Gartner speaks out on the impact of the CHIPS and Science Act bill

In keeping with his Build Back Better promise, President Joseph Biden signed a landmark bill into law that will provide more than $52 billion in subsidies for semiconductor production and research.  

Known as the CHIPS and Science Act, the bill is intended to help the United States regain a leadership role in the manufacturing of semiconductor chips. Although the United States once held that role in that area, chip production has fallen off significantly here in recent years. That was not lost on lawmakers, who passed the CHIPS and Science Act bill in late July. The bill received a rare bipartisan vote in support. President Biden signed the bill into law on Tuesday.

Just how much chip production has decreased in the U.S. was made evident during the COVID-19 pandemic and rising political tensions between the U.S. and China. Production and imports of computer chips from abroad were dramatically reduced, and the U.S. was unable to produce near the quantities required for several products.

Quite simply, the CHIPS bill is in response to the great imbalance in the regional share of chip manufacturing, Gartner Vice President Gaurav Gupta told VentureBeat.

“There is a very strong reliance on Asia – especially Taiwan – for computer chips,” Gupta said. “This got exposed during the recent chip shortages, and highlighted due to geo-political tensions between the U.S. and China.”

In addition to chip manufacturing, there are various other aspects of the chip manufacturing supply chain for which the U.S. is heavily dependent on Asia, Gupta said. Meanwhile, semiconductors have become critical, not just for technology leadership, but also for national security.

“It was time to establish policies to promote a domestic chip manufacturing ecosystem. Asian governments have been doing this for a while, and we needed a common level on the playing field to compete,” Gupta says.

Breaking down chip manufacturing

To understand what’s at stake, Gupta says it’s important to consider the breakdown on where computer chips are manufactured today:

• 75% are produced in Asia, including the combination of Taiwan, South Korea, Japan and China
• 11%-12% are produced in the United States
• 7%-8% are produced in Europe
• The remainder are produced in Malaysia, Singapore and Thailand

What the CHIPS Bill should accomplish

There are four key areas where the CHIP bill should have an impact, Gupta said:

• Attract chipmakers and outsourced semiconductor assembly and test (OSAT) players to establish facilities in the US. We also expect the supporting ecosystem to also grow, including for raw materials, raw silicon wafers, chemicals, gases, etc. required for chip production.
• Establish ‘China guardrails’ to prevent companies leveraging funds from the CHIPS Act from investing in China, and this will hurt China.
• Create incentives for research and development in chip manufacturing and packaging/testing in the U.S., which is necessary to fuel innovation.
• Support workforce development for the semiconductor industry. This is needed for supporting the strong growth of the industry expected over the decade.

It’s still too early to celebrate

As much as the CHIP bill is good news for the U.S. economy, Gupta cautions that it’s a bit early to celebrate the full impact.

“I think the intent needs to be defined — whether it is achieving self-sufficiency or to extend or improve chip supply chain resiliency. But, in any case, it is the right first step,” Gupta says.

“One can argue the amount is less and we needed more for a serious effort. But this is a strong indication of the recognition of semiconductors by the government, and that they have policies to support this industry,” Gupta says.

Success of the intent will depend not just on these grants and tax breaks, but also on how money is allocated and tracked, in the execution by companies, and with the consistency in government policies, Gupta said.

“As a strategy it is a strong step. But we need to wait to celebrate. It is a marathon. Remember, it took decades for the ecosystem to shift to Asia, and it will take years to make any decent change in that,” Gupta said.

Originally appeared on: TheSpuzz