Semiconductor Subsidy Program Hits Snag as Microchip Pauses Application
The US semiconductor industry’s efforts to revitalize domestic chipmaking have encountered a setback, as Microchip Technology Inc. has decided to put its application for subsidies on hold. This move marks the first time a company has stepped back from the Chips and Science Act program, designed to boost American chip production.
Microchip’s Struggles
The struggling chipmaker was initially slated to receive $162 million in grants to support its plants in Oregon and Colorado. However, since then, Microchip has furloughed workers twice at its Oregon facilities and announced plans to shut down a factory in Arizona, affecting around 500 employees. CEO Steve Sanghi attributed the decision to pause the application to the need to reassess the company’s priorities under new leadership.
Chips Act Implementation Faces Challenges
The Commerce Department, responsible for implementing the Chips Act, has announced preliminary deals with over 20 companies and finalized agreements with six major players, including Intel Corp. and Taiwan Semiconductor Manufacturing Co. These binding accords account for almost 50% of direct funding from the program, which set aside $39 billion in grants, loans, and tax breaks to boost the US semiconductor industry. However, Microchip’s decision raises questions about the program’s effectiveness in achieving its goals.
Industry Downturn and Cyclical Nature of Semiconductor Industry
Microchip, which produces older-generation chips for products like cars and consumer devices, has been experiencing a deep sales slump and expects revenue to drop 40% in 2024. The company’s shares have plummeted 27% this year, making it one of the worst performers on the Philadelphia Stock Exchange Semiconductor Index. This downturn highlights the cyclical nature of the semiconductor industry, posing challenges for policymakers who must negotiate investments and subsidies that stretch years into the future.
Policymakers Face Challenges
“The grant was applied to maybe almost a year ago, when everybody thought that the factory capacity was never enough, and the world was gonna build silicon fabs forever,” Sanghi said. “Today, we have too much capacity.” This shift in market conditions underscores the difficulties policymakers face in supporting an industry characterized by booms and busts.
Government Support Only Covers a Small Slice of Factory Costs
Chips Act funding only covers a small portion of factory costs, and companies must still make commercial sense of their projects. As Sanghi noted, “The government gives you 15 cents of every dollar you spend. Do I want to spend $100 million to get $15 million back from the government — if I don’t need it and I don’t want to spend the other 85 myself?” This raises questions about the sustainability of government-supported projects in the semiconductor industry.
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