Slumping Exports, Worker Shortages and Tardy Federal Subsidies Are Cited
Boosting domestic semiconductor production has been a signature goal of the Biden administration, but achieving that goal has run into roadblocks ranging from construction worker shortages to slumping computer chip exports. Delayed federal subsidies haven’t helped.
Major semiconductor plant expansions are still planned. They just won’t come on line as soon as previously projected. Meanwhile, other nations such as Japan and Germany are offering incentives to spur increased semiconductor production. And companies could decide to enlarge existing operations in East Asia.
President Biden touts the CHIPS Act as a major achievement in his first term and regards the delays as unsurprising for complex manufacturing facilities. The industry explanation is more complicated.
“Companies are rethinking how and what and when investments will occur,” according to Thomas Sonderman, chief executive of SkyWater Technology, a Minnesota chip manufacturer that has won Defense Department subsidies and is seeking CHIPS Act funding.
Microchip received $90 million in CHIPS Act funding to expand its Colorado Springs fab lab and $72 million for its Gresham plant expansion. Both expansions have been paused because of what CEO Ganesh Moorthy calls “business conditions”. The company has announced a pair of two-week factory shutdowns and slowed down purchases of machinery for the expansion.
Oregon’s chip exports dropped by 14 percent in 2022 and another 39 percent last year, prompting a 5 percent reduction in semiconductor employment. Semiconductors top the list of Oregon exports.
Intel plans a major expansion in Hillsboro and more than a dozen other Oregon chipmakers are looking at expansion in response to a $240 million investment by the state, which could create as many as 6,000 new jobs. The 2024 legislature is looking at ways to increase community college and university worker training programs to meet that future workforce demand.
“The government is locked in complex negotiations with
major chipmakers over the amount and timing of the awards.”
Nationwide, companies involved in manufacturing computer chips have pledged to invest around $235 billion in new plants. Taiwan Semiconductor Manufacturing Company, better known as TSMC, announced a $40 billion investment to build two new manufacturing facilities in Phoenix. They would be the company’s first U.S. production facilities.
TSMC, the world’s largest semiconductor manufacturer, has pushed back completion dates for both plants, citing a lack of workers with the knowhow to install sophisticated equipment, labor union complaints about safety, sagging markets and tardy federal funding. Mark Liu, TSMC’s chairman, told investors progress on the Arizona plants depends on “how much incentives the U.S. government can provide.”
The rollout of $39 billion in federal incentives from the CHIPS Act has been slower than expected. A Commerce Department official disputed suggestions that it had been slow in handing out incentives. He said the department was taking time to protect taxpayer interests and push companies to do more to bolster the domestic chip supply chain. The Treasury Department, which is working on rules for tax credits, said its guidance will be released soon.
The New York Times reported, “The government is locked in complex negotiations with major chipmakers over the amount and timing of the awards. Companies are also still waiting for guidance from the Treasury Department about which investments will qualify for a new tax credit aimed at advanced manufacturing, which had been expected before the end of 2023.”
The longer the U.S. government waits to distribute benefits, “the more other geographies are going to snap up these investments, and more leading-edge investments will be made in East Asia,” Jimmy Goodrich, a senior adviser for technology analysis to the RAND Corporation, told The Times. “So the clock is ticking.” More than 600 companies have applied for federal grants.
“Nothing has failed yet,” Emily Kilcrease, a senior fellow at the Center for a New American Security. “But we’re going to have to see some progress and those factories actually coming online in the next few years for the program to be considered a success.”
Sagging computer chip sales may be temporary, following a boom period spurred by pandemic stimulus spending that resulted in a consumer rush to buy computers, smartphones and other appliances. Data indicates Oregon semiconductor exports, while down sharply in 2023, were still 7 percent higher than in 2019.
Damon Runberg, an economist with Business Oregon, said last year’s decline in exports is “not really doom and gloom.” Semiconductor and other technology companies, he believes, are here to stay, with better days ahead.
