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Q2 2025 | APRIL - JUNE

The CHIPs and Science Act of 2022

Rudi Palmans, Director, Supplier Relationship Management

What is the CHIPS (Creating Helpful Incentives to Produce Semiconductors) Act?

The CHIPS Act of 2022 offers billions of dollars in grants and a new income tax credit to jump-start domestic semiconductor manufacturing. President Joe Biden signed it into law on August 9, 2022, after it passed with bipartisan support in Congress. Its main purpose is to boost semiconductor infrastructure and manufacturing capacity, whether these are new investments or upgrades & additions to current capital spending. The Act was initiated at the beginning of 2020 when the semiconductor market was suffering from severe global shortages.

The CHIPS Act covers a range of subsidies of over $280B, with more than $52B specifically for the semiconductor industry (some 80% for capacity expansion) into 2026. Most of these subsidies will go directly to semiconductor manufacturers in the US, for both mature and advanced processing technologies (anything below 28nm), as well as into supply chain verticals such as raw wafer manufacturing and chip packaging.

However, there are two main restrictions to qualify for the funds:

1. Companies requesting these incentives "cannot engage in material expansion in China and other sanctioned parties in the next 10 years for technologies below the 28nm process node."

2. "The recipient cannot knowingly engage in any join research or technology licensing effort with a foreign entity of concern (e.g., China, Russia or Iran), as well as sanctioned parties."

Some companies like TSMC, Intel, and Memory suppliers Micron & Samsung could see limitations, if they accept incentives since some of their business is related to or is taking place in China already and in advanced technology. Some of these details will need to be addressed or these companies may decide to stay away from incentive funds.

Critical Focus of the CHIPS Act

An extremely vital aspect of the Act is preparing for the human talent to support the full range of elements in the Act. The resources and human talent will be critical in developing in an effort to remain at the forefront of technological development in general.

Therefore, a large portion, approximately $11B over the next five years will go into education and research & development of emerging technologies such as Artificial Intelligence, Robotics, Quantum Computing, Biomedics, and as part of the Act, the American Defense Fund ($2B) to support research for the Department of Defense.

Impact for Semi Equipment Manufacturers

While this is a massive overall investment, Semi equipment suppliers (Applied Materials, Advantest, KLA Tencor, LAM Research, ASML, etc.) are also facing supply chain constraints slowing the desired pace of bringing up new fabs. It takes 2-3 years to complete and a cost of $4B ++.

Over the past few years, global CapEx in the semiconductor industry has typically been $150B annually, with US-based companies investing approximately $40B annually. Other regions have seen similar incentive programs either being discussed or implemented, with $50B for Europe, $5.2B in Japan and $150B in China.

The decision for semiconductor companies to invest should not depend solely on whether subsidies are offered, however, it requires extensive planning and assessment of the current business levels and market focus for each supplier. In addition to the CapEx investments for the semiconductor companies, the Act also includes university research grants and investment in training and human capital to support the growth. This not only includes the semi manufacturing but the complete ecosystem from raw wafer capacity to packaging technologies and capacity.

Jabil Perspective

While the CHIPS Act will focus investment on US soil, the semiconductor market has evolved to be truly global, with interdependencies across many regions and no country completely independent from sand to chip. The top independent raw wafers suppliers (SUMCO & Shin-Etsu) are headquartered in Japan, with all the largest packaging operations positioned in Malaysia and Southeast Asia, even though their companies may be headquartered in the US. Chemicals, rare earth materials, manufacturing equipment, and advanced packaging companies add to the geographical footprint extravaganza, with production locations literally across the globe.

The current and growing tensions between China and Taiwan further expose global dependency as the world’s largest foundry, TSMC, is headquartered in Taiwan and has most of its manufacturing locally. According to SIA (Semiconductor Industry Association), China produced 24% of the world’s semiconductors. China also imported $432B worth of semiconductors, with approximately one-third coming from several Taiwan foundries like TSMC, UMC, Powerchip and Vanguard. In addition,, China has been banned from importing equipment for the most advanced technologies (7nm and below) from ASML for EUV (Extreme UltraViolet) and will see further technology development slowed down for smaller process nodes.

Key Takeaways

The passage of the US CHIPS Act will support the investment and growth of semiconductor and ecosystem companies in the US.
Due to certain restrictions in the Act’s initiatives, not all companies will derive the same level of benefit.
Many of the dollars are focused on human capital and advanced research project to help the US maintain their lead in semiconductor innovation.

If you have any questions or need additional information, please do not hesitate to contact me (rudi_palmans@jabil.com) directly.

The CHIPs and Science Act of 2022

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