The Biden administration wants to grant subsidies to companies that manufacture electronic components to boost national production, but with conditions. Indeed, the White House has said it will require companies that win grants under the US Chips Act to share their excess profits with the US state. By doing so, the Biden administration wants to take a piece of the pie if semiconductor makers outperform with their new factories built on US soil.
In detail, companies that receive more than $150 million in direct funding “will be required to share with the U.S. government a portion of any cash flow or return that exceeds the claimant’s projections by an agreed threshold”, the Commerce Department said. Applicants for these substantial grants will be required to submit “a plan for how they will provide affordable and accessible childcare to their workers” to get them. In addition, the ministry expects “Profit sharing is only material where the project significantly exceeds its expected cash flow or returns, and will not exceed 75% of the recipient’s direct funding allocation”.
300 billion dollars of private investments already promised
With its 52 billion dollar plan adopted by the American Congress last summer, the American executive hopes to generate 500 billion dollars of private investments in electronic chips by 2030. For now, nearly 300 billion investment dollars have already been promised, according to the Biden administration, including 123.5 billion by Intel, 40 billion by TSMC and 17 billion by Samsung. These investments should make it possible to boost the production of semiconductors in the United States, which now represents only 12% of world production, against 37% in 1990.
To ensure that US government grants are dedicated exclusively to expanding US chip manufacturing capacity, the Chips and Science Act prohibits recipient companies from using the funding obtained to pay dividends to shareholders or make share buybacks. To avoid abuses, the text obliges companies to provide details of any plan to buy back their own shares over a period of five years. As part of this, Commerce will review the “commitments of a candidate to refrain from share buybacks”.
If the American Chips Act imposes many conditions on the manufacturers of electronic chips which eye on subsidies, the democratic senator Jack Reed estimates that the actors of the sector will find their account there. In his view, it is not a “free gift for multi-billion dollar tech companies” And “there is no downside to companies participating as they only have to share a portion of future profits if they do extremely well”. It now remains to be seen whether Intel and others are of the same opinion.