Between shuttered auto plants, skyrocketing component pricing, and ever-growing lead times, the ongoing semiconductor shortage is hard to miss. And while the Biden Administration’s massive infrastructure bill has garnered the lion’s share of media attention, Congress hasn’t forgotten about the chip shortage.

Introduced early this summer, the $52 billion CHIPs for America Act aims to bolster U.S. semiconductor supply chains and reduce reliance on Asia-Pacific foundry operators like Taiwan Semiconductor Manufacturing Co. (TSMC) and Samsung Electronics. And unlike the hulking infrastructure bill, the CHIPs for America Act has broad bipartisan support in the Senate.

The CHIPs for America Act

The bill would allocate roughly $52 billion to strengthen domestic semiconductor manufacturing capacity.

“America’s innovation in semiconductors undergirds our entire innovation economy … Unfortunately, our complacency has allowed our competitors – including adversaries – to catch up,” Senator Mark Warner (D-Va.), said in a statement.

Warner, who is one of 29 co-sponsors on the bill, argues that the U.S. needs to reinvest in semiconductor manufacturing as a point of national priority.

At the heart of the bill is a 40% refundable investment tax credit that proponents of the measure argue incentivizes the construction of domestic semiconductor fabs and the purchase of pertinent equipment. The tax credit will begin to fall off beginning in 2025 and eventually be phased out by 2027.

The bill also earmarks $10 billion to match state and local incentives offered to chipmakers for the purpose of new foundry facilities and provides more than $12 billion to U.S. agencies researching next-generation semiconductor technologies.

If passed, the bill would provide $2 billion for the Defense Advanced Research Projects Agency (DARPA), $3 billion for the National Science Foundation (NSF), $2 billion for the Department of Energy (DoE), and $5 billion to establish the Advanced Packaging National Manufacturing Institute under the Department of Commerce. The latter would be responsible for developing advanced microelectronic packaging in collaboration with chipmakers.

Beyond funding, the bill also calls on the president to establish a subcommittee on semiconductor leadership and creates a new program under the National Institute of Standards and Technology (NIST) to support U.S. manufacturing.

“This legislation would help stimulate advanced semiconductor manufacturing capabilities domestically, secure the supply chain, and ensure the U.S. maintains our lead in design while creating jobs, lowering our reliance on other countries for advanced chip fabrication, and strengthening national security,” Sen. John Cornyn (R-TX) said in a statement.

A supply chain breakdown

The bill comes amid a semiconductor crunch spurred by a post-COVID-19 tsunami of demand crashing up against already limited foundry capacity. In recent months, the shortage has crippled supply chains and sent pricing in many high-demand markets surging.

One of the highest-profile victims of the shortage has been the automakers. Late last month, General Motors was once again forced to curtail automobile production due to supply chain shortages.

A recent GlobalData report estimates the auto industry has lost between $60.9 billion and $100.5 billion in revenues so far this year as a result of ongoing semiconductor shortages. Worldwide, 155 plants have suffered shutdowns, with Ford and General Motors among the hardest hit, the report said.

“Losses will extend at least into Q3, but are expected to ease in Q4 as chip inventory is backfilled,” Calum MacRae, automotive analyst at GlobalData, wrote.

However, automakers aren’t the only companies feeling the pressure of the chip crunch. Many publicly traded technology companies have cited the semiconductor shortage as a potential, if not immediate, headwind in recent earnings calls.

Arista Networks this spring warned the chip shortage had pushed the networking vendor’s component lead times out by a year.

A few weeks later, Cisco CEO Chuck Robbins boasted the company saw its strongest demand in nearly a decade, but supply chain challenges, spurred by the chip shortage, were getting in the way.

And most recently, Dell Technologies warned supply constraints had forced the company to raise prices, calling semiconductors a chokepoint.

“In aggregate, the semiconductor industry needs more capacity,” COO Jeff Clarke said on the company’s second-quarter of fiscal 2022 earnings call.

Time, talent, and a lot of $$$

Unfortunately, all the money in the world won’t solve the semiconductor crunch overnight, regardless of whether the CHIPs for America Act passes or not.

Semiconductor manufacturing isn’t a fast endeavor to begin with, taking, on average, between 13 and 18 weeks to complete, Syed Alam, global semiconductor lead at Accenture, told SDxCentral. “Building additional capacity for manufacturing will take even more time and capital.”

TSMC’s $12 billion Arizona chip fab, announced in Spring 2020, isn’t slated to come online until 2024 at the earliest, and the same is true of Intel’s recently announced fabs.

Warner addressed this issue in a recent statement to the press, arguing that “while the impact of this funding will not solve the global semiconductor shortage overnight, the longer we wait, the worse this supply chain crunch will become.”

And while it’s true the bill would help to offset the cost of expanding foundry capacity, building out additional capacity remains an expensive prospect.

“Building a new fab alone can cost between $5 billion to $10 billion, depending upon the technology and capacity,” Alam said. To achieve self-reliance in this arena, he argues, “investments need to be made across the entire ecosystem - wafer manufacturing, assembly, and testing all the way down to the manufacturing of raw materials such as substrate, which has been in high demand.”

The bill does address one of the biggest challenges cited by Alam: talent.

“Talent also plays a crucial role in making such a project a reality,” he said. “From process and manufacturing knowledge to interpreting design documents and more, university partnerships and the competencies of experienced businesses are necessary to implement the process technology and industrialization methodology required for semiconductor manufacturing.”

Foundry operators aren’t waiting

Despite roughly $52 billion in subsidies on the line and broad industry support, the three largest foundry operators aren’t waiting around. Intel, TSMC, and Samsung have proactively announced hundreds of billions of dollars in capex spending over the next few years to bolster capacity and meet surging demand.

This spring, Intel, which has long operated its own internal fabs, announced its Integrated Design Manufacturing 2.0 – or IDM 2.0 – strategy and opened its foundry operations to third-party contracting under the new Intel Foundry Services business unit. Capping off the announcement, newly appointed Intel CEO Pat Gelsinger announced a $20 billion investment in two new cutting-edge foundries planned for its Ocotillo, Arizona, campus. The company is expected to announce additional foundries in the U.S. and Europe before the end of the year.

TSMC pledged $100 billion to expand its semiconductor fabrication capacity. Analysts expect this to translate into five “gigafoundries.”

Samsung Electronics said it would spend $205 billion over the next three years to bolster its semiconductor and biotech businesses. Roughly two-thirds of that funding will go toward expanding the use of extreme ultra-violet lithography-based, sub-14-nanometer DRAM and high-density – 200-plus-layer – 3D NAND flash products.

However, it remains unclear whether this spending will spawn additional foundry capacity in the U.S.

A UDN report this spring claimed TSMC was considering expanding its U.S. presence to as many as six fabs to meet growing demand. Meanwhile, Samsung is reportedly considering building a $10 billion foundry in Austin, Texas. If constructed, it's believed the plant would produce silicon wafers based on the company’s forthcoming 3-nanometer manufacturing process.

IDC analysts predict the semiconductor crunch is likely to wane long before any of these facilities come online. The analyst firm expects the semiconductor market to normalize by mid-2022, and anticipates capacity will outstrip demand by 2023 as foundry operators execute on expansion plans.