The application process is long and arduous for smaller semiconductor companies who often lack the resources to seek the very initiatives aimed at strengthening their domestic manufacturing.
By Kirk Ogunrinde, Contributor
When the CHIPS Act passed in 2022, Jessica Gomez, CEO of Rogue Valley Microdevices (RVM) was excited, imagining the newly passed law might help expand her growing semiconductor manufacturing business. Her company is one of the few American firms producing high-mix, low-volume wafers, a kind of semiconductor that is pivotal to the defense and medical industries.
Gomez quickly confirmed that RVM potentially qualified to submit a statement of interest and pre-application under the Act, and for the next 90 days, she and her small team spent hours (sometimes entire days) working on the required materials for the grants, loans and other incentives the CHIPS Act could bring to the company. As the weeks turned into months, Gomez realized the task was too herculean for her company’s resources; she ended up hiring a lobbying firm to help finish the process.
After RVM’s pre-application was approved and it was time to submit the complete application, Gomez quickly discovered she needed even more help. She contacted a consulting company and an investment bank to wrangle the complex financial models, policy agendas and supply chain maps required by this part of the process. In the end, RVM spent months and more than half a million dollars before it was awarded a $6.7 million grant with the Department of Commerce in July for a new manufacturing plant that is set to more than double their current annual revenue to over $35 million.
“I think if I had realized how daunting this would be from the very beginning, I don’t know that I would’ve tried to do it,” she said.
August marks the anniversary of the CHIPS Act, which was passed by Congress in 2022 and spearheaded by the Biden administration. Under the Act, the Department of Commerce enacted initiatives aimed at strengthening domestic semiconductor manufacturing, design and research in the United States. According to data from the Department of Commerce, more than 670 companies have expressed interest in CHIPS awards, with more than 380 of them submitting applications – meaning that fewer than 7% of applicants have received funding. Only nine of 23 approved manufacturing projects were pitched by smaller companies. They were allotted about $4 billion in grants and loans compared to the nearly $130 billion awarded to behemoths like Intel, Samsung and TSMC.
The CHIPS program is one of the many attempts by the U.S. government to reduce reliance on foreign materials and strengthen American innovation – especially on the AI battlefront against China. For its supply of semiconductors, the U.S. has long been reliant on Taiwan which produces 90% of the world’s advanced logic chips, according to the United States International Trade Commission.
But that reliance carries significant risk. China does not recognize the sovereignty of Taiwan and the countries have sparred for years over the island’s sovereignty . Any territorial conflict between the two could choke off the supply of chips to the U.S.. In February, Commerce Secretary Gina Raimondo said during a speech that she hopes CHIPS awards will have the U.S. producing “roughly 20 percent of the world’s leading-edge logic chips” by the end of the decade, even though it’s currently not making any now.
Since the Act went into effect, the Department has announced over $30 billion in proposed direct funding and up to $25.8 billion in loans to 15 companies across 23 projects. According to a report by the Semiconductor Industry Association, an industry trade group, these projects have driven nearly $450 billion in private investment and are expected to create more than 56,000 jobs.
On average, it takes about a year and a half from initial application submission for companies to find out if they have been fully approved for CHIPS awards. During this time, applicants go through an interview round with industry experts and submit additional materials that will accompany their application. For many small to medium-sized companies, this is the time they attempt to gather private investment for their projects they expect will be supplemented by their CHIPS award, which typically only covers from 5 to15 percent of a company’s entire project. But obtaining the needed additional investment is usually difficult, in part because of the uncertainty of the CHIPS award process, said Paul Triolo, a policy analyst with advisory and diplomacy firm Albright StoneBridge Group.
For example, Texas-based Photodigm, a photonics semiconductor manufacturing company, applied for a CHIPS award after its executives were encouraged to do so by their local congressman. After submitting their application, which cost them over $200,000, they struggled to woo investors for funding for the $50 million project they were planning to undertake. They ultimately were able to secure about $12.5 million in outside investment, most of which was contingent on the company receiving CHIPS funding. The application was ultimately declined.
Even after having an application approved, some companies have discovered that there’s no guarantee they will be able to collect all of the incentives they are eligible for. Gomez told Forbes that before RVM applied for CHIPS funding, she thought it would qualify for certain loans based on their descriptions, only to learn it wasn’t eligible after beginning the application.
Completing all the paperwork without knowing whether a company is even eligible for the program until afterwards is a frustrating waste of time, especially for smaller companies, said Brad Clevenger, president and CEO of SolAero Technologies. His company was awarded a $23.9 million CHIPS award to expand their production of solar cell semiconductors but decided not to apply for further government loans.
“It’s tough – it’s not an easy thing to do,” he said. “If you’re going to get a Federal loan, or a Federal loan guarantee, it’s also a paperwork intensive and relatively bureaucratic process.”
For smaller manufacturers that don’t routinely produce policy agendas and sustainability reports for regulatory and compliance reasons this can be a real drag — and costly. Those looking to avail themselves of CHIPS funding often find themselves in need of additional help from consultants, lawyers, accountants and lobbyists, which piles on additional expenses. There are other burdens as well; The awards also require companies to provide community benefits — childcare facilities for workers or plans to remove foreign raw materials from their supply chains — that can be difficult for smaller companies to handle.
“It’s complicated, particularly for smaller players,” Triolo said. “All of these things have contributed to companies in some cases deciding not to take the government money – they may not want to have their hands tied by some of the guardrails.”
There is also a concern from these companies that there is not enough long-term commitment to the industry. One of the main incentives that the CHIPS Act provides are tax credits for eligible businesses that make investments in semiconductor and semiconductor-equipment manufacturing. However, these credits are set to expire in 2027– just when some of these projects companies are undertaking would begin the operations that would qualify for a tax credit.
CHIPS isn’t all doom and gloom for smaller companies. That’s because the Act also provides incentives for projects constructing manufacturing equipment and research and development efforts. The CHIPS office has proposed over $8 billion in R&D initiatives, including $54 million for Small Business Innovation Research. Keren Bergman, a professor and researcher at Columbia University, believes that funding for R&D efforts is more suited for smaller companies with innovative products.
“Besides these big companies that are getting billions of dollars, smaller programs are being targeted to universities, national labs, and small and medium-sized companies,” she said. “That’s where some of the new ideas and devices would come in.”
One key problem for smaller companies is that for them to receive any kind of funding, they have to produce more highly specialized semiconductors. That’s because the bigger players have significantly more capacity and expertise to produce general semiconductors. Bergman said this is one of the reasons the CHIPS office is overlooking smaller companies.
“My understanding is the government is trying to make sure we have onshore capabilities that can address many different domains,” she said. “Different companies would have different core expertises – typically the companies that have that expertise are the giant ones.”
RVM’s CHIPS award will be used for the construction of a new semiconductor manufacturing facility in Palm Bay, Florida. Once completed, the company estimates it will triple its current manufacturing capacity. Although she admits the arduous nature of the process, Gomez is relieved her company has been able to get to the latter stages of the process and applauded the CHIPS office for working with her team on the details of the application – especially scaling down some of the sections on the application to a point that made more sense for her company.
“Even though the process was very long, the team was very responsive so we felt we would be able to work through it – that was fantastic,” she said.