In a long-awaited announcement, the Commerce Department outlined Tuesday what semiconductor companies will need to hand over to get their share of the billions in government money that will come their way soon.
Bottom line: no blank check.
“We'll run them through the paces and then we'll make our decisions,” Commerce Secretary Gina Raimondo told Yahoo Finance Live in an interview. She said the application will be intentionally complicated and that's a part of her mission to make sure taxpayer funds are protected.
“It's a very detailed, extensive, comprehensive application,” she added in comments to reporters Monday, promising “we're gonna make companies open their books.”
What lies ahead for companies like Intel (INTC), Micron (MU) and others is a five-part process in which the firms will be asked to make a series of promises. Pledges include a pause on any expansion plans in countries like China, detailed plans for how they’ll recruit workers, and a vow that the money won’t go to stock buybacks.
At stake is a Biden administration promise to reverse a sharp downward decline for the semiconductor industry in the U.S. over recent decades. American semiconductor manufacturing has fallen from nearly 40% of world production in 1990 to only 12% in recent years, according to the Semiconductor Industry Association. The situation is even worse for the world’s most advanced semiconductors, 100% of which were manufactured overseas in 2019.
‘This is fundamentally a national security initiative’
Tuesday’s announcement is the latest phase in Raimondo’s oversight of $50 billion in government funds going to companies to spur both semiconductor manufacturing and research in the years ahead. The money was approved in 2022 when President Biden signed the CHIPs and Science Act into law as a centerpiece of his economic agenda and focus on bringing back manufacturing to the U.S.
The application released this week is for $39 billion in the law that is earmarked for semiconductor manufacturing. Another application will be coming later this year and will begin to give out an additional $11 billion for chip research and design. The law also includes an investment tax credit of up to 25% towards a manufacturer’s capital expenditures.
In the coming months, Raimondo and her team will also select sites for the centerpiece of the Biden team’s CHIPS vision: at least two new semiconductor manufacturing and research hubs built around producing the most advanced chips in the world.
“The reality is there are only a few companies in the world that can do leading-edge chip manufacturing,” Raimondo said in this week’s interview.
Companies like Intel and Micron — as well as IBM (IBM), Samsung (SSNLF), and Taiwan Semiconductor Manufacturing Company (TSMC) — have been engaged in intensive jockeying for months around the law with some already announcing U.S. expansion plans (and scoring presidential visits) to try and position themselves at the front of the line for the windfall.
What Raimondo has repeatedly pledged in recent days is that no company is a shoo-in. She said that a proposal from a company will get funded only if it has a strong national security angle, is impossible to achieve without government assistance, and would be a good deal for taxpayers.
But she noted that “a facility that's already been announced would be eligible for these incentives, and I expect that some companies that have already announced projects will receive incentives.” But at the end of the day, she added, the primary lens through which she will view applications is national security.
Meanwhile. companies have been publicly enthusiastic about the rollout so far. Allen Thompson, Intel vice president of U.S. government relations, told Yahoo Finance in a statement last week that, "We strongly support the Department’s efforts to build U.S. manufacturing and promote new clusters of semiconductor ecosystems,” adding that they are in the middle of an expansion already in places like Arizona, New Mexico, and Ohio. The Semiconductor Industry Association recently added their own enthusiastic statement saying, “We must now ensure the CHIPS Act is implemented efficiently, effectively, and expeditiously.”
Officials have compared the effort to big moments in American history from President Lincoln’s creation of the land-grant university system to John F. Kennedy’s famous call to put a man on the moon.
“This is a program without recent precedent,” Raimondo told reporters on Monday. “And with that tremendous responsibility, we are committed to being good stewards of every dime of taxpayer money.”
A focus on buybacks
In the coming years, the program is also set to be inextricably tied to the politically explosive topic of stock buybacks.
Officials have repeatedly pledged that — backed by auditing mechanisms and access to the company records — they will ensure that no taxpayer money is used for buybacks.
More challenging is what happens if a company receives government money and then separately announces a buyback plan. A Commerce Department official said this week that the department would ask companies to lay out all their overall buyback plans as part of the application process and then will give preference to "companies that do make long-term investments in the United States as opposed to prioritizing buybacks.”
A recent letter from prominent lawmakers like Sen. Elizabeth Warren (D-MA) and Bernie Sanders (I-VT) called on the administration to go further, calling for a ban on all buybacks for companies that take money for 10 years.
Raimondo and her team promised to cut off the funds if they catch wind of any broken buyback promises— they also said they also have measures to claw back money that has already gone out the door. “I hope we never have to do that, but there are a lot of tools that we have to keep these companies honest,” she said in this week’s interview.
Companies will also be required as part of the application process to make additional promises that could impact the eventual payouts. For example, officials said companies must comply with U.S. export controls and will be required to restrict their ability to expand manufacturing in non-U.S. allies for the coming decade.
Companies will also be required to submit detailed workforce provisions for how they plan to find, train, and retain workers to both build these extensive complexes and then eventually staff them. The provisions also include a requirement to outline how they will provide affordable childcare to workers.
Raimondo said that at the end of the day “if we do our job right” the government money will encourage much more money from private sources. The goal: the $50 billion in government money will spur at least ten times that - half a trillion dollars - from these companies.
Ben Werschkul is Washington correspondent for Yahoo Finance.
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