Biden administration chooses military supplier for first Chips Act grant

The Biden administration announced Monday that BAE Systems, a defense contractor, would receive the first federal grant from a new program aimed at bolstering U.S. manufacturing of critical semiconductors.

The company is expected to receive a $35 million grant to quadruple its 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.

This award is the first of many expected in the coming months as the Department of Commerce begins distributing the $39 billion in federal funding authorized by Congress as part of the CHIPS and Science Act of 2022 The money is intended to encourage the construction of chip factories in the United States. United States and re-attract a type of key manufacturing industry that has moved offshore in recent decades.

The decision to select a defense contractor for the first contract, rather than a commercial semiconductor factory, was intended to underscore the administration’s focus on national security, officials said.

At an event at BAE Systems in Nashua, New Hampshire, Commerce Secretary Gina Raimondo said the United States has become “dangerously dependent” on a few Asian countries for its chips, including technology aimed at to military systems. Posters showing an unmanned drone, fighter pilots and a jet engine were displayed behind her.

“In order to defend our great country, we must make the chips that go into military equipment in the United States of America, by Americans,” Ms. 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 large semiconductor manufacturing facilities run by companies like Intel, Samsung or Taiwan Semiconductor Manufacturing Company, known as TSMC. Ms. Raimondo said that by next year the department would 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 Department of Commerce had “deliberately” chosen a relatively modest award as its first grant, but said larger sums would be announced to other businesses next year. Awards for facilities making the most advanced chips will likely be announced in the early months of 2024, she said in an interview.

“Basically, you will see, across the country, big expansions in semiconductor manufacturing and in the supply chain,” she said.

Semiconductors originated in the United States, but the country now makes only about a tenth of the chips made in the world. While U.S. chipmakers still design the world’s most advanced products, much of the world’s production has migrated to Asia in recent decades as companies seek to cut costs.

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

A global chip shortage during the pandemic has shuttered auto factories and battered the U.S. economy, highlighting the risks of supply chains that are beyond America’s control. The chip industry’s heavy reliance on Taiwan, a geopolitical hotspot, is also seen as an untenable security threat given that China views the island as a breakaway part of its territory and has spoken to recover it.

“When we talk about supply chain resilience, this investment is about building 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 that the program would help fund are produced in the United States, but administration officials said the money would allow the company to modernize its aging machines and make the facility more efficient, thereby reducing half the cost of chips manufactured in the factory.

BAE, in part through its 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 aircraft-to-aircraft communications.

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

Like other grants in the program, funding would be released to the company over time, once the Department of Commerce has completed due diligence on the project and as 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 U.S. chip industry, which would encompass the industry’s most cutting-edge manufacturing and research, as well as factories pumping out older types of chips and various types of suppliers to make the chemicals and other raw materials that feed into chip facilities. need.

Part of the program’s goal has been to establish a secure source of chips to power products needed by the U.S. military. The supply chains that power weapons systems, fighter jets and other technologies are opaque and complex. Chip industry executives say some military contractors have surprisingly little understanding of the origin of some semiconductors in their products. At least part of the chip supply chains that power U.S. military products go through China, where companies make and test semiconductors.

Since chip legislation was first introduced in early 2020, chipmakers have announced more than 220 billion dollars into new manufacturing facilities in the United States in hopes of earning some of the federal money. The law also provides a 25 percent tax credit for funds that chip companies spend on new factories in the United States.

This funding will be a test of the Biden administration’s industrial policy and its ability to select the most viable projects while ensuring that taxpayer dollars are not wasted. The Commerce Ministry has set up a task force of around 200 people who are currently reviewing companies’ requests for funds.

Technology experts expect the law to help reverse a three-decade decline in the U.S. share of global chip manufacturing, but it’s still unclear exactly how much of the industry the program will be able to to recover.

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

Industry executives say the cost of operating 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 installations, as well as a wide pool of skilled engineers and technicians.

Chris Miller, a professor at Tufts University and author of “Chip War,” a history of the industry, said there was “clear evidence” of a major increase in investment in the supply chain of semiconductors in the United States due to law.

“I think the big question that remains is how sustainable these investments will be over time,” he said. “Are these one-off operations or will they be followed by second and third rounds for the companies concerned?

Don Clark reports contributed.