What Semiconductor Companies Need to Know: CHIPS Act and Eligibility Requirements

The CHIPS Act, or Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act, is a signature piece of legislation that was signed into law in the United States in August 2022 to provide funding in support of the development and production of semiconductor technology in the United States, with the goal of reducing the country’s reliance on foreign manufacturers of semiconductors. The government will launch its first funding application, focused on commercial manufacturing facilities, next week

Under the CHIPS Act, the US government has authorized the allocation of $52.7 billion in funding to support the development of semiconductor manufacturing, research, and development, with another $24 billion in tax credits for chip production. This funding will be distributed through a variety of channels, including:

• Grants supporting research and development of semiconductor technology
• Loans and loan guarantees supporting construction of new semiconductor manufacturing facilities
• Investment in workforce training and education programs supporting development of a skilled semiconductor workforce

Accessing funding through the CHIPS Act will involve companies applying for grants, loans, or loan guarantees through the appropriate government agencies. The specific application process will vary depending on the type of funding being sought and the agency responsible for administering the funds. Some of the key agencies involved in the administration of CHIPS Act funding include the Department of Commerce, the Department of Defense, and the National Science Foundation.

In general, to be eligible for funding, companies will need to demonstrate their ability to contribute to the development of semiconductor technology in the United States. This may include providing evidence of prior research and development in the semiconductor field, a solid business plan for expanding operations in the US, and a commitment to investing in workforce development and training programs to support the growth of the domestic semiconductor industry.

The first funding opportunity, released by the CHIPS Program Office on February 28, 2023, seeks applications for projects related to the construction, expansion, or modernization of commercial fabrication facilities that will produce leading-edge, current-generation, and mature-node semiconductors (including both wafer production and assembly, packaging, and testing). Pre-applications are recommended and will begin being accepted on a rolling basis on March 31, 2023. (Full applications will be accepted on the same basis starting June 26, 2023.)

There are expected to be two more funding opportunities, one for semiconductor materials and manufacturing equipment facilities and another for R&D facilities.

Awards can take the form of direct funding, loans, or loan guarantees. The CHIPS Program Office expects most direct funding awards to be in the range of 5%-15% of project capital expenditures, with total award amounts (inclusive of loans and loan guarantees) not to exceed 35% of project capital expenditures.

Application Process:

This funding opportunity involves a five-part application process:

1. Submission of a statement of interest wherein an applicant must briefly describe their proposed project.

2. Submission of an optional (though recommended) pre-application wherein applicants submit a more detailed description of their planned project. The CHIPS Program Office will then provide written feedback on the project, including whether to submit a revised pre-application, a full application, or neither.

3. Submission of a full application that must contain detailed project information, including its technical and economic feasibility as well as its alignment with the program’s economic and national security objectives. The program may also provide feedback at this stage, including requests for further details. Before moving on to the due diligence stage, the CHIPS Program Office will prepare a nonbinding Preliminary Memorandum of Terms, which will include a recommendation of an awards amount and form and other potential terms.

4. The CHIPS Program Office will conduct comprehensive due diligence if the program office and the applicant agree on a nonbinding Preliminary Memorandum of Terms. This due diligence will involve the applicant providing further details on financial, environmental, national security, and other issues. The Program Office will engage with outside advisers, consultants, and/or attorneys to verify this information, at the applicant’s expense.

5. After completion of due diligence, the Department of Commerce will issue an award that will be disbursed in tranches tied to project milestones.

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Overall, the CHIPS Act represents a significant investment in the development of semiconductor technology in the United States, and companies that are able to access funding through the program may be well positioned to take advantage of the growth opportunities in this rapidly evolving field.