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Microchip Secures $162M in Federal Funding to Amplify U.S. Chip Production Capacities

Technology
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The U.S. government is making a strategic $162 million bet on accelerating domestic semiconductor manufacturing capabilities through a major grant for Microchip Technology. The move aims to strengthen supply chain security for critical technologies while reducing dependence on overseas chip production.

Announced by the Department of Commerce, the funding will help Microchip Technology significantly expand output of mature-node semiconductors and microcontroller units at two fabrication plants in the United States.

The boosted stateside capacity for these legacy chips, used across autos, consumer devices, telecom infrastructure, aerospace and defense, is a core tenet of the Biden administration’s “Chips for America” initiative to rebuild domestic chipmaking.

For investors, the government subsidization provides a buffer against supply shocks in key end-markets for Microchip and peers specializing in current-generation chips. The build-out of U.S. semiconductor infrastructure also unlocks new revenue opportunities associated with “onshoring” trends.

Strategic Tech Security Play

The $162 million grant, which still requires finalization, represents the second major award under the Chips for America program passed by Congress in 2022. The legislation allocated $52.7 billion towards strengthening U.S. semiconductor R&D and manufacturing.

The hefty government funding aims to insulate the U.S. from the global chip shortages and supply chain disruptions experienced during the pandemic, which rippled across the auto sector, consumer appliance makers, and other key domestic industries.

“The award will help reduce reliance on global supply chains that led to price spikes and long wait lines for everything from autos to washing machines during the pandemic,” said Lael Brainard, Director of the White House National Economic Council.

The U.S. chip funding arrives amid mounting concern over economic and national security risks associated with foreign chipmaking dominance. America now accounts for only 12% of worldwide semiconductor manufacturing, down from 37% in 1990, according to SIA data. Meanwhile, East Asia now represents 75% of fabrication, led by Taiwan at 92% of the advanced chips market.

As chips become more vital for technologies like EVs, 5G, and AI, U.S. officials seek to curb dependence on overseas production capacity to ensure domestic tech leadership. The risks became evident as COVID-related shutdowns drove severe chip shortages.

Doubling Down on Legacy Chip Lines

The direct grants to Microchip Technology will expand legacy chip production at the firm’s factories in Colorado and Oregon. Microchip specializes in microcontroller, analog, and flash memory chips used in everything from cars to defense systems.

The $90 million Colorado facility investment will triple output of 8-inch wafers for mature-node integrated circuits. The $72 million Oregon fab funding will double microcontroller manufacturing.

The ramped up legacy chip capacities reinforce Microchip’s competitive position as demand intensifies for current-generation semiconductors across tech and automotive. The expansions build on the firm’s January announcement of an $800 million investment to triple Oregon fab output.

For investors, the state support helps de-risk Microchip’s domestic production scale-up amid turbulent macroeconomic conditions and provides a backstop as management executes its capacity roadmap.

The funding also spotlights the ongoing critical role of mature node chips, even as leading-edge semiconductors grab headlines. While crucial for advanced chips, restoring U.S. leadership in legacy nodes directly serves major industries where shortages have hammered bottom lines.

First Moves in U.S. Chip Reshoring

The planned Microchip award marks an early win under the broader Chips and Science Act Passed by Congress. The bipartisan legislation codified semiconductor manufacturing and R&D funding as a strategic priority, authorizing $52 billion in incentives.

The law sets aside $39 billion in semiconductor manufacturing subsidies, $11 billion for R&D, and $2 billion for legacy chip production – recognizing the outsized importance of lagging U.S. capacities in mature node manufacturing.

The Microchip grants constitute the second such funding award under the Act, following $35 million granted in December to a BAE Systems semiconductor facility that produces chips for defense platforms.

But this represents merely the tip of the iceberg, with Commerce Secretary Gina Raimondo forecasting about a dozen total semiconductor subsidy awards in 2024 potentially worth billions each. The incoming wave of sizeable incentives promises to radically reshape the domestic chipmaking landscape.

For institutional investors, the government initiatives lend viability to plans from Intel, Micron, and other U.S. firms to build large-scale domestic fabrication plants. The investments will drive growth while reducing exposure to offshore production risks.

The amplified U.S. chipmaking capacities will also benefit semiconductor equipment providers and material/gas suppliers up and down the supply chain. As the push accelerates in 2023 and 2024, investors have an opportunity to position for the resshoring trend.

Overall, the expansion of U.S. chip fabrication driven by the incoming subsidies provides a long-term structural tailwind. With semiconductors only becoming more indispensable, boosting domestic manufacturing enhances the tech independence and leadership vital for national security interests. The Microchip awards represent an early step on the path towards reclaiming domestic chip dominance.

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