The CHIPS Act: Fueling the U.S. Semiconductor Industry

The semiconductor industry is a cornerstone of modern technology, underpinning everything from smartphones to autonomous vehicles. To maintain its global competitiveness in this critical sector, the United States introduced the CHIPS Act in August 2022. This comprehensive legislation seeks to revitalize domestic semiconductor manufacturing, enabling the U.S. to regain its position as a semiconductor powerhouse. In this article, we will delve into the CHIPS Act and its potential implications for the industry.

The CHIPS Act: A Boost for U.S. Semiconductors

The CHIPS Act, officially known as the Creating Helpful Incentives to Produce Semiconductors for America for Necessary Defense Act, is designed to address the challenges facing the U.S. semiconductor industry. Its primary objective is to enable the United States to compete effectively with semiconductor manufacturing giants like South Korea and Taiwan.

The act allocates significant financial resources, amounting to hundreds of billions of dollars, to bolster the U.S. semiconductor sector. This influx of funding is poised to rejuvenate the industry, similar to the way water surges through a fire hose, revitalizing the landscape.

Incentives Galore: Where the Money Flows

The CHIPS Act comprises several key incentives and funding allocations:

1. Scientific R&D and Commercialization: The act allocates $200 billion for scientific research and development (R&D) and commercialization efforts. This substantial investment aims to enhance the technological capabilities of U.S. semiconductor manufacturers.
2. Chip Manufacturing: With $39 billion earmarked for chip manufacturing, the act intends to support the expansion and modernization of semiconductor manufacturing facilities within the United States. This funding will help boost domestic production capacity.
3. R&D and Workforce Development: Recognizing the importance of innovation and a skilled workforce, the CHIPS Act allocates $13 billion for chip R&D and workforce development. This investment seeks to equip the industry with the necessary expertise to thrive.
4. Investment Tax Credit: To further incentivize semiconductor companies, the act offers a 25% investment tax credit, totaling $24 billion. This credit provides financial relief and encourages capital investments within the industry.

The Waiting Game: Disbursement Delays

Despite the passage of the CHIPS Act more than a year ago, the disbursement of funds has not yet commenced. This delay primarily stems from the requirement for semiconductor companies to apply for funding. The application process has been ongoing for several months, with companies vying for a share of the financial support.

However, the wait is nearly over. The U.S. government is poised to allocate billions of dollars to selected semiconductor companies. Starting on February 1, 2024, a substantial infusion of capital will initiate the industry’s transformation.

Focused Funding: Supporting Semiconductor Facilities

The upcoming funding wave will prioritize the construction, expansion, and modernization of commercial facilities in the United States dedicated to semiconductor materials and manufacturing equipment. This targeted approach aims to address critical supply chain issues and enhance domestic semiconductor production capabilities.

It is essential to note that the February 1 deadline primarily pertains to concept plans for smaller supply chain projects within the semiconductor industry. The most promising concepts will receive invitations to submit comprehensive applications, with specific timelines yet to be determined.

Skywater Technology: A Key Player in Reshoring

One company that stands to benefit from the CHIPS Act is Skywater Technology (SKYT). Skywater has consistently emerged in discussions surrounding the “reshoring” of semiconductor fabs, positioning itself as one of the few remaining pure-play U.S. semiconductor manufacturers.

Skywater’s resilience can be attributed to its focus on government contracts and military-related chip production, which has contributed to its survival over the years. The company currently operates one primary foundry in Minnesota, along with a smaller R&D facility in Florida. Additionally, Skywater has ambitious plans to construct a $1.8 billion facility in Indiana, contingent on CHIPS Act funding.

Potential Catalysts and Considerations

Investors eyeing Skywater Technology should be aware of potential catalysts and challenges. Given its status as a relatively small company, market volatility may be more pronounced, and share prices could experience fluctuations.

However, significant announcements related to CHIPS Act funding or government contracts may drive stock movements. With a market capitalization of approximately $400 million and a revenue of less than $300 million, Skywater’s share price may respond to key developments in the semiconductor industry.

Analysts anticipate Skywater’s transition to profitability in the latter half of the year, buoyed by government funding and contracts. The company’s plans to establish semiconductor packaging operations in Florida further underscore its growth potential.

SkyWater and Deca Technologies Partner for Department of Defense FOWLP Expansion

SkyWater Technology and Deca Technologies have initiated a significant new Department of Defense (DOD) endeavor aimed at enhancing domestic fan-out wafer level packaging (FOWLP) capabilities, catering to both government and commercial clientele. This ambitious project is made possible through a five-year DOD contract recently granted to Osceola County and SkyWater Florida, earmarked for the establishment, tooling, and expansion of the Center for Neovation. With an initial worth of $120 million over the span of five years, the contract also encompasses options for an additional $70 million, potentially yielding a total value of up to $190 million. Notably, SkyWater is the inaugural domestic licensee of Deca’s M-Series and Adaptive Patterning solutions, facilitating the reshoring of the semiconductor supply chain.

This collaborative effort signifies a crucial step in strengthening the United States’ semiconductor capabilities and reinforcing its position in semiconductor manufacturing. The partnership between SkyWater and Deca Technologies underscores the growing significance of domestic semiconductor production, particularly in the context of national security and technological innovation. The Center for Neovation is poised to become a vital hub for advancing FOWLP technologies, benefitting both the government and private sector, as it contributes to bolstering the nation’s semiconductor industry resilience and self-sufficiency.

Final Thoughts…

The CHIPS Act represents a pivotal moment for the U.S. semiconductor industry. As the government prepares to allocate substantial funding, semiconductor companies are poised to undergo a transformation that will enhance domestic manufacturing capabilities and strengthen the industry’s competitiveness on a global scale. Amid this backdrop, companies like Skywater Technology are well-positioned to thrive, potentially reshaping the semiconductor landscape in the United States. Investors will closely watch developments in this dynamic sector, anticipating the ripple effects of the CHIPS Act.