September 20, 2022

US Semiconductor Production: Strategy, Centering on Manufacturing Incentives, Released by Commerce Department


On September 6, 2022, the Department of Commerce (“DoC”) released its implementation strategy for the Creating Helpful Incentives to Produce Semiconductors (“CHIPS”) Fund (the “CHIPS for America Strategy” or “Strategy”). A central feature will be grant and loan programs from which DoC will award $38 billion to applicants. DOC will provide another $11 billion for research and development (“R&D”) initiatives, which will operate in coordination with the manufacturing incentive and other federal programs. The R&D initiatives include the establishment of the National Semiconductor Technology Center and the National Advanced Packaging Manufacturing Program, which the DoC’s National Institute of Standards and Technology (“NIST”) will lead. NIST is also authorized to “establish up to three Manufacturing USA Institutes to advance research and commercialization of semiconductor manufacturing technologies, and to carry out an R&D program to advance measurement science, standards, material characterization, instrumentation, testing, and manufacturing capabilities.”1

Since the DoC intends to solicit applications no later than February 2023, it would be prudent for companies to begin planning and preparing their applications now based on the DoC’s guidance for applicants provided within the Strategy. The application process requires attention to technical, substantive, and political aspects associated with the grant or loan program. Applicants must also be attentive to accuracy and capability for post-award compliance. Additional information from the Strategy along with a summary of the DoC’s guidance to applicants is set forth below.

DoC’s Strategic Goals

The Strategy provides four overarching goals for implementing the CHIPS Fund:

  • Invest in US production of strategically important semiconductor chips, particularly those using leading-edge technologies
  • Assure a sufficient, sustainable, and secure supply of older and current generation chips for natural security purposes and for critical manufacturing industries
  • Strengthen US semiconductor R&D leadership to catalyze and capture the next set of critical technologies, applications, and industries
  • Develop a diverse semiconductor workforce and build strong communities that participate in the prosperity of the semiconductor industry

Manufacturing Incentive Programs

As indicated above, $38 billion will be dedicated to manufacturing incentive programs which will be in the form of federal grants, cooperative agreements, loans, and loan guarantees to eligible entities. The manufacturing incentives are separated into two initiatives: (i) large-scale investments in manufacturing clusters and (ii) investments to increase domestic production of semiconductors.

Manufacturing Clusters

$28 billion – DoC will seek proposals for the construction or expansion of manufacturing facilities (“fabs”) to fabricate, package, assemble, and test leading-edge logic and memory chips, particularly focusing on projects that involve multiple high-cost production lines and associated supplier eco-systems.

Domestic Semiconductor Production

$10 billion – DoC will also seek proposals for the expansion of domestic manufacturing capacity for mature and current-generation chips and new and specialty technologies, and for suppliers to the industry. Specific nodes outlined in the Strategy include “chips used in defense and critical commercial sectors such as autos, information and communications technology, and medical devices.”2

Manufacturing Incentives Eligibility

An applicant must be a “covered entity,” which can be a private entity, nonprofit entity, or consortium with demonstrated ability to substantially finance, construct, expand, or modernize a facility. Domestic companies, as well as foreign companies (except those that are a “foreign entity of concern”) that seek to use CHIPS funds for qualifying investments in the United States, can be eligible. In addition, “CHIPS funds must be used for facilities built in the US.”3 CHIPS funds cannot be used to “construct, modify, or improve a facility outside of the United States.”4

Consideration for Applicants for Manufacturing Incentives

While the newly established CHIPS Program Office (“CPO”) will provide further evaluation and selection criteria, the Strategy identified the following criteria that may require longer-term planning. Potential applicants should consider addressing these issues immediately to prepare for application submissions in early 2023.

Increase Scale and Attract Private Capital

DoC will prioritize large-scale projects that leverage investment from fab companies themselves as well as outside sources of capital. Applicants are encouraged to consider creative financing structures such as through infrastructure funds and asset managers. DoC seeks to provide the minimum federal investment that will enable applicants to access sufficient private capital to implement their projects.

Leverage Collaborations to Build Out Semiconductor Ecosystems

Collaboration between “industry stakeholders, investors, customers, designers, and suppliers; and international firms to attract investors, foster innovation, reduce risk, increase transparency, and ensure that investments are consistent with future market demand” is encouraged.5 These collaborations could take the form of (i) purchase or other commitments that improve demand transparency; (ii) projects that enable fabless design firms to succeed; and (iii) partnerships, including consortium-like proposals, between producers and suppliers.

Secure Additional Financial Incentives and Support to Build Regional and Local Industry Clusters and Corridors That Strengthen Communities

The Strategy explains that the 2021 National Defense Authorization Act requires applicants to demonstrate that “they have secured incentives from state or local government,” which “can include workforce-related incentives, concessions with respect to real property, funding for R&D, and others to be specified in the future.”6 DoC will prioritize projects that include “state and local incentive packages with the potential for large spill-over benefits, are based on performance, and maximize regional and local competitiveness as well as economic gains, including supporting a robust semiconductor ecosystem rather than a single company.”7 The Strategy provided examples of incentives and support from state or local governments including:

  • Long-term tax credits to ensure that firms continually invest in upgrading and expanding facilities to maintain competitiveness
  • Workforce investment to ensure broad talent pipelines
  • Expedited processes for environmental, health, and safety reviews and permits
  • Liaisons to assist with site selection, supplier discovery, and compliance with local laws
  • Planning and support for other ancillary investments such as housing and community development

Establish a Secure and Resilient Semiconductor Supply Chain

Projects should adhere to standards and guidelines on information security and data tracking and verification and collaborate on further development and adoption of such standards. In addition, DoC will prioritize investments that address supply chain risks.8

Expand the Workforce Pipeline to Match Increased Domestic Capacity Workforce Needs

Project proposals should include proven and/or pilot workforce development solutions that are inclusive of populations that have traditionally been underrepresented in the industry. Competitive proposals should partner with training providers, workforce development organizations, labor unions, and other key stakeholders in order to create more paid training and experiential apprenticeship programs, provide wrap-around services, and serve as a pipeline to an applicant’s career opportunities.

Create Inclusive and Broadly Shared Opportunities for Businesses

Applicants should ensure that small and underrepresented businesses, including minority-owned, veteran-owned, women-owned, and rural businesses, are included in construction contracts, the production supply chain, R&D, and investment opportunities.

Financial Considerations

Detailed project and company financial data will be required. Key financial considerations will include the ability to sustain the facility post-funding, commercially reasonable assumptions and rate of return, and the impact of ITC on the project. Preference will be given to applicants who commit to make future investments in the domestic semiconductor industry and who do not engage in stock buybacks.

Accountability, Reporting

Manufacturing incentive projects will be subject to a variety of performance, reporting, audit, and oversight conditions established by the CPO. DoC can seek the return of funds if awardees fail to adhere to project timelines or if applicants fail to meet certain application commitments.

DoC will also implement policies and practices to ensure recipients cannot compromise national security by investing in countries of concern. Except in limited circumstances, recipients will face a 10-year prohibition from “engaging in significant transactions involving the material expansion of semiconductor manufacturing capacity in the People’s Republic of China or other countries of concern.”9 In addition, applicants will be required to comply with Davis-Bacon for construction projects to ensure workers are paid local prevailing wages. Finally, CHIPS funds cannot be used on stock buybacks or dividend payments to shareholders.

Effect on Industry

Potential applicants to the DoC’s grants, cooperative agreements, loans, or loan guarantees should thoroughly review the DoC’s CHIPS for America Strategy and consider planning and preparing now based on the DoC’s guidance.



1 Strategy at 4.

2 Id. at 10.

3 Id. at 9.

4 15 U.S.C. § 4652(i).

5 Strategy at 15.

6 Id.

7 Id.

8 Refer to the “Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broad-Based Growth: 100-Day Reviews Under Executive Order 14017” report by the White House, June 2021, including a review of semiconductor manufacturing and advanced packaging. Also refer to “Assessment of the Critical Supply Chains Supporting the US Information and Communication Technology Industry,” prepared by the US Department of Commerce and US Department of Homeland Security, February 2022.

9 Strategy at 13.

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