By Joe Light
President Joe Biden was in upstate New York on Thursday to tout $6.1 billion in grants to the memory chip manufacturer Micron Technology, one of several chip makers receiving subsidies under 2022's CHIPS and Science Act, a centerpiece of Biden's economic program.
While the money isn't chump change, it reflects today's politics, far more than the underlying economics of chips.
Micron joins several other chip makers getting money under the CHIPS Act, including Intel, GlobalFoundries, Samsung Electronics, and Taiwan Semiconductor Manufacturing. Biden's Commerce Department said it would allocate about $28 billion for grants to leading-edge chip companies. With the Micron announcement, all but $400 million of that has been doled out, says Owen Tedford, an analyst with Beacon Policy Advisors in Washington.
There's still money on the table. The act allows for up to $75 billion in loans, most of which still hasn't been allocated, Tedford said.
While the subsidies are jump-starting U.S. chip manufacturing, the industry is contending with forces that are turning some recipients into winners, while others struggle.
Taiwan Semiconductor and Micron have been winners this year, up 31% and 28%, respectively. TSMC makes AI chips for Nvidia, Advanced Micro Devices, and others (including Intel, ironically), riding the massive AI wave. Micron is benefiting from a surge in demand for AI-related memory chips.
It has been a tougher year for investors in Intel and GlobalFoundries. Intel is investing billions of its own to compete in the foundry business with TSMC, generating substantial losses in the process, while struggling competitively against rival AMD in both PCs and servers.
GlobalFoundries, a contract manufacturer with a niche in producing commodity parts on lagging-edge process technology, has been hurt by high inventories and weak demand from the industrial, automotive, PC and smartphone sectors.
Intel shares are down 31% this year, while GlobalFoundries is off 22%.
"In the grand scheme of things, these subsidies aren't large portions of the capital expenditures these companies are making to produce chips," said Tedford.
Micron, for its part, says it will use the grant to support spending $50 billion on U.S. leading-edge memory manufacturing through 2030. "This is a historic moment for semiconductor manufacturing in the U.S.," Micron CEO Sanjay Mehrotra said in a statement.
Complicating the outlook for the chip companies has been the Biden administration's separate restrictions on sending AI chips and advanced manufacturing equipment to China, Tedford said. Those rules have blocked chip makers like Nvidia and equipment providers like AMD from selling some of their wares to China-based customers.
A report this month from the New York Federal Reserve found that China-targeted export controls have knocked $130 billion in market capitalization off affected suppliers, equating to a 2.5% decline in stock prices immediately after such a control is announced.
The White House is now trying to encourage other countries to put similar provisions in place against China. Even if Biden fails to win re-election, Tedford said it's unlikely a Trump administration would take off the restrictions quickly.
While the new fabs funded by Micron and others will put a modest dent in Asia's domination of chip manufacturing, the CHIPS Act should help boost U.S. participation in the industry, while stimulating economic growth, especially in areas like construction. Micron has estimated its new plant in Clay, N.Y. will create more than 50,000 jobs.
That looks like an economic win for the U.S. Whether it ultimately lifts chip companies is another matter.
Write to Joe Light at joe.light@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 25, 2024 15:30 ET (19:30 GMT)
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