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The U.S. CHIPS Act: What’s in it for you?

Peter Krass's picture

by Peter Krass on 08/02/2022
Blog Category: devices

That’s the U.S. Creating Helpful Incentives to Produce Semiconductors Act, better known as the CHIPS Act.

First proposed in 2021 and then almost left for dead, the CHIPS Act has now been approved by both the U.S. Senate and House. All that’s left now is the almost-certain signature of President Biden. Then this act becomes law.

[Aug. 9 update: Pres. Biden signs the CHIPS Act into law.]

So what’s in it for tech providers?  

In the short term, probably not much. The kinds of actions the act is intended to stimulate won’t happen overnight.

But in the long term, assuming the act’s incentives work as intended, you could be enjoying a lot easier access to the digital components you need.

Chips goals

Before explaining that, let’s take a quick look at what the CHIPS Act is all about. Here are its stated goals:

> Strengthen the United States’ position in semiconductor research, development and manufacturing

> Provide incentives to restore U.S. leadership in semiconductor manufacturing

> Grow the U.S. ecosystem for microelectronics and semiconductor R&D

> Secure U.S. supplies for critical sectors

The value of the total package is $280 billion. That includes $52 billion in subsidies to encourage companies to manufacture semiconductors in the United Sates. And $24 billion in tax incentives and other provisions.

Chips chain

So how’s that going to help you? Mainly, by improving the supply chain. How? Mainly by moving manufacturing closer to you and your primary suppliers.

The supply-chain issues experienced during the early days of the pandemic (and to some extent even now) were due in large part to the adoption of what’s known as Just-in-Time manufacturing. The idea is that instead of amassing huge inventories, manufacturers can make products only after they’ve received an actual order. You build the product “just in time.”

It’s a great idea, as long as you have a reliable and fast supply of parts. Without that, your deliveries will be slow, leaving customers impatient, frustrated and looking for alternatives.

Alas, that’s exactly what happened in 2020. Something like 80% of all digital components are now made in Asia. And many Asian factories—notably those in China—reacted to the pandemic by simply shutting down.

So at the time, when a PC or server OEM needed more chips, they were told, “Sorry, the factory is closed.” So much for “just in time.”

The CHIPS Act should help. Intel, for one, has said the act’s incentives will allow it to build 2 new fabs in Ohio. All things being equal, a company building servers in California will get chips faster from Ohio than it would from China.

Chips ahead

Right now, that’s not much of an issue because demand is so soft. For example, PC shipments fell by 15% in the second quarter, according to IDC. And during Intel’s second-quarter earnings call with analysts last week, the company attributed its 25% downturn in client-computing sales to OEMs working off their inventory.

In other words, PC makers optimistically ordered lots of components, only to find the demand simply wasn’t there. Once PC makers realized this, they stopped ordering new components and instead focused on selling what they had in inventory.

However, there is the little matter of Windows 11. While plenty of older PCs were able to run Win10, many probably won’t be able to handle Win11. Earlier this year, Microsoft said any PC older than 4 years shouldn’t run Win11.

So users, especially those in business, will want new PCs.

Granted, this won’t happen overnight, either. Microsoft says Windows 10 support extends through Oct. 14, 2025. That’s more than 3 years from now.

To learn even more, check out the latest "In the Zone" video podcast...in it, Ed Hannan of The Channel Co. and I discuss the ins and outs of the CHIPS Act. Watch it now:

 

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