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The long wait for CHIPS Act money just got a little longer

Swamped by applications from more than 400 chip manufacturers hoping to get CHIPS Act money, government officials have pushed back the delivery of those funds to year's end.

With the first anniversary of the CHIPS and Science Act come and gone, the government has yet to release any of the $52.7 billion promised to chip manufacturers, designers and researchers. The U.S. Department of Commerce said this week, however, that it hopes to deliver the first funds by the end of this year.

Much of the delay centers around the crushing number of applications from chip companies and the time it is taking the Commerce Department to go through the applications to determine each applicant's qualifications. Despite hiring in the past few months more than 140 employees dedicated to this task, there have been more than 460 applications and counting filed. These applications represent only the first step in a multistep process to successfully bid for CHIPS Act funds.

"We will start to give out the money later this year," said Secretary of Commerce Gina Raimondo in a press briefing this week. "We're pushing the team to go fast -- but even more importantly, we want them to get it right."

The delay has most affected smaller chipmakers and designers that are heavily reliant on government funding to proceed with plans to build new chip plants and hire qualified personnel. Top-tier chip companies, which also want and need the government funding, have enough financial resources to move forward with their plans while waiting.

Dan Newman, CEO, The Futurum GroupDan Newman

"This whole process is moving very slowly, but the larger companies like an Intel or TSMC [Taiwan Semiconductor Manufacturing Company] aren't entirely dependent on the government writing them a check to finish their projects," said Dan Newman, CEO of The Futurum Group. "The larger companies fully expect the government to hold up its end of the bargain. The biggest risk for them is the slow hiring of trained personnel and the two to three years it will take them to build these factories."

This whole [CHIPS Act funding] process is moving very slowly, but the larger companies like an Intel or TSMC aren't entirely dependent on the government writing them a check to finish their projects.
Dan NewmanCEO, The Futurum Group

Other analysts and consultants said they are not surprised at how slowly government agencies can move in approving and delivering funding.

"This is the federal bureaucracy at work here," said Jack Gold, president and principal analyst at J.Gold Associates. "Tier 2 companies, who have waited a long time, will have to wait longer. They can start building their own fabs in the meantime, but they'll also have to wait in line behind the larger companies to buy leading-edge production equipment to produce next-generation chips from companies like ASML."

Funding debate

Another factor slowing the process is the back-and-forth argument among government officials about whether to fund offshore competitors of U.S.-based chipmakers.

"The decision to award money to offshore competitors has been a football tossed back and forth in the government," said Frank Dzubeck, president of Communications Network Architects. "Giving money to TSMC or Samsung, large companies doing business with American companies for some time, can look like the government is going back on its promise to build an American industry here."

At least one major American competitor doesn't have a problem with sharing funds with offshore competitors.

In press interviews Wednesday, Intel CEO Pat Gelsinger advocated that TSMC and Samsung should receive funding, saying the ultimate goal should be to see investments and manufacturing centered in the U.S. He added, however, that his company should receive more government funds than either of those two companies because Intel is a chip designer, manufacturer and researcher.

Samsung and TSMC "should get some dollars, but we should get more dollars because we have submitted four projects for consideration, and we do manufacturing and R&D here," Gelsinger said. "We have been an American company for our entire history and conducted the vast majority of our R&D here."

Some of the small and medium-sized chip companies are not standing idle either. Several this week said they are actively soliciting funds from private investors or working with a variety of coalitions to find skilled workers while they wait for government money to arrive.

One such vendor is foundry SkyWater Technology. CEO Tom Sonderman said the company plans to begin construction of a $1.8 billion facility as soon as the funds arrive.

"[We see] continued progress proceeding through the application process for CHIPS Act funding, as we believe we are well-positioned to be a major beneficiary in the years to come, both at our existing sites in Minnesota and Florida, as well as our innovative and transformative partnership with Purdue University and the State of Indiana," SkyWater said in its quarterly financial report released this week.

What could dull the enthusiasm among small to medium-sized chipmakers, however, is how quickly larger chip companies have reduced their inventories this year. Cutting down inventories built up toward the end of the pandemic has turned a chip scarcity into a chip glut that has significantly curbed spending by corporate users on PCs and phones containing those chips.

This could discourage smaller chipmakers from going through the drawn-out process of applying for government funds, on top of the expense of building state-of-the-art chip plants.

As Editor at Large in TechTarget Editorial's News Group, Ed Scannell is responsible for writing and reporting breaking news, news analysis and features focused on technology issues and trends affecting corporate IT professionals.

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