Intel and Micron request semiconductor subsidies from US government

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What you need to know

  • Intel and Micron's chief executive officers argued before the U.S. Senate Commerce Committee to receive subsidies for semiconductor manufacturing.
  • Intel has announced large investments for semiconductor manufacturing in the United States, but how much the company will spend may depend on support from the government.
  • The U.S. Senate and House have passed versions of the CHIPS act, but the governing bodies do not agree on some of the particulars of the legislation.

The chief executive officers of Intel and Micron spoke before the U.S. Senate Commerce Committee on Wednesday, March 23, 2022. The CEOs argued that the U.S. government should subsidize domestic semiconductor manufacturing. Government support could incentivize companies to invest in the United States rather than China or Europe.

Reuters shared previously unreported testimony from Intel CEO Pat Gelsinger. "There is an urgent need for the federal government to incentivize more private sector investment in the United States to enable a resilient and innovative semiconductor ecosystem." The outlet reported that Gelsinger would make the same case to the U.S. Senate Commerce Committee on Wednesday, March 23, 2022.

Gelsinger also stated in previous testimony that $100 billion of Intel's potential investment in Ohio may depend on support from the CHIPS Act.

Micron has large plans for chipmaking fabs, including $150 billion of investment over the next ten years. Some of the company's manufacturing plants could be in the United States, though that may depend on subsidies from the government.

$52 billion in support would "kick start investment in workforce development, R&D, innovation, and expansion of manufacturing in the near term," according to Micron CEO Sanjay Mehrotra.

Both the U.S. Senate and House have passed versions of the Creating Helpful Incentives to Produce Semiconductors (CHIPS) act, but the bodies have not yet agreed on the financial particulars of the legislation.

"The situation now in America is urgent," said Commerce Secretary Gina Raimondo in a meeting with U.S. senators earlier this month. "We have to decrease our dependence on other countries including Taiwan on chips and the way to do that is to make more chips in America."

Intel has made similar remarks about Taiwan.

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  • First of all, LOL to huge, hugely profitable companies making a mint off of the pandemic coming to the government, cap in hand, asking for money. Second of all, state and local governments will offer inducements to locate a plant there to the tune of hundreds of millions, maybe more. Third, it's not clear whether those state and local government incentives ever work, as companies locate based on geography and the local labor market, not how much of a tax break they get from the government. Companies are thinking long-term, as they should. If you want to attract high-tech companies, government money is better spent on universities and infrastructure and making cities livable.
  • Totally with you on this one, Andrew.
  • The problem with this argument though is globalization.
    Taiwan, China, Japan, South Korea governments pump tens, even hundreds of billions of dollars into their 'private' sector chip manufacturers. How will the US companies compete in an open market?
    This is how the Japanese originally pushed Intel out of the memory manufacturing game.
    To play fair, you have to level the field. No purely private company can compete. And yes, this is how manufacturing left the US.
    Except the US wants to totally give up on manufacturing, then yes, government can step aside. Thank goodness they bailed the auto manufacturers in 2008. Probably in an alternate reality, Tesla would have started from East Asia or Europe.
  • It's not obvious that those subsidies work once you're a developed country (and even if you aren't). Companies will locate where the geography and labor market make sense. Korea and Taiwan in particular are good at that part - education, infrastructure, sensible regulations. Those countries not long ago were playing catchup, and were far behind, which might (might!) have justified subsidies for development. Now they're both richer than England and Japan. It's a fifteen different world with different problems when you're a rich country. Last time I checked, Intel is still #1 and AMD is #2 (more or less) across many semiconductor categories and maybe overall. Two American companies. Two companies that need high skill labor, good infrastructure and a good regulatory environment. Don't be shocked if their next factories are in the US regardless of how much tax money they get (just like Amazon, whose location decision for their second HQ was predictable by people who understood that industry). There is zero chance Tesla would have started anywhere but the US. All of Musk's business network is in the US. All of the skilled workforce he'd need. Though I'd maybe agree that carbon credits helped - but they weren't tied to location. The Big Three are not a good comparison. The auto industry is stagnant other than electric. Low profit, high competition, and three American companies that were bad at competing internationally. The reason the auto bailout was a good idea was to avoid immediate collapse, particularly of the parts industry. Unlike semiconductors you should expect a continued slow decline in the relative importance of the auto sector (including EVs). The semiconductor industry meanwhile is swimming in cash.
  • "To play fair, you have to level the field. No purely private company can compete." They're all private. And even if that weren't the case, how do we explain the continued dominance of Intel and AMD?
  • Samsung is actually larger than Intel and AMD.
  • You really don't think subsidies work in such a highly CapEx intensive industry such as semi-conductor manufacturing? It costs tens of billions of dollars to build cutting edge fabs, so any bit of investment or relief is going to help. TSMC is eating everyone's lunch in the manufacturing game and is planning on investing over $100 billion if I remember correctly. This is high skilled manufacturing, so it's not going to be outsourced to China or any other country for cheap labor. However, companies can choose to invest elsewhere such as Europe, Israel and other countries. In fact, Intel is doing just this.
  • AMD is dead in the water without TSMC. Same with Apple, Qualcomm, Nvidia and all the so-called 'fabless' semiconductor companies.
    Do you think Gelsinger is making up all these claims?
    I can tell you from first hand experience that by far the hardest part of the pipeline in the chip business is the actual fabrication with good yields and performance. Again I am speaking from first hand intimate knowledge of the struggles in the most advanced chip fabrication nodes. I work on this stuff every single day.
    Elite design teams can be quite easily assembled. On the other hand, try building a cutting-edge fab that can compete with TSMC today.
    Only two companies on earth right now stand a fighting chance against TSMC in fabrication - Intel and Samsung. And it's a desperate struggle. They are fighting for their lives at this point - particularly Intel. Samsung is much more diversified. GlobalFoundries has fallen by the wayside on the most advanced nodes.
    To say that tens of billions of dollars of government support is a negative or undesirable is just ridiculous.
  • Kaymd, Andrew nailed it in his response. Just to further what he said, "Japan, Inc." has had a contracting economy for years. I would suggest it's actually BECAUSE of the government involvement. This led to a more risk-averse business climate, which reduces long-term growth. Government tinkering in the economy can drive some desired effects in the short term, but in the long term, it mostly does harm. The one exception is funding early research -- if it's decades ahead of where it can be converted to marketable products, then the private sector is unlikely to fund it, because their ROI timeline tends to be too short to justify that. China is a very different situation. In China's case, it's not their support that helped local companies, but the laws that require sharing IP with Chinese companies (which I view as legalized theft), the tariffs on imports, the depression of the value of their own currency to keep wages of their own people down to attract manufacturing, etc. China is effectively in a war with the US and the West that no one else is fighting (Trump was, but was de-railed by COVID), so naturally China is winning. That's not good for the Chinese people. It's bad for them (depressed wages, authoritarian control, re-education camps, the great firewall blocking access to information, tariffs raising prices on imports, etc.), but it's good for the communists in power.
  • It's not about Japan, and SK and Taiwan had very similar involvement in the economy as Japan used to (lots of strategic investment and national champions like Samsung). They're far more interventionist than the US. The point is that it may make sense, or at least not hurt growth tremendously, if you're still a developing country. You can ape advanced countries' investment patterns, or at least their recent history. But once you're an advanced country, all your future growth is going to come from technological advancement, and the market is going to have information that governments never will. Again, you're very wrong about China and the trade war. China stopped manipulating their currency more than a decade ago. (This can be measured. Donald Trump is not the guy doing the measuring, at least not in good faith. Why anyone with a brain would trust his words is beyond me.) Japan did so in the 1990's. Arguably Germany went the other direction (too hawkish monetary policy) a long time ago. It was for their own good. Trade wars are pointless. In the long run, it's best for China to develop their own internal market, which is exactly what they're doing now. If anyone was waging unprovoked, ideological economic war, it was Donald Trump. Not only was the Trump trade war unwarranted, unilateral (which means it was toothless) and driven by ignorance, xenophobia and Trump's own delusions of glory, it was also badly lost ... by the United States. Like his idol, Vladimir Putin, Trump never admits defeat, declares victory, and changes the subject. It is still amazing that you believe the Trump line about his trade war. You may think you have a particularly sophisticated understanding of this, but you don't. You've just swallowed Trump's narrative whole. The trade war was completely unwarranted.
  • Andrew, is it just because this is on the Internet, so you feel a need to be combative? I think we generally agree on this stuff. I respect your points and insights and am glad you post here on Windows Central. Your comments are often among my favorites. Yeah, there are a few areas where we obviously disagree, perhaps China being the main one, and that's OK too. Anyway, to your specifics where I do disagree, China has not stopped manipulating their currency in that they continue to depress its value relative to the dollar. Granted, they're having a hard time right now, with all the money printing the US is doing, we're devaluing our own currency pretty hard too. Hopefully the new FED interest rate hikes and finally ending the debt purchasing will start bringing an end to that on the monetary side, even if fiscal policy remains an inflation-fueling free-money cannon (with minimum wage hikes exacerbating the problem). Regarding Trump, I don't care if it's Trump or Biden or any other politician. I care about their policies. If anything Trump, who was not my first choice for president, got his China policy from me. Maybe he read an article I wrote on this back around 2000 titled something like "Tariffs are Terrible, Here's Why We Need Them" (don't recall the actual title). In it I explained why both Democrats, who at the time wanted tariffs for protectionist reasons, back when Democrats were the party of hard working labor unions, and Republicans, who opposed tariffs because they raised costs to businesses, were both wrong. In it, I laid out the damage tariffs cause by discouraging food and raw materials coming from where they're most easily grown, mined, or created and work from being done where it's most efficient, which isn't always in the US. That helps people on both sides of the trade at the time of the trade, going back to the first barter transaction. It's even more important in the long-run. Over time, countries with cheaper labor, attract labor intensive work. Yes, that may mean pulling some jobs from the US, but the cost savings drive even greater investment and therefore job creation back home, just in different jobs. Plus, the cost savings mean every family that buys those cheaper goods now has more disposable income, which they spend to create and support even more jobs. At the same time, those trading partner nations become wealthier (e.g., South Korea, Taiwan), and competition for that cheap labor with all those companies setting up shop there eventually raises the cost of that labor and those people now have money to spend, which causes them to become new markets for US exports. Ultimately, their wages rise to the point it's no longer attractive to relocate work there anyway. Tariffs distort the cost side of this, keeping labor and raw materials expensive and inefficient, hurting the economic growth of all nations involved. It's lose-lose in both near-term and long-term. For those very reasons, other countries imposing tariffs on the US are causing the same problems. The tariffs are just as bad whether imposed by the US or another country. Fortunately, as the single largest trading partner for most nations, we have immense power to put an end to tariffs by economically punishing anyone who uses them. At the time, I believe I was referring to several nations, mainly China, but also Japan, whom I now view as an important trade ally against China, a relationship we should utilize far more effectively today than we are. However, I tried to emphasize that the policy should be clear and stand independent of the nation: if you tariff us, we'll tariff you harder, but we will not apply any tariffs to you if you don't apply them to us. That was very important to make it clear to other nations that if they drop tariffs ours will also disappear, essential to avoiding a spiraling trade war. Drop your tariffs and you will make more money from the US. Raise or start them, and you'll make less. Simple and transparent. I acknowledged that execution may require some nuance, like if France only applies tariffs to wine imports, do we tariff French wine, or an equivalent US export -- cars, computers, Levis, or target a dollar equivalent or GDP-impact figure? Not a clear answer. Or what if a country tries to game the policy by adding and removing tariffs seasonally, timed to their export season, perhaps we would need to have a 12 month-trailing window. These kinds of subtler cases were precisely where political leaders could debate the tactics and use discretion within the scope of the overarching policy. So when I refer to our providing free trade with other countries who apply tariffs to US goods as unilateral disarmament, that's the context of my statement. It's as true today as it was 20+ years ago when I began preaching this policy. When we allow other countries to apply tariffs to the US without severe economic punishment, it encourages them to do so (why not? it's free revenue to add to their tax base and politicians can claim it's helping their home industries), which hurts us, and ultimately hurts their people too, because tariffs are terrible.
  • I want chip making to come back to the US as much as anyone, but the government should not pay corporate welfare payments to anyone, ever. Now, if they want to place some guaranteed chip orders for military or non-military government applications at prices set in advance by Intel or Micron, that would be fine. Arguably, maybe that's the same thing, but a payment with no deliverables is far too ripe for abuse and cronyism (in both directions -- like when a union for government employees gets raises for its members, where clearly a % of those raises go to union dues which they then use to fund union-supporting candidates -- worse than bribery, because it's using taxpayer $$ to pay the bribe). Corporate welfare is the kind of anti-capitalist crap that gives capitalism a bad name among those who don't discern the difference.
  • Intel and Micron have plenty of money that they can invest from their profits.