Odd LotsIn 2022, Congress passed the CHIPS Act, which set aside tens of billions of dollars in loans and grants in order to encourage companies to build new semiconductor fabs in the United States. We're still very early in the process. It's going to be a long time before we know if the US will become a major player again in the production of advanced chips. But the process is well underway and the bulk of the awards have been officially announced, with much of the money going to Intel, Samsung, TSMC, and others. So how did the grants get allocated — and what's next? On this episode of Lots More, we speak with Bloomberg News reporter Mackenzie Hawkins on the latest developments.
Bloomberg Audio Studios, podcasts, radio news. That's cool that they're all standing desks though.
It is nice.
Yeah, they have like a little switch on the right side that like it's because I when I had when I asked for a standing desk in New York, I got like a platform that was maybe a quarter the size of my actual desk, yeah, which they put like the screens basically, yeah, And I was like, this gives me no workspace.
And then you have to like bend down if you want to like write a notepad and paper.
Yeah. Yeah, So the DC desk definitely win on that front. I think San Francisco are maybe the same, but I haven't paid enough attention in other offices.
I kind of want to try a standing desk one day, but I don't want to like loom over Joe Weird.
I think I'm intimidated enough.
But I think I'd be.
Annoyed if I was sat down and then like someone was standing next to me. I don't know, I think it would feel well.
It is a little bit of a posturing thing, I think. And when I had a standing desk in New York, I would like forget it existed for three weeks and then I would make a whole show of standing for an entire day and people are like, you never stand, Like, what are you standing?
I did a deadlift one two, Jimmy, Okay, go.
Y up, Marges.
This isn't after School Special, except.
I've decided I'm going to base my entire personality going forward on campaigning for a strategic pork reserve in the US.
Where's the best in posta?
These are the important question?
Is that robots taking over the world.
No.
I think that like in a couple of years, the AI will do a really good job of making the odd lotch podcast, And people say, I don't really need to listen to Joe and Tracy anymore, But we do have the perfect welcome to lots More where we catch up with friends about what's going on right now.
Because even when Odd Lots is over, there's always lots More and.
We really do have the perfect guest.
So we're talking about Chips, right, Chips.
I hope.
So yeah, that's what I know about.
So, uh, how's it going, McKenzie?
I am doing well. How are you guys doing great?
Yeah, I'm coming off of like the busiest month of Chips news efforts.
You've had a lot of scoops. I feel like I feel like I've seen your byline quite a lot.
There have been a couple of busy weeks and I'm yeah, now I'm like recuperating. But unfortunately this is not I mean fortunately, but unfortunately for my sleep schedule. This is not a beat that really seems to ever rest.
So is all the chips sech money now dispersed? Like where are we because it sort of feels like we were like an end of.
Some stage here.
I would say we're at the end of stage one. Commerce Secretary Gino Raimondo referred to it as the bottom of the second inning at a Semaphore event in DC.
Recently, the department.
Has burned through about eighty five percent of the direct grant funding that they set aside to convince them conducting manufacturers to build more factories in the US. But that doesn't mean that the money's actually out the door. These are all preliminary agreements. There are seven agreements and ounce so far, and then there's three and a half billion set aside for this military chips program that we can get into that all accounts for, Like eighty five percent of the money is spoken for nearly eighty five percent.
But now all these.
Companies are entering these months long due diligence stages to actually reach a final term sheet, and then the money will only be dispersed when they hit key construction and production benchmarks, So it will actually take several years for all of the money to get out the door. And none of these companies have seen a single dime yet.
So we are speaking to our Bloomberg Collie Chips expert and reporter Mackenzie Hawkins. She's been on the show before, but we're trying to get an update on all these latest semiconductor headlines because I again going back to what I was saying earlier, there happened a lot of them kind of flying around and it's sort of hard to keep track. But I think the one that is probably freshest in my mind is the Intel drama. Can you maybe talk a little bit about that, Mackenzie. I want to understand, like, why does it count as drama the whole It seems to be very dramatic for people in this space. What's going on here?
So a bit over a month ago, Intel one the largest grant from the ships ACKed program eight and a half billion dollars to support construction projects spanning four states, including this megafab that they're trying to build in Ohio, this massive expansion in Arizona. They have an advanced packaging project in New Mexico, which is the technology that fits chips together for use, and this really big R and D effort and organ which is where all of their R and D is housed. Intel has in many ways been a focal point of this program. It's the only US company that makes cutting edge logic semiconductor chips. Its main rivals in that space would be Taiwan Semi conduct Manufacturing Company and South Korea's Samsung, which also received billions and billions of dollars in ships ACKed grants over the past couple of months. But as the American leader and as you know, CEO, Pat Gelsinger has been so vocal about the chips ACKed from you know, encouraging the Biden administration and lawmakers to pass in the first place, you know, wanting to be the first company to get a really big award, which you know is the fourth company to get an award in general, but the first company to ink you know, multiple billions of dollars eight and a half billion dollars. There's been a lot of back and forth between officials and Intel over how much money this company should get.
And a lot of drama.
Ensued in late February early March. So Intel's award was supposed to be announced like the last Monday in February, was tentatively scheduled, and it was rescheduled for some White.
House scheduling reasons.
And that Thursday, the Pentagon informed the Commerce Department that they would be pulling out of their two and a half billion dollar commitment to this program called Secure Enclave. Now that's the three and a half billion dollar program for military chips that I referenced earlier. So originally the Commerce Department was supposed to put a billion, the Pentagon was supposed to put two point five billion, And the idea is that this would be dedicated government funding to produce cutting edge semiconductors with military and intelligence applications. And Intel was the sole intended recipient of that funding. But when the Pentagon pulled out of their portion, lawmakers then who were coming up actually against a government shutdown, They were trying to move appropriations bills for pretty much every single major federal agency that weekend. This single item whether to make the Commerce Department pay the full three and a half billion out of chipsacked funding drag negotiations over this broader budget and spending package several additional days. Ultimately, lawmakers directed the Commerce Department to spend three and a half billion dollars out of a total thirty nine billion dollars on this program from military chips, which we've reported Intel is the sole intended recipient.
Now, I just like.
Don't understand, like, you know, okay, you have this pot of money in different agencies within the government, Like how does the Defense Department You're like, you know what, We're not going to pay. We're just like, we're not doing this. I don't even understand how that happens, Like it does not seem like a very coordinated, unified government to something can just be like thrown up at the last second.
Like that, Oh well you said on me, Joe. I mean certainly there are folks on the hill who are very very upset about this. You might imagine that the Commerce Department, which has you know, they stood up a two hundred person team spanning everybody from bankers who came down from Wall Street to career bureaucrats in Washington to semiconductor industry experts to decide, Okay, we have thirty nine billion dollars in grants, plus there's some loans and loan guarantees and a tax credit program that will also provide significant funding in the companies, but thirty nine billion dollar and direct grants. Our goal is to get twenty percent of advanced logic tips produced in the US by the end of the decade. We want ship making clusters at least two of them to be bought back to the US, and we want to reduce reliance on Asia and better compete with China. So I mean, these folks have been working round the clock for months and months to figure out which companies have the most viable projects, how much money should be given to each company. And they think that they have a certain amount of money, and then they have two and a half billion dollars less of that, and so that triggers a whole other round of negotiations where they have to figure out, Okay, where are we going to pull this two and a half billion from?
So did some entity get two and a half billion less than they might have expected?
So we're still actually seeing the fallout. One direct consequence, it seems, is that the Commerce Department scrapped a funding opportunity and application process for commercial R and D facilities. So they released applications over a year ago for large scale manufacturing projects the type that we're seeing from Intel, from TSMC, from Samsung. There's also a smaller application process where they've set aside five hundred million dollars, so really a small amount of this overall funding pool for manufacturing projects and supply chain projects with under three hundred million in expenditors from the company. There was originally intended to be a third application process still from that thirty nine billion dollar funding pool for commercial research and development projects, and they canceled that in late March. They attributed that to the recent congressional appropriations decision, which was a reference to this Secure Enclave program. And we've already actually started to see some industry fallout. Applied Materials had planned to build a four billion dollar R and D facility in California.
They're now saying, we're not so sure.
So you touched on the reasoning for the Secure Enclave project, but I think there's been quite a lot of criticism over like why have it at all? And I was reading I can't remember where it was, but there was a quote from it was a Department of Defense person or a Congressional aid or something, and they basically said, we have systems for getting the military the sensitive chips that they need already, which sounds very ominous. It sounds very like we have ways of dealing with you kind of, But why do you need to carve out that special funding for military applications at all?
It's a great question.
There is certainly a lot of disagreement in Washington about whether this program is necessary and whether it's smart to rely on one singular company. There's a separate program that's existed for quite some time called a Trusted Foundry program, where basically US officials go and vet a factory, say okay, this is secure, we trust it as part of a military and intelligence supply chain. And the biggest company that's part of that program is Global Foundriies. And so when we first reported this whole Pentagon Commerce Congress funding squabble, Global Founderies went on the record and talk to.
Us about it.
So there are certainly folks here who think it's not a great idea to align on one company. It's also maybe not a great idea to rely on of the three big logic chip makers, the company that lags behind its peers. But there's an acceptance that if we're going to do this, if we're going to have this secure facility within a facility for chips that are going into our most sensitive intelligence military applications, they have to come from an American company. So if you want a dedicated supply chain for cutting edge chips for the Pentagon, you almost have to go to Intel. And so that's the question that folks have been wrestling with, and I think that it points to a broader reality sort of shaping the entire chips program, is that, you know, Intel has fallen off over the past decade and a half in terms of its technology advancement compared to TSMC and SMSUNG, but it's also the only American company that competes at the cutting edge in logic chips. And so you know, while there is all this back and forth, Raimondo, the Commerce Secretary, has all so called Intel an American champion company. In some ways, the US government doesn't have a choice but to make and tell the face of this program, but they've also tried to be very clear that this is not a subsidy program that's for just one company. The goal is not to spread the money to thin so that it's ineffective, but to strategically try to secure investments from the top manufacturers all over the world. And the US is actually the only country of you know, dozens of governments that are doing similar semiconductor substy efforts, the US is the only one secure investments from the top five chip companies. So that does speak volumes about the interest that you know, global competitors in this space have in American funding opportunities and in the growing semi conductor ecosystem here.
You know, there was a big story recently, I think it's in the rest of world about TSMC in Arizona, but there's you know, this is a big concern generally, which is like, Okay, it's great, we're going to build all these factories, but what about local environmental regulations, what about labor regulation, what about lack of.
Talent, etc.
To do all this stuff? Like generally, what is your sense about these various big the big projects that are going up in terms of like essentially how hard we make it for them in this country to build new things.
It's a very real concern. I mean, you know, hypothetical money is great, but these factories actually have to get built, and we have seen some hiccups along the way. I mean there have been delays at TSMC, there was a delay at Samsung. The companies, of course say that, you know, these are tens of billions of dollars worth of capital expenditures. These are projects that take years to stand up. Moving our timeline back by a quarter maybe isn't that big of a deal, but you know, to the TSMC example in particular, the company had a lot of issues with local unions in Arizona over the summer. They said in July that they were delaying the start of production at their first of what is now three fabs that they're building in Arizona because there are not enough skilled workers in Arizona. And this was specifically workers who are going to install the most high end equipment, equipment that TSMC says, we've actually only had experience installing in Taiwan, so we need to bring Taiwanese workers over to help handle this. You might imagine that did not go over particularly well with the Arizona Building and Trades Council. There was a petition to stop the Taiwanese workers from coming. There were all sorts of allegations of safety and mismanagement issues. Those are somewhat resolved in Arizona. The Building and Trades Council and the company reached a labor accord in December, and their construction as of now is on schedule with that delayed timeline for the first fab, which is set to open in twenty twenty five. They're also building a second facility. Originally that was supposed to open in twenty twenty six. They said in January that it would open in twenty twenty seven or twenty twenty eight. We now know that it'll be in twenty twenty eight. They're evaluating market conditions. They also said that the level of technology they'd produce would depend on the level of US grants that they receive. They are going to produce their most.
Cutting edge technology in Arizona.
So there's, you know, maybe some feeling in Washington that was part of a negotiating tactic, but they have certainly seen delays. You know, the second company to receive a chips ACKed award Microchip Technology a couple of days later said that they were going to shut down their factory for a couple of weeks because they're trying to match market demand. And you know, their concern is not finishing the expansion that the federal government is funding. Their concern is meeting their customers where they are. This is an industry that goes through crazy booms and crazy bus and so whether this is all funny money or real money will depend on whether the companies see sufficient demand for the chips that they are going to produce. You know, Micron has said we could spend up to one hundred billion dollars in upstate New York to produce high bandwidth memory chips. Right now, we're committing to fifty, we're committing to two fabs. Certainly, local officials in New York would like to see a sprawling semic conductor complex that at umployed nine thousand people. They might get half of that from.
This was always sort of one of the criticisms of this particular project, the idea that yes, you can build fabs and spend billions of dollars doing it, but if the customers aren't there, or if there isn't a reliable source of demand, then it doesn't really amount to a sustainable business model. Have you seen anything like on the policy side in terms of addressing that aspect of it. Are people talking about that a little bit more in recent months?
I mean, there's certainly a recognition, you know, especially when we get stories coming out about delays at these major projects. There's a recognition that it's not going to be a linear path to the US producing some significant market share of advanced semiconductors. There's also a recognition that this artificial intelligence boom is going to drive massive global demand for these chips. I mean, you have some key executives in that space. Sam Altman and OpenAI of course come to mind saying, you know, we need as many of these chips as we can get. Altman is on a tear raising, you know, billions and billions of dollars to try to stand up factories across the world to produce these chips. So I don't know that there's necessarily concern here that all of a sudden interest is going.
To drop off.
But there are also so many different types of semiconductor technology that this program is trying to fund that each deal with their own market conditions. So, you know, we spent a lot of time talking about advanced semiconductors, like the type that Intel and TSMC are going to manufacture, but there are also older generation chips, the type that still go in your phone and your fridge and in weapons systems, and there is a smaller amount of money in the chips actually the side for that, but the government is still going to try to find production of those chips as well.
This is what I wanted to ask you about because one of the ironies here, one of the strange things is sort of I think chip vulnerability. I'm sure people in the space have been talking about it for a long time, but I think it came on many people's radar in twenty twenty when the car companies couldn't get ships and couldn't make cars.
Those are not definitely when it came on our radar.
Yeah, certainly us.
Maybe I'm just projecting on everyone else, but okay, came on the outlaws radar. Those are not particularly advanced chips that the car companies couldn't get. They're like pretty lagging edge, And there is does seem to be this other concern that the real risk is not that the US gets cut off from the leading ed chips, but that the Chinese companies, which maybe not be at the cutting edge because they don't have the same access to you know whatever ASML's equipment, but they're doing extremely well. It sounds like in the lagging edge chips like in many areas, probably much more cost competitive than the current options that you know for whatever. How much concern is there in DC that's like, okay, this project, Yes, it's a you know that twenty percent market share in leading edge technology, but meanwhile we have this big sort of bubbling dependency and challenge on the lagging edge side, which goes into every product we use.
The short answer is there's a lot of concern. The Director of the National Economic Council, Lalel Brainerd has been talking about Chinese overcapacity in a range of sectors. That was a big theme of the Treasury Secretary's recent trip to China, and older generation or so called legacy chips are certainly a part of that. You know, the US cut China off from the most advanced semiconductor chips and semiconductor manufacturing equipment in twenty twenty two, with these sweeping export controls. Then they got Japan and the Netherlands, two key allies in the supply chain, on board, with relatively the same type of restrictions, although there are some key differences in loopholes that officials are now pressing. The US officials are now pressing allies to try to close those. China's response was, Okay, We're going to double down where we can. You know, they had already been building massive, massive semiconductor manufacturing capacity. The many experts say that US restrictions only incentivize them to double down on that. They're still pursuing the cutting edge. You know, we spent a lot of time this year also thinking about Huawei and their chip making ambitions. Their top chip maker, Smith has reached a seven nanometer capacity, which is certainly considered advanced.
Not quite as advanced.
As you know, the type of chips that will be made in the US, but ahead o where the US wanted China to be. But China is outpacing the rest of the world multiple times over in capacity for older generation chips. The US is actually weighing tariffs on Chinese chip makers that produce these chips because they say, if China dumps these chips on global markets. This could be disastrous for US companies that also manufacture them. I mean, Texas Instruments is a big one, Global foundry is a big one. But the reality is that is not where the lions share of the money from the Chips Act is going. So you have this tariffs based approach, you also have some domestic subsidies. There's sort of a two billion dollars set aside specifically for older generation ships in the US Substate program. RAYMONDO has said that they will do quote multiples of that. They're already actually almost at that amount. They've allocated nearly like one point six one point seven billion to an older generation or legacy chips so far. But it's a limited pool of money. You have to decide where you're going to spend it. And they also US officials feel a real and pressing threat of having the capacity for advanced chips concentrated in Asia. To go back to your question about environmental permitting, I spoke with Congressman Mike McCall about this yesterday, because there was this effort in Congress last year to exempt some of these major projects from federal environmental permitting standards over concerns that Raymondo told me could delay projects for months, if not years. That effort died because of it died last year because of some actually internal Republican opposition. It seems that there's maybe some new life being breathed into that bill now. But this was really striking to me what the Congressman said, if China invades Taiwan and TSMC, we can't be filling out environmental compliance paperwork. And that's really the threat that the US feels on this is that, you know, such a large share of the most advanced tips in the world or manufacturing in Taiwan that is one of the most geopolitically risky regions in the world, and if we lost access to those chips, the global economy woul grind.
To a halt.
Joe, I think I mentioned this to you, but while you were visiting your mom recently, I went to go visit my dad, which means I am now full of right wing talking points. But I had the most surreal conversation with him where he was complaining that the US doesn't make enough stuff anymore. And then I asked him when he thought about things like the Chips Act or the Infrastructure Act and things like that, and then he started he basically started complaining that the money hadn't been spent yet, which for someone who was complaining about the deficit like five minutes before, was kind of yeah, surreal, I would put it. But Ken, no, no, not at all. Although actually that reminds me. My mom did listen to a recent episode, the one we did on agriculture, and she got mad at me because she said that I did, in fact have fresh fruit in my school lunches, not just fruit roll ups. So I feel the need to correct the record there, Mom, in case you're listening, thank you for the berries that I did in fact have in my lunch. Anyway, Mackenzie, I kind of wanted to ask you about the politic politicization aspect of all of this, like how much is that kind of complicating some of the story and some of the roll out, like it was a Bible part is in. You know, it had bipartisan support, the Chips Act, But it feels like as the money is actually getting dispersed, politics are creeping back into it.
That's certainly the case.
I mean, the most recent announcement was a six point one billion dollar grant for Micron, which is also in line to receive more.
Than that in loans.
And President Biden, when he went to upstate New York to announce that, called out Republicans who had been taking credit for the project coming to Upstate New York but voted against the Chips Act. You know, this was a bipartisan piece of legislation. There have been squabbles throughout from key champions saying, Okay, why are we giving so much to X company? Should we really be thinking about building child care facilities and having labor peace agreements if our concern is this is a national security program and we actually need to get the money out the door. You know, it's people like to take credit for things that seem to be successful. Senator Chuck Schumer, the Majority leader, his press really about the Micron award called it Schumer's Chips and Science Act. There are certainly senators who would say, actually, I was very involved as well. You know, this is a major part of the Biden administration's economic message. It's not just the Ship's Act. There's also the Inflation Reduction Act, which is a signature climate law, and the bipartisan Infrastructure Law, and these sort of three legs of the stool, if you will, are the core pillars of Bidenomics. This massive wave of industrial policy in a way that the US hasn't really pursued for over a generation. And there are lots of different goals attached. You know, Chips and science passed in a bipartisan way because it is a national security program. You know, we've discussed the risks that US leaders feel both on the lagging edge, you know, mature ship side, and also on the cutting edge side with that concentration in East Asia. But it's also an economic revitalization program. It's a jobs program, you know, by and talks about how he wants these to be good jobs, good paying jobs, good paying union jobs. There's actually an effort to reach a labor peace agreement for this massive micron facility. It would be only the third chip facility in the country to have a union if they're successful.
Okay, it's the bottom of the second inning.
You know, your job never ends. What's next? What are you watching for next?
Well, they still have some money to spend.
Okay, you know, these four big grants are certainly going to catch the most attention, but there's about six billion dollars left. That's not a small amount of money, right, and they need to make really strategic decisions about Okay, there are you know, a couple of big names still floating out there that you know, maybe we'll get some larger awards, but then there are six hundred statements of interest in this funding.
You know, we're talking.
About a lot of smaller skill projects. You know, there's all this conversation about this sort of valley of death in tech entrepreneurship. You know, we we support stuff that's ready for commercial production. There's also this cutting edge R and D that's happening. But what about companies that are just trying to get over the line, just trying to be able to stand up their factory, you know, employing forty people, employing one hundred people, making one hundred and fifty million dollar investment in the US, rather than a sixty five billion dollar investment in the US, which is what TSMC is doing. And so there will be a second wave of awards and a lot smaller denominations.
So that's one thing.
I think the permitting, the environmental permitting is a really big deal. Certainly if this permitting exemption actually has the life that Mike McCall thinks that it does. That would solve a lot of headaches for companies. It would also probably catch a lot of flat from environmental groups who point out rightfully so that this is an industry that uses toxic chemicals, that has a carbon footprint that's expected to double by twenty thirty. We need to be thinking about the environmental and sustainability costs with this dustrial build out. But whether companies are able to navigate permitting processes at the federal and at the state and local level will directly affect when these factories are able to open. And I would say maybe the biggest thing is workforce development, which is not something that we've touched on a ton, but is probably the single thing that comes up the most when I talk to everyone from executives down to administrators of community college programs. There was a great story, a great piece in the Washington Post recently about workforce training efforts for semiconductor technicians in Arizona, and there are lots of different approaches here. One that was mentioned in that story was this so called quick Start program, which is like a two week training program that Intel has worked to set up with community colleges in the area because you know, this is very high tech stuff, but it doesn't necessarily require a PhD to work in these factories. You know, there's all different types of workers that are needed to make these projects successful. Technician training program, you know, got a ton of national press when it was first announced. I visited in i want to say September or October, and I was told that only twenty percent of the graduates of that program had secured positions because of the simple fact that these factories are not yet open and these are two week training programs, and so you can imagine somebody who does this training program in twenty twenty three and then, you know, three years later, when there is an abundance of factory jobs available, they.
Don't remember what they learned in two weeks.
There's also efforts to do much longer, you know, year long training programs. There are efforts to you know, get young kids excited about semi conductor manufacturing. You know, there's all this talk about this is not like the sexy thing to work in in tech, and people are trying to.
Make it the sexy thing to work in.
There is a lot of workforce efforts happening on you know, we talked a lot about the three thirty nine billion dollar Chips Act program. There's eleven billion dollars at aside for research and development, and there are a lot of workforce efforts that they're trying to say up on that front. But you know, the US is tens of thousands of workers short, and these factories will not produce chips if there are not people to staff them.
I feel like fab factories trying to get over the line. It's very relatable. They're just trying to get over the line.
Tracy, Have I told you my idea for a name of a semiconductor company?
No, what, Well, I'm not.
It would be it would be called Fabulous Semiconductors, but the U would be like an apostrophe, would look like Fabless Semiconductors. I think that'd be a really cool name for a company, don't you think?
All Right, if someone ends up using that, you're going to have to like pay a copyright due to Joe.
Or maybe fabu less.
I think actually that would probably be the fabu Less would be the name of my fabulous Simmi.
Okay, okay, well, maybe you can apply to the Chips Act for some fund.
Just on the basis, on the basis of having a good name itself.
Yeah, do it all right?
Well, best of luck, you have six hundred competitors.
Thank you.
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