Introduction: The background shows that in the “Chip and Science Act” passed by the US Congress last year, the federal government was authorized to provide US$52.7 billion in subsidies for the semiconductor industry. Among them, US$39 billion will be used for subsidies to expand and build new semiconductor factories, US$13.2 billion will be used for R&D and labor training, and US$500 million will be related to strengthening the global industrial chain.
According to the latest news on March 1, US Business B released a series of documents on its official website, marking that the application process for the US$50 billion chip industry subsidy is about to start.
It is reported that the US business b revealed that the specific subsidies will be issued in the form of cash, federal loans or debt guarantees. The proportion of the specific subsidy still needs to be evaluated on a case-by-case basis. However, American Business B also mentioned in the guidelines that the sum of various subsidies is not expected to exceed 35% of the overall project expenditure, and the direct cash subsidy for most projects will fall between 5% and 15% of the capital expenditure.
For applicants, in addition to the project itself having to comply with the Biden government’s “semiconductor vision“, they also need to prove their own financial status, financing capabilities, and the long-term commercial viability of the project itself. Applicants also need a commitment to developing and maintaining a highly skilled and diverse workforce. For companies applying for more than $150 million in subsidies, they will also be required to provide “affordable, high-quality childcare services” for construction workers and employees close to the project.
If it is not a problem for most semiconductor companies to get the nursery, the next series of requirements will make many companies feel uncomfortable.
U.S. Commerce B stated in the document that applicants who accept funds exceeding US$150 million need to reach an agreement with the government. If the profitability of the project exceeds expectations, the applicant needs to return a certain percentage of funds to the government after reaching the agreed threshold. More importantly, the applicant is prohibited from using the subsidy of the Chip Act for dividends and stock repurchase, so the applicant needs to provide the government with a stock repurchase plan for the next 5 years. At the same time, the applicant’s efforts to “restrain and limit stock repurchases” are also a consideration in the review process.
Among U.S. stock semiconductor companies, Texas Instruments has promised investors that all surplus cash flow will be used for dividends or stock repurchases. Intel is also known for its generous dividends. In order to receive subsidies from the US government, these companies also need to adjust their measures to reward shareholders.
U.S. business b also emphasized that the subsidy will be released in batches according to construction and operation milestones. If the applicant fails to meet the commitment, measures such as suspending the grant, terminating the subsidy or requiring the return of all funds will be taken as appropriate.
U.S. Secretary of Commerce Raimondo said that the application conditions for the rules may be more difficult than many companies initially expected. The Ministry of Commerce needs to see the financial model of each project to be sure of the sustainability and financial feasibility of the project.
For non-U.S. semiconductor companies, restrictive provisions of considerable concern were also briefly mentioned in Tuesday’s filing. For example, if the applicant conducts joint technology research and development or technology licensing with “concerned overseas entities”, it will need to return all subsidy funds. At the same time, after the applicant successfully obtains funds, it cannot conduct “significant-scale transactions” such as production expansion in “concerned countries” within the next 10 years, but there is no clear definition of “significant”. U.S. business b also stated that it will give further explanations for these requirements in the near future.
The key point is that American Business b announced that companies can submit declarations of interest from now on, the pre-application process will officially start at the end of March this year, and the process of submitting a full application will begin at the end of June.
Post time: Mar-03-2023