US Aggressive Ambitions for Global Semiconductor Leadership; Image by Colinoob at Pixabay.

Board – CEO “CHIPS and Science Act 2022” Playbook: SME Innovation & Semiconductor Opportunities

Up to last week, the U.S. that created the semiconductor industry had lost its way long ago. The U.S. lags in advanced chip design and manufacturing for global leadership. Now, it’s in the tank. Since semiconductors are in just about every product made-from autos to military missiles; it’s now a critical risk for the U.S. National Security playbook. Today, the CHIPS and Science ACT of 2022 – a $252.4B bill – may offer significant SME Board and CEOs’ future earnings opportunities and ROI upside!

Surprisingly, after several years of U.S. legislative failed compromises and bills, the U.S. President signed off on the compromised 1,054-page innovation bill-“H.R. 4346, The CHIPS and Science Act of 2022 (CSA). It’s a long-overdue massive innovation and technology rescue, funding programs with $52B grants for new U.S. chip manufacturing. It authorizes a total of $252.4B for an immediate $169.9B in Federal contract investments. Most importantly, the other $82.5B over five out-years requires new yearly appropriations to be fully funded.

“there’s a broader supply chain that makes these semiconductors that connect to — to countless other small businesses and manufacturers.”- U.S. President Biden.

This bill provides vast-ranging new federal contract opportunities for SME CEO awards. Often prime contractors award subcontracts/task orders to a wide range of SMEs. To underscore this, SMEs should use the U.S. Small Business Administration (SBA) to leverage their goals and support services.

Thus, SME Boards and CEOs are well-advised to understand, train, identify, and reshape the strategic innovation playbook to increase right-sized CSA’s innovation with upskilled federal contracting as appropriate and technology for new future-proofing offerings and revenue/ROI.

Board & CEO Chip and Science Act Takeaways

  1. Audit and upgrade corporate board seats for savvy innovation 
  2. Understand, train, and explore CSA’s C-Suite opportunities
  3. Leverage manufacturing, supply chain, and workforce resources
  4. Build-out large contractors and local university partnerships
  5. Track/leverage regional innovation hub opportunities

Here’s a snapshot of why it’s essential.

What’s the Urgency for CSA?

The leading U.S. urgent semiconductor drivers are:

  1. U.S. massive reliance on China and Asian chip fab manufacturing creates a substantial national security risk.
  2. Global and U.S. chip supply risks include a China trade war, tensions with China’s near future annexing of Taiwan SAR, and hefty Chinese subsidies for its global 2025 semiconductor leadership goals.
  3. U.S. GDP/productivity risk with Chinese ongoing supply chain/shipping disruptions with Covid outbreaks/continuous lockdowns.
  4. The soaring outsourced chip costs/disruptions to U.S. products for consumers and businesses.
  5. Ukrainian War costs/geopolitical risks of damaged neon gas production for global chip factories.

Today, advanced semiconductors are critical for U.S. global technology leadership. Each new fab factory can cost $10-12B. Since the U.S. does not make industry-leading semiconductors, corporations must source over 80% from Asia. For instance, Apple’s innovation strategy dumped Intel for TSMC’s advanced design of its M1 and now M2 chip with higher speed using a 5 nm chip. Today, the U.S. only produces less than 12% of today’s global, chips-primarily larger, power-hungry, and lagging technology.

Special U.S. Federal funding needs to jumpstart short-term investments that shore-up lagging technology and capacity with new spending. It requires new cutting-edge manufacturing, such as TSMC, the world’s leader. Intel lost its leadership role years ago to TSMC and Asia outsourcing by misguided CEOs’ strategies and executions. Even Korea’s Samsung-fast becoming 3 nm chips and other Asia competitors have a significant lead over their U.S. counterparts.

Currently, the U.S. and China are in a technological superiority race for the future. In the near future, U.S. National Security and Military superiority should be at risk without rapid government funding. Most significantly, China and other nations are subsidizing billions in domestic chipmaking. It will take too long for the U.S. to play catch-up, let alone be a world semiconductor industry leader again. Thus, the CSA is now in play.

What’s Important to SMEs Strategic Planning?

Up to $252.4B in authorized spending in government contracts will be awarded over the next five years of funds if they are appropriated each year fully. The federal contracts will be rapidly awarded for U.S. manufacturing semiconductors with $169.9B in new funding. Corporate boards should perform a skills audit to upgrade corporate board seats for savvy innovation insights for planning. 

Most importantly, SBA’s authorities should drive many contracts to small and minority-owned businesses. On the other hand, large contractors usually win big contracts. However, they have traditionally been obligated by Federal acquisition contract terms and SBA’s small business targets. Prime contractors use a wide range of SMEs for mega-awards.

“we’re going to make sure we include all of America, including rural and urban communities right here in the Industrial Midwest”. – U.S. President Biden

CEOs should provide a C-Suite CHIPS and Science Act Jumpstart Workshop, including Federal contracting if required, for its opportunities in CSA funding, including SMEs’ innovation targets in critical areas such as:

  • Manufacturing incentive programs
  • Supply chain efficiency programs
  • Regional Innovation Hubs programs and support services
  • Rural technology innovation and delivery services
  • Workforce technology/STEM training and employment
  • University advanced science and technologies local programs

In addition, it provides a shopping list of innovations and a technology roadmap for the USA’s future state of services. CEOs should evaluate the appropriate innovations using robust cybersecurity for fit/scale in their 2023-2025 strategic plans in areas aligning to CSA, as applicable:

  • Semiconductors-complete life-cycle
  • 5G communications and Edge computing-secure networks
  • A.I. Advanced Hardware and Software, Cybersecurity, Data Efficiency, Others
  • Biotechnology-specialized domains and medical devices
  • Robotics-complete life-cycle
  • Quantum Computing-usually outside of SMEs resources

It’s not just Silicon Valley and Boston innovation lockup but shared regionally. Notably, many novel startups from “Anywhere Remote USA” are perfect candidates for these innovations and SME partnerships.

Where are the CSA Funding Targets?

CSA outlines key program targets for:

  • Semiconductor R&D, fab factories with temporary semiconductor sector aggressive tax credits 
  • Manufacturing incentive programs
  • Supply chain efficiency
  • Workforce technology and STEM education/employment 
  • New Regional Innovation Hubs
  • Universities support – STEM and targeted technologies

Most notably, it provides aggressive new Federal funding in:

  • National Science Foundation-$81B, $36B over baseline 
  • Department of Energy-$67.9B, $30.5B over baseline
  • National Institute of Standards and Technology-$10B, $5B over baseline
  • Department of Commerce Tech Hubs-$11B/5yrs total, $11B over baseline
  • Department of Defense-$2B for National Network for Microelectronics R&D
  • Department of Education-No new funds, but university foreign gifts reporting lowers it to $50K from $250K.

“U.S. higher education hailed passage of the CHIPS and Science Act, they are disappointed that legislators rejected their pleas to include at least $10 billion in immediate funding” – Science Org

There is $36B for new U.S. fab plant construction with $11B in R&D grants. To date, there are aggressive chip makers for jumpstarting these fab and R&D sites. They are:

  1. TSMC-global industry advanced chip foundry and fab leader building a new $12B site in Arizona, Note: water risks.
  2. Intel-home-field advantage looking for $12B reinvent itself with two foundry/fab sites-Arizona and Ohio,
  3. Samsung’s new in-progress $17B plant site in Texas; Note: the state has ongoing power and water risks,
  4. Micron-global leader in memory chips (SSDs, RAM, GPUs, Nvidia RTX 30-series) manufacturer has strategic capital funding to 2031 for a massive U.S. $150B site starting production in 2025,
  5. GlobalFoundries-receives $7.4B in new Micron orders to 2028 plus U.S. partnership investments to expand its manufacturing and R&D at its manufacturing sites in New York and Vermont, and
  6. SkyWater Technology Inc-a savvy U.S. semiconductor manufacturer is planning to invest $1.8B for a chip R&D and production facility in Indiana. It is in partnership with the state and Purdue University.

In addition, the bill creates a four-year 25% advanced U.S. chip manufacturing with investment tax credits (ITC) estimated to cost about $22-24B over five years.

Lastly, CSA protects U.S. innovation and technology research, investments, and I.P. transfers to outside countries for ten years. It restricts CSA and related innovation access to China, Russia, Iran, and North Korea from exploitation for global military aggression.

What are the CSA and SME Risks?

“We need to be sure to spend it (CSA) in ways that move the needle and are not necessarily aligned with lobbying.” Chris Miller, Tufts University – Wired Interview.

There are five significant U.S. and SME risks in CSA. They are:

  1. U.S. semiconductor R&D and production skills and talent pools are minimal to lagging technologies in most cases except leading specialized research universities, such as MIT, Stanford, UC/Berkeley, Carnegie Mellon, Purdue, Others,
  2. U.S. semiconductor supply chains require new robust global partnerships for numerous new equipment and chemicals, gases, materials/metals, and parts with long lead times and limited supplies,
  3. CSA’s funding for five out-years budget appropriations is killed or minimized, just like the America COMPETES Acts of 2010,
  4. SMEs lack or are weak in federal contracting talent, especially small contracts set asides and subcontracting partnerships,
  5. U.S. semiconductor contracts and fab factory grants could be mismanaged for supply chains and canceled for lagging chip designs/manufacturing/quality and climate-proof locations, such as power and water.

 Five-Year Outlook

After CSA funding and other related add-on bills fade out, it should be clear that there will be a stark contrast between SME innovation winners and losers. Corporate Boards’ strategic intent and CEOs’ execution that leverage U.S. national innovation strategic goals, especially semiconductors, should continue outperforming their peers in profits/ROI. In the same way, SMEs could reap more available internal R&D funds where appropriate. Most importantly, SMEs and non-STEM struggling universities that fail to ride this five-year innovation surge will continue to struggle to be relevant or may go out of business.

“– China, the U.S. military’s pacing challenge, has already spent $150 billion updating its semiconductor industry” – U.S. Secretary of Defense Lloyd J. Austin III

Lastly, geopolitical forces should be complex to shake out existing Asia supply chains for new long-term advanced global semiconductor partnerships. The U.S. can’t do it alone! It requires more new partnerships. For Example, the E.U., SA, Africa, Asia Pac, and other allies. Otherwise, it could be challenging with China’s semiconductor lockup goal.

References

Congressional Budget Office, Cost Estimate Effects of H.R. 4346″, CHIPS Act of 2022, Released: July 21, 2022.

MIT Sloan Management Review, “The Crisis in Ukraine Spells More Trouble for Semiconductor Supply,” Hong, Per K., et al., May 10, 2022.

The National Law Review, “Small Business Federal Government Contracting Dollars Continue to Increase,” Gallacher, David S., and Theriault, Emily S., August 31, 2021.

Vanhollen.Senate.Gov“CHIPS and Science Act of 2022 Division A Summary,” July 29, 2022.

U.S. Senate Committee on Commerce, Science, & Transportation; Press Release, “View the CHIPS+ Legislation,” July 29, 2022.

Copyright @ 2022, STEVE HAWALD CEO CIO ADVISORY LLC and Board-CXO Research Insights + Vision© Newsletter©. DISCLAIMER: These articles are entirely the author’s opinion without financial payments and engagements. The copy/edit review was by Florence Grant.

Disclosure

The views and opinions in this analysis are my own and do not represent positions or opinions of The Analyst Syndicate. Read more on the Disclosure Policy.