Few things cost more than a computer chip plant.
Two Intel factories under construction in Arizona will run $10 billion apiece – each as much as a dozen NFL stadiums. Just a handful of companies in the world can afford to spend that much, and some do it with considerable help from their governments.
Asian nations pour billions of dollars into their semiconductor industries, and competitors in the United States and Europe say those tax breaks and government subsidies explain why those countries dominate chip manufacturing.
Now, the domestic semiconductor industry wants U.S. taxpayers to chip in, too.
Bipartisan legislation before Congress would direct $52 billion to subsidize construction of new factories across the country. The proposal, known as the CHIPS Act, also provides billions for American companies’ research into the semiconductor technologies of tomorrow.
“It’s a competition between companies as much as it is a competition between nations,” said Al Thompson, Intel’s vice president for government relations. He said the federal money would give the U.S. the opportunity to reassert technological leadership.
For Intel, the need is all the more urgent as it commits tens of billions of dollars to build new factories – the industry calls them fabs – and overcome a decade of manufacturing failures. In addition to the two new Arizona factories, Intel says it’s close to choosing sites for a factory in Europe and a site somewhere new in the U.S.
Intel expects to spend up to $28 billion on its fabs in 2022, up from around $19 billion this year, as it races to expand with leading-edge facilities. The price tag has alarmed investors, and Intel is counting on several billion dollars from the CHIPS Act to help offset its costs.
The comeback plan represents a bet-the-company moment for Intel and its new CEO, Pat Gelsinger, who will be in Portland on Monday to take up the cause at the Oregon Business Plan’s annual leadership summit. Oregon is home to Intel’s largest and most advanced operations, but Monday’s talk will be the first time an Intel CEO has addressed a public audience in the state in more than a decade.
The CHIPS Act is a rarity in American politics, a major piece of new spending that has broad support from both Democrats and Republicans, who are united by concerns over the billions of dollars China is spending to create its own chip industry. Both the Trump and Biden administrations championed the legislation.
However, after the Senate approved the money in June -- as part of a larger package aimed at making the U.S. more competitive technologically -- the legislation stalled in the House as the chamber wrestled over other priorities.
Political observers expect the subsidies will pass in some form, either late this year or early in 2022. Taiwan Semiconductor Manufacturing Co. (TSMC) and Samsung are building new fabs in Arizona and Texas, respectively, reflecting the confidence those companies have that the U.S. will help pay for them.
That could be evidence the CHIPS Act is having its intended effect, even before it passes. Advocates say the money will help the semiconductor industry dig out of the acute chip shortage that has stalled production of everything from video game consoles to pickup trucks.
But skeptics worry the U.S. is committing too much money to aging technologies and fading companies, while others worry about an expensive arms race as nations compete against one another to lure the most advanced technology.
OREGON’S MAIN EXPORT
While much of the technology supply chain has migrated to countries with low wages, labor is a tiny component of a fab’s cost.
Manufacturing equipment is the primary expense. Sophisticated tools can be the size of a school bus and cost well over $100 million apiece. So, equipping an advanced fab costs several billion dollars.
Partly as a result, the chip industry has tended to coalesce in places with the most government support rather than the places with the lowest wages. Usually, that’s Asian nations like Taiwan and South Korea. But sometimes it’s Israel, Ireland or the United States.
Intel has saved $760 million in Oregon property taxes over the past five years, including $173 million this year alone. Samsung won similar exemptions for a new Texas fab.
Seven big semiconductor manufacturers operate fabs in the Portland area, among them Intel, Qorvo, ON Semiconductor and TSMC. Other businesses employ thousands of Oregonians supplying those factories with the raw materials and equipment to make their computer chips.
Oregon doesn’t appear positioned for more fabs in the near future, at least partly because the state doesn’t have huge parcels of readily available industrial land. Nonetheless, the state’s economy is tightly linked to the chip industry’s fortunes.
Oregon exported more than $13 billion in electronics, chiefly computer chips, in the first nine months of this year. Electronics accounted for nearly two-thirds of all the state’s exports.
That’s mostly thanks to Intel. The company engineers and manufactures each new generation of computer chips at its Ronler Acres campus near Hillsboro Stadium. It then precisely replicates that manufacturing process at fabs in Arizona, Israel and Ireland.
Intel has 21,000 employees at its Washington County campuses and is hiring hundreds more as it wraps up a $3 billion expansion of its D1X research fab, which it expects to complete early next year. That’s roughly a fifth of Intel’s global workforce and more than it employs anywhere else.
In recent years, though, Intel has sought to keep a low profile in Oregon. Two prior CEOs – Brian Krzanich and Bob Swan – never spoke in Oregon, other than to Intel employees. No Intel CEO has appeared publicly in the state since Paul Otellini in 2011, who spoke at an event in Portland with former Energy Secretary Steven Chu.
Neither Krzanich nor Swan were comfortable in front of the camera. But the new CEO, Gelsinger, has taken a very different approach since Intel hired him in January.
On “60 Minutes” and on CNBC, at meetings in the White House and in Brussels, Gelsinger has been touring the world and touting the need for American and European governments to open their wallets to bolster his industry.
The Semiconductor Industry Association says the U.S. share of global chip production has fallen from 37% in 1990 to just 12%.
Ann Kelleher, Intel’s vice president in charge of technology development, testified at a congressional hearing Thursday that it is 30% cheaper to build a fab in Asia than in the U.S., where Intel makes most of its chips. She said that’s primarily because of the government support companies receive overseas.
“We’re at a fundamental disadvantage compared to some of the Asian countries when it comes to basically developing and manufacturing our chips,” said Kelleher, who is one of Intel’s top Oregon executives. “So if we lose our ability to actually continue to maintain that leading-edge manufacturing, it means as a supply chain we’re completely reliant on the rest of the world and I don’t believe that’s a good place for the United States to be.”
Intel is in an especially precarious spot, having already ceded its leading-edge capacity. The company, the only advanced chip manufacturer based in the U.S., is now embarking on an ambitious, and expensive, turnaround plan.
Intel lost its technological lead after a series of manufacturing failures led to delays in three successive generations of new chip technologies. That prompted Intel to flirt with the idea of outsourcing its most advanced production to rivals in Taiwan and South Korea.
Instead, Intel hired Gelsinger and bought into his plan to spend tens of billions of dollars to rebuild the company’s manufacturing and research organizations and expand into contract manufacturing. Intel lost $26 billion in market value on one day in October, after Gelsinger priced out his plan for investors.
The fortune Intel plans to spend next year on its factories is just the starting point. The company said those costs will rise in future years. So Intel wants government support to sell investors on Gelsinger’s agenda.
MAKING SAUSAGE
That explains why Gelsinger will be in Portland on Monday. The CHIPS Act and its $52 billion in potential funding are far less straightforward.
The Senate bundled the semiconductor subsidies into a larger bill called the U.S. Innovation and Competition Act, which passed in June. That $250 billion package hasn’t had its day in the House yet, though Democratic leadership in each chamber agreed last month to begin negotiating a package for approval.
Oregon’s congressional delegation supports the CHIPS funding and continued pushing for its passage this week. Both of the state’s U.S. senators will attend Gelsinger’s talk Monday.
“It is clear that we have a lot of work to do to expand and preserve the role of the United States as a global leader in semiconductors,” Rep. Suzanne Bonamici, D-Beaverton, said in a congressional hearing Thursday. “It is also clear that we must swiftly provide funding through the CHIPS Act, which will help reinvigorate our nation’s semiconductor industry.”
The bill that passed the Senate allocates about two-thirds of the CHIPS Act’s money to fund manufacturing, a popular provision that could bring jobs to the U.S. and high-profile new factories -- projects politicians love to trumpet. The rest of the money would go to fund research, a long-term investment whose benefits play less well on a podium.
Those priorities should be reversed, according to Bryan Clark, a senior fellow with the Hudson Institute, a conservative think tank in Washington, D.C. He said the industry should seek more private investment for new fabs while the federal government should emphasize new technologies that could help the U.S. recapture the technological lead.
“Giving money to Intel, who has not proven the ability to do it, seems like a way to guarantee manufacturing at the current node size,” Clark said.
“The U.S. is not going to regain an advantage in this industry unless it goes to the next generation of technologies,” he said. “There’s just no way to beat TSMC and Samsung on the current generation.”
Intel wins either way, since its manufacturing and research are tightly integrated. But it will have to compete for whatever research dollars come out of the CHIPS Act with many other companies, from AMD to NVIDIA, which have large U.S. research organizations but outsource their manufacturing to Asia.
The chip industry is notoriously cyclical, in part because it takes years to build each new fab. By the time new projects are complete, the economy may have cooled and demand may have evaporated.
While semiconductors are in extremely short supply now, severely exacerbating to the global supply chain tangle, a flood of government money could spur a building boom – potentially creating a new problem.
Research firm IDC projected in September that the chip industry could be facing a glut as soon as early 2023, which could drive down prices and jeopardize companies’ ability to invest in new fabs.
Such worries notwithstanding, observers are confident the CHIPS Act will advance – they’re just not sure how.
It’s been six months since the funding passed through the Senate and some in Congress have floated the idea of bundling it into the annual defense spending authorization bill, a must-pass piece of legislation.
Complicating matters, other countries are already maneuvering to respond to the CHIPS Act with their own funding. Bloomberg reported last month that Japan is positioning itself to pay up to half the cost of new fabs, aiming to lure some of the same manufacturers the U.S. hopes to attract.
The Semiconductor Industry Association says South Korea has spent at least $7 billion subsidizing its chips industry over the past 20 years. Israel has spent $2.5 billion during that span, with much of the money going to Intel, which is that country’s largest private employer.
Europe is planning its own version of the CHIPS Act, and industry estimates say China has put $50 billion into its semiconductor industry over the past 20 years.
To critics, that’s a sign of an escalating cycle of corporate subsidies the U.S. shouldn’t join. To Intel and the chip industry, though, it’s a signal of a technological race the U.S. can’t afford to lose.
“The funding coming from the CHIPS Act will start helping to turn the tide,” Intel’s Kelleher said Thursday, “and start eliminating the erosion of the manufacturing going off site and start bringing it back on site, to the U.S.”
-- Mike Rogoway | mrogoway@oregonian.com | Twitter: @rogoway | 503-294-7699