Billions Start Flowing to Chip Makers For New U.S. Factories

The GlobalFoundries award announced Monday is contingent on a round of due diligence before a final agreement is reached. The money will be released in stages as the projects reach construction and production milestones.
The GlobalFoundries award announced Monday is contingent on a round of due diligence before a final agreement is reached. The money will be released in stages as the projects reach construction and production milestones.

Summary

The Biden administration is pledging $1.5 billion in grants to GlobalFoundries in the first major award to revitalize the domestic semiconductor industry.

The U.S. government is giving chip maker GlobalFoundries $1.5 billion in grants to build and expand facilities in New York and Vermont, the first major award in a program that aims to reinvigorate domestic chip production.

The award from the Commerce Department kicks off what is expected to be a series of cash injections into semiconductor manufacturing projects in Arizona, Texas, New York and Ohio in the coming weeks. Chip makers Intel, Taiwan Semiconductor Manufacturing, Samsung Electronics and Micron Technology have all submitted applications for the government to cover a portion of the billions of dollars it costs to build cutting-edge factories.

The GlobalFoundries award announced Monday is contingent on a round of due diligence before a final agreement is reached. The money will be released in stages as the projects reach construction and production milestones.

“The domestic production of these chips will provide more supply chain stability to the auto and aerospace industries across the United States that currently rely on the shipment of these chips from overseas," Vice President Kamala Harris said.

The grants, which have been under negotiation for months, are a cornerstone of the $53 billion Chips Act. The 2022 act, pushed by the Biden administration and a bipartisan group of lawmakers, outlined new investments in chip research and production after the U.S.’s share of global chip manufacturing dwindled to around 12% in 2020, from 37% in 1990.

The effort dovetails with a growing urgency among governments, manufacturers and chip users worldwide to shore up the chip-making industry. Chips are now seen as crucial resources that have national-security implications, similar to oil.

“During the pandemic, we faced a shortage of chips, which led to shutdowns and layoffs and furloughs of thousands of hardworking Americans in automotive manufacturing sites all across the country," Commerce Secretary Gina Raimondo said in a call with reporters. “Today’s announcement will ensure that this doesn’t happen again."

In addition to boosting domestic chipmaking, the U.S. has sought to limit China’s influence in the industry by imposing stricter export controls. Among those moves, it has cut China off from advanced semiconductors used in artificial-intelligence computing over worries that they could be used in military and cyber-espionage operations.

For the Biden administration, the Chips Act has been a signature initiative and the president has highlighted it as he campaigns for re-election. It has taken the Biden administration more than a year to set up the office that oversees the grant program and start making big awards, which has frustrated some industry executives. More than 170 companies have applied for money.

The rollout comes as the chip industry seeks to recover from an extended downturn. Global chip sales fell 8.2% in 2023 to $526.8 billion, although the pace of sales picked up in the second half of 2023.

Some of the biggest chip makers such as TSMC and Intel have slowed construction on factories from their initial plans. The chip makers have said they are committed to finishing their projects, however.

The $1.5 billion award to GlobalFoundries will help fund a new chip factory in Malta, N.Y., a town about 30 miles north of Albany, and expand existing facilities there, according to the Commerce Department. GlobalFoundries is a major manufacturer of chips for cars, and last year reached a long-term supply agreement with General Motors.

The new investment will help the company triple its manufacturing capacity in New York over the next decade, the Commerce Department said.

Another factory in Burlington, Vt., will be updated to manufacture gallium-nitride chips at high volume that are critical in electric-vehicle and telecommunications applications.

In addition to the grant funding, the U.S. is making $1.6 billion of loans available to the company. The total potential investment in the projects would be about $12.5 billion, with the government grant and loan covering a portion of the cost.

The projects are expected to create 9,000 construction jobs and 1,500 manufacturing jobs. GlobalFoundries is also agreeing to support workforce-development initiatives and extend an existing $1,000 annual child care subsidy to construction workers.

Before Monday’s award, the office within the Commerce Department that oversees grants had made two earlier awards. The first, in December, was worth $35 million and went to BAE Systems. The second, in January, was worth $162 million and went to Microchip Technology.

Raimondo said that there would be “many more" announcements in the coming months.

Chip-industry executives have said they are expecting big awards to be announced before President Biden’s State of the Union address on March 7. Intel Chief Executive Pat Gelsinger attended the address in 2022.

Write to Asa Fitch at asa.fitch@wsj.com

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