Monday, May 20

Biden Administration Selects Military Supplier for First Chips Act Grant

The Biden administration announced Monday that BAE Systems, a defense contractor, will receive the first federal grant from a new program aimed at supporting American production of critical semiconductors.

The company is expected to receive a $35 million grant to quadruple domestic production of a type of chip used in F-15 and F-35 fighter jets, as well as satellites and other defense systems. The grant is intended to help ensure a more secure supply of a critical component for the United States and its allies.

The award is the first of several expected in the coming months as the Commerce Department begins distributing the $39 billion in federal funding authorized by Congress under the CHIPS and Science Act of 2022. The money is intended to spur the construction of chip factories in the United States and to recall a key type of manufacturing that has slipped offshore in recent decades.

The decision to select a defense contractor for the top prize, rather than a commercial semiconductor plant, was intended to underline the administration’s focus on national security, officials said.

At an event at BAE Systems in Nashua, N.H., Gina Raimondo, the commerce secretary, said the United States has become “dangerously dependent” on some Asian countries for its chips, including technology used in military systems. Behind her were posters showing an unmanned drone, fighter pilots and a jet engine.

“To defend our great country, we must ensure that the chips used in the military equipment of the United States of America are made by Americans,” Raimondo said. “And that’s what it’s all about.”

In the coming months, the Biden administration is expected to announce much larger subsidies for major semiconductor manufacturing plants operated by companies such as Intel, Samsung or Taiwan Semiconductor Manufacturing Company, known as TSMC. Raimondo said that within the next year the department will announce 10 or 12 grants to other companies, some worth several billion dollars and others tens of millions.

Speaking after the event, Ms. Raimondo said the Commerce Department had “intentionally” chosen a relatively small award as its first funding, but said larger sums to other companies would be announced next year. Awards for facilities producing the most advanced chips will likely be announced in early 2024, she said in an interview.

“Basically, you’re going to see, across the country, big expansions in semiconductor manufacturing and supply chain,” he said.

Semiconductors originated in the United States, but the country now produces only about a tenth of the chips produced globally. While American chip companies still design the world’s most cutting-edge products, much of the world’s manufacturing has migrated to Asia in recent decades as companies have sought to reduce costs.

Chips power not only computers and cars, but also missiles, satellites and fighter jets, a reality that has led officials in Washington to view the lack of domestic manufacturing capacity as a major national security vulnerability.

Global chip shortages during the pandemic have shuttered auto factories and dented the U.S. economy, highlighting risks to supply chains that are beyond American control. The chip industry’s heavy dependence on Taiwan, a geopolitical flashpoint, is also seen as an untenable security threat as China views the island as a breakaway part of its territory and has talked of reclaiming it.

“When we talk about supply chain resilience, this investment is about strengthening that resilience and ensuring that chips are delivered when our military needs them,” said Jake Sullivan, President Biden’s national security adviser.

The BAE chips the program would help fund are made in the United States, but administration officials said the money would allow the company to upgrade aging machinery and make the facility more efficient, ultimately cutting the cost of the chips produced in half in the factory.

BAE, partly through operations purchased from Lockheed Martin, specializes in chips called monolithic microwave integrated circuits that generate high-frequency radio signals and are used in electronic warfare and air-to-air communications.

The company’s Nashua plant, which employs about 3,700 people, is part of the Pentagon’s “trusted foundry” program, which produces chips for defense-related needs under severe security restrictions. BAE is a British arms and aerospace company; the prize will go to its US branch.

Like other grants under the program, the funding would be distributed to the company over time, after the Commerce Department conducts due diligence on the project and when the company reaches certain milestones. The company also promised to undertake workforce training programs as part of the grant, including a program at the local community college.

The Biden administration hopes to create a thriving chip industry in the United States, including cutting-edge manufacturing and research, factories that mine older types of chips, and various types of suppliers to make the chemicals and other raw materials that chip the implants. Need.

Part of the program’s goal was to create a secure source of chips for use in products needed by the U.S. military. The supply chains that power weapons systems, fighter aircraft and other technologies are opaque and complex. Chip industry executives say some military contractors have surprisingly little understanding of where some of the semiconductors used in their products come from. At least some of the chip supply chains that power American military goods pass through China, where companies make and test semiconductors.

Since the chip legislation was first introduced in early 2020, chip companies have announced more than $220 billion in new manufacturing facilities across the United States in hopes of getting some of the federal money. The law also offers a 25% tax credit for funds that chip companies spend on new factories in the United States.

The funding will test the Biden administration’s industrial policy and its ability to select the most viable projects while ensuring taxpayer money is not wasted. The Commerce Department has created a special team of about 200 people who are now reviewing companies’ applications for the funds.

Technology experts expect the law to help reverse the three-decade decline in the U.S. share of global chip production, but it remains uncertain how much of the industry the program can recover.

While the amount of money available under the new law is large in historic proportions, it could run out quickly. Chip factories are filled with some of the most advanced machinery in the world and are therefore incredibly expensive, with the most advanced facilities costing tens of billions of dollars each.

Industry executives say the cost of running a chip factory and paying workers in the United States is higher than in many other parts of the world. East Asian countries continue to offer lucrative subsidies for new chip plants, as well as an ample supply of skilled engineers and technicians.

Chris Miller, a professor at Tufts University and author of “Chip War,” a history of the industry, said there is “clear evidence” of a notable increase in investment in the semiconductor supply chain in the United States as a result of the law.

“I think the big question that remains is how durable these investments will be over time,” he said. “Is this a one-off or will they be followed by a second and third round for the companies involved?”

Don Clark contributed to the reporting.