demand for Microchip’s products increased dramatically.

These shortages also pushed senators to pass legislation aimed at bolstering American manufacturing and reducing reliance on foreign chips. The 2022 CHIPS and Science Act authorized the Commerce Department to invest $53 billion in the semiconductor industry, including $39 billion in federal incentives to attract chip businesses to locate in the United States.

The Commerce Department is scheduled to begin issuing larger prizes for key semiconductor fabrication facilities operated by businesses such as Intel and Taiwan Semiconductor Manufacturing Company, or TSMC, in the coming months.

Microchip has previously announced plans to expand its capacity in both Oregon and Colorado, but executives said the federal cash will be used to expand those improvements and bring additional production back to the United States. According to its papers, Microchip relies on third-party facilities to manufacture a large number of its goods—around 63 percent of its net sales in 2023—a reasonably normal industry practice.

 

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While attention has been focused on ensuring that U.S. facilities can produce some of the world’s most advanced chips, there are rising concerns about Chinese investments in less advanced semiconductors, sometimes known as legacy chips, which power automobiles, computers, missiles, and dishwashers.

Officials in the United States are concerned that such investments may increase the country’s reliance on China or allow Chinese enterprises to undercut competitors. The Commerce Department has stated that it aims to launch a poll this month to examine how American companies obtain old chips and eliminate security risks associated with China.

The accord reached on Thursday is merely a preliminary arrangement. Before deciding on the final terms of the award, the Commerce Department will conduct due diligence on the project. According to the department, it has received over 570 expressions of interest and over 170 pre-applications, full applications, and concept proposals from firms and organizations interested in the financing.

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