US grants chip supplier $162 million to boost critical industries

The Biden administration on Thursday announced plans to provide $162 million in federal grants to Microchip Technology, an Arizona-based semiconductor company that supplies the automotive, defense and other industries.

The deal is the second award announced under a new program aimed at helping ensure that U.S. companies that rely on semiconductors have a stable supply. Last month, the Biden administration announced a $35 million grant to BAE Systems, a defense contractor.

The investment will allow Microchip to increase its production of semiconductors used in cars, airplanes, home appliances, medical devices and military products. The administration said it expected the award to create more than 700 construction and manufacturing jobs.

“Today’s announcement with Microchip is a significant step in our efforts to bolster the supply chain for legacy semiconductors found in everything from cars to washing machines to missiles,” Commerce Secretary Gina M. Raimondo said in a statement. release.

Microchip plans to use $90 million to modernize and expand a facility in Colorado Springs and $72 million to expand a facility in Gresham, Oregon. Management said the financing would help Microchip triple its production at the two sites and decrease the company’s dependence on foreign facilities. to help manufacture your products.

The company’s chips are not cutting-edge, but they are key components of almost all military and space programs. Microchip is one of the largest suppliers of semiconductors to the defense industrial base and a designated trusted foundry for the military. It also plays a crucial role in industries that are important to the national economy, U.S. officials said.

That role became more evident during the pandemic, when the global chip shortage drew attention to domestic suppliers like Microchip. With foreign chip factories closing to help contain the virus, automakers and other companies scrambled to secure supply. As a result, demand for Microchip’s products increased.

That shortage also helped motivate lawmakers to craft a funding bill aimed at shoring up American manufacturing and reducing reliance on foreign chips. The CHIPS and Science Act of 2022 gave the Commerce Department $53 billion to invest in the semiconductor industry, including $39 billion in federal grants to encourage chip companies to establish facilities in the United States.

The Commerce Department is expected to begin announcing larger awards in the coming months for major chip manufacturing facilities owned by companies such as Intel and Taiwan Semiconductor Manufacturing Company, known as TSMC.

Microchip previously announced plans to increase its capacity in both Oregon and Colorado, but government funds would be used to expand those improvements and bring more production to the United States, officials said. According to its filings, Microchip relies on outside facilities to manufacture a significant proportion of its products (approximately 63 percent of its net sales in 2023), a relatively common practice in the industry.

While the focus has been on ensuring that U.S. facilities can make some of the most advanced chips in the world, there are growing concerns about Chinese investments in less advanced semiconductors, also known as legacy chips, that help power cars, computers, missiles and dishwasher.

U.S. officials wonder whether such investments could increase America’s dependence on China or allow Chinese companies to undercut their competitors. The Commerce Department has said it plans to begin a survey this month to identify how American companies are sourcing their legacy chips and reduce security risks related to China.

The agreement announced Thursday is a non-binding preliminary agreement. The Department of Commerce will conduct due diligence on the project before reaching final award terms.

The department said it had received more than 570 declarations of interest and more than 170 pre-applications, full applications and conceptual plans from companies and organizations interested in funding.

Don Clark contributed reporting from San Francisco.

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