What is the CHIPS Act and what is happening with it?
The CHIPS and Science Act of 2022 (CHIPS Act) is the landmark legislation signed into law by President Biden to strengthen the U.S. position in semiconductor research, development, and manufacturing. The CHIPS Act provides US$52.7 billion in federal funding to revitalize the U.S. semiconductor industry, including US$39 billion in semiconductor incentives, US$13.2 billion in R&D and workforce development, and US$500 million to strengthen global supply chains. Awards will take the form of direct funding, federal loans and/or federal guarantees of third-party loans. The formal application process for securing funding under the CHIPS Act is now open.
What are the funding opportunities?
On February 28, 2023, the National Institute of Standards and Technology (NIST) of the Commerce Department announced the first of three funding opportunities under the CHIPS Act. The CHIPS Program Office within the Commerce Department is responsible for administrating the US$39 billion in semiconductor incentives through a program called Chips for America. More information on the CHIPS for America program can be found in this Fact Sheet for Commercial Fabrication Facilities.
Specifically, NIST announced that it is seeking applications for projects involving the construction, expansion, or modernization of commercial facilities for the fabrication of leading-edge, current-generation, and mature-node semiconductors. This includes both front-end wafer fabrication and back-end assembly, testing, and packaging.
What is the timeline?
Applicants may submit a statement of interest beginning on February 28 to provide an initial description of their proposed project. These statements must be submitted at least 21 days before the submission of a pre-application or full application. Potential applicants for leading-edge facilities may submit pre-applications and full applications beginning on March 31, 2023. NIST details several recommended and mandatory steps dependent on the applicant type. In addition to a statement of interest, NIST advises applicants to submit a pre-application—in addition to the required full application to the CHIPS Program Office.
NIST also announced on February 28 that it seeks potential applicants for current-generation, mature-node, and back-end production facilities can submit pre-applications on May 1, 2023 and full applications beginning on June 26, 2023.
All submissions will be accepted on a rolling basis. If the CHIPS Program Office determines that an applicant is reasonably likely to receive an award, the application will proceed to the due diligence phase and, if successful, the Commerce Department will prepare and issue an award. Note that award funding will be released incrementally and be tied to project milestones. Please refer to the Notice of Funding Opportunity for a comprehensive description of this first phase of funding.
Finally, the February 28 Announcement also noted two additional funding opportunities that will become available later this year. The Department of Commerce will release 1) a funding opportunity for semiconductor materials and equipment facilities in the late spring and 2) another funding opportunity for research and development facilities in the fall.
What are the conditions for applicants and recipients?
Funding under the CHIPS for America program is subject to several conditions and other requirements, including, but not limited to:
- Applicants must demonstrate that the funding requested will incentivize investment in facilities and equipment in the US that would not occur in the absence of incentives and that they have been offered an incentive from a state or local government.
- Recipients receiving more than US$150 million in direct funding will be required to share a portion of any cash flows or returns that exceed the applicant’s projections by an agreed-upon threshold with the U.S. government.
- Awards will generally be limited to no more than 35% of total project costs, and NIST has emphasized that it prefers that the awards combine loans or loan guarantees with direct funding, with applicants receiving only the amounts necessary to make projects viable; it will be looking for risk sharing by the applicant.
- Preference will be given to those who commit to further future investment in the U.S. semi-conductor industry
- Applicants are prohibited from using CHIPS funds for dividends or stock buybacks and will be expected to detail their intentions with respect to stock buybacks over five years; the CHIPS Program Office will consider the extent of the applicant’s commitments to refrain from stock buybacks in the application review process.
- So-called “foreign entities of concern” are not eligible to receive CHIPS incentives. Further, the Department will review applications for involvement of foreign entities of concern and will not approve any applications where a foreign entity of concern—through control, access to information, or other mechanisms—poses an undue risk to a project or U.S. national security interests.
- Upon receipt of federal funds under this program, recipients must agree to not expand in countries of concern, most notably China, for 10 years.
Applying for funding under the CHIPS for America program is a detailed and intensive process. The Hogan Lovells team is happy to answer any questions and assist your company in evaluating eligibility and navigating the application process.
Authored by Ari Fridman, Kelly Ann Shaw, Mary Anne Sullivan, Andrea Fraser-Reid, Cassady Cohick, and Josh LaFianza.