US government to chip makers: Share profits if you want a subsidy | Business and Economic News
US President Joe Biden’s administration has said it will require companies that win money from its $52bn semiconductor manufacturing and research program to share excess profits and explain how they plan to provide affordable childcare. accessible to employees.
The US Commerce Department on Tuesday released plans to begin accepting applications in late June for a $39bn manufacturing subsidy program. The funding is part of the CHIPS and Science Act, which President Joe Biden signed into law last August. The law also creates a 25 per cent investment tax credit for building chip plants, which is estimated to be worth $24bn.
The CHIPS Act plays a central role in the Biden administration’s effort to bring semiconductor manufacturing back to the US. Its success is critical to US aspirations to stay ahead of China in global markets.
Semiconductor companies have announced more than 40 new projects, including nearly $200bn in private investments to boost domestic production, since the law was introduced in August.
Recipients who receive more than $150m in direct funding must “share any cash flow or return that exceeds the applicant’s projections through an agreed rate”, the department said.
Trade also expects that “Upside sharing will only be significant in situations where the project significantly exceeds its expected cash flows or returns, and will not exceed 75 per percent of the recipient’s direct funding award”.
‘Not a cheap ticket’
Democratic Senator Jack Reed praised the profit-sharing plan, saying the chip funding is “not a free pass for multi-billion dollar tech companies … very good.”
The regulations also require companies to ensure that high-quality and affordable childcare is available at the facility for construction workers and operators. This could include building company childcare centers near construction sites or new centres, paying local childcare providers to add capacity at an affordable cost or ‘ directly subsidizing workers’ care costs, said the New York Times.
Commerce Secretary Gina Raimondo said companies must submit a plan that includes a description of employee needs. Applicants seeking more than $150m in direct funding must “submit a plan for how they will provide affordable and accessible childcare for their workforce”.
Republican House Science Committee Chairman Frank Lucas criticized the child care and income sharing provisions, saying they exceeded the authority given by the US Congress. He said that the Department of Commerce was “focusing less on the urgent need for chip production and more on trying to put its work schedule on this urgent industry”.
Funding companies are also banned from using chip money for dividends or stock buybacks, and must detail any plans to buy back their own shares on back over five years. The department will consider an applicant’s “commitments not to buy back stock”.
Democratic lawmakers have noted that the largest US semiconductor companies have poured hundreds of billions of dollars into stock buybacks in recent years, with Intel spending more than $100bn on buybacks from 2005. Intel also pays dividends.
It’s not uncommon for states to require certain earnings targets as a condition for tax subsidies, but the Biden administration is a major extension.
Public promotion
White House economic adviser Heather Boushey said the announcement “symbolizes the use of public incentives to deliver while simultaneously building strategic supply chains for our economic and national security while investment in our care infrastructure”.
The Biden administration outlined ambitious plans to pay millions of caregivers, mostly women, better wages, and make child and elder care more affordable by 2021 but failed to win majority support in Congress.
Applicants must address six program priority areas, including plans to commit to investing in R&D in the US semiconductor industry such as building domestic fabric and other R&D facilities.
Applicants should also “create opportunities for minority-owned, veteran-owned and women-owned businesses; demonstrate climate and environmental responsibility; invest in their communities by addressing barriers to economic inclusion; and a commitment to the use of iron, steel, and building materials made in the United States”.
The Semiconductor Industry Association said it is carefully reviewing the funding notice that “sets out the rules of the road for companies to apply for CHIPS Act manufacturing grants.”
Most direct funding awards are expected to be between 5 and 15 percent of project capital costs. Commerce said they generally expect the total amount of the award, including a loan or loan guarantee, to not exceed 35 percent of the project’s capital costs.
“We are going to do our best. We don’t write blank checks to any company that asks,” Raimondo said. “We are forcing companies to open their books. “
[The style guide asks we don’t use US seasons for time frames – could we please change “spring” and “fall” below to months?]
The first funding opportunity is seeking applications for projects involving advanced, current generation, and mature node semiconductors. It will release funding opportunities for semiconductor materials and manufacturing equipment facilities in late spring and one for R&D facilities in the fall.
Raimondo also noted that award-winning companies must enter into agreements that restrict their ability to expand semiconductor manufacturing capacity in concerned foreign countries like China for 10 years after winning funding. They cannot engage in joint research or licensing efforts with a foreign organization concerned with sensitive technologies.
“We are going to release very detailed rules in the next few weeks that will give companies a clearer understanding of what the red lines are,” said Raimondo.
