Chip Makers Turn Cutthroat in Fight for Share of Federal Money

WASHINGTON — In early January, a New York public relations firm sent an email warning about what it characterized as a threat to the federal government’s program to revitalize the U.S. semiconductor industry.

The message, received by The New York Times, accused Intel, the Silicon Valley chip titan, of angling to win subsidies under the CHIPS and Science Act for new factories in Ohio and Arizona that would sit empty. Intel had said in a recent earnings call that it would build out its facilities with the expensive machinery needed to make semiconductors when demand for its chips increased.

The question, the email said, was whether officials would give funding to companies that outfitted their factories from the jump “or if they will give the majority of CHIPS funding to companies like Intel.”

The firm declined to name its client. But it has done work in the past for Advanced Micro Devices, Intel’s longtime rival, which has raised similar concerns about whether federal funding should go to companies that plan to build empty shells. A spokesman for AMD said it had not reviewed the email or approved the public relations firm’s efforts to lobby for or against any specific company receiving funding.

“We fully support the CHIPS and Science Act and the efforts of the Biden administration to boost domestic semiconductor research and manufacturing,” the spokesman said.

Rival semiconductor suppliers and their customers pulled together last year as they lobbied Congress to help shore up U.S. chip manufacturing and reduce vulnerabilities in the crucial supply chain. The push led lawmakers to approve the CHIPS Act, including $52 billion in subsidies to companies and research institutions as well as $24 billion or more in tax credits — one of the biggest infusions into a single industry in decades.

But that unity is beginning to crack. As the Biden administration prepares to begin handing out the money, chief executives, lobbyists and lawmakers have begun jostling to make their case for funding, in public and behind closed doors.

In meetings with government officials and in a public filing, Intel has called into question how much taxpayer money should go to its competitors that have offshore headquarters, arguing that American innovations and other intellectual property could be funneled out of the country.

“Our I.P. is here, and that’s not insignificant,” said Allen Thompson, Intel’s vice president of U.S. government relations. “We are the U.S. champion.”

States, cities and universities have also gotten into the act, hoping to lure subsidies and jobs expected to be generated by manufacturing sites and new research and development.

Purveyors of chips, their suppliers and the trade associations that represent them together spent $59 million on lobbying last year, according to tracking from OpenSecrets, up from $46 million in 2021 and $36 million in 2020, as they tried to ensure that Congress approved their funding.

Some of those activities have now shifted to making sure companies snag the biggest portion.

“Everybody wants their piece of the pie,” said Willy Shih, a management professor at Harvard Business School who follows semiconductor issues. He said it wasn’t surprising that companies would be raising tough questions about competitors, which could be helpful for the Commerce Department in setting policies.

“We haven’t done something of this scale in the U.S. in a long time,” he said. “There is a lot at stake.”

How the Biden administration distributes the funding in coming months could shape the future of an industry that is increasingly seen as a driver of both economic prosperity and national security. It may also influence how vulnerable the United States remains to foreign threats — particularly the possibility of a Chinese invasion of Taiwan, where more than 90 percent of the world’s advanced chips are made.

Since American researchers invented the integrated circuit in the late 1950s, the U.S. manufacturing share has dwindled to around 12 percent. Most American chip companies, including AMD, focus on designing cutting-edge products while outsourcing the costly manufacturing to overseas foundries, most of which are in Asia.

Taiwan Semiconductor Manufacturing Company developed the foundry concept in the 1980s and dominates that market, followed by Samsung Electronics. Intel, which both designs and makes its own chips, fell behind TSMC and Samsung in manufacturing technology but has vowed to catch up and build its own foundry business to make chips for customers.

The industry’s concentration has left it particularly vulnerable to supply chain disruptions. During the pandemic, shortages of lower-end “legacy” chips that are used in cars forced automakers to repeatedly close factories, sending prices soaring.

The CHIPS Act aims to rectify some of these shortcomings by allocating $39 billion in grants for new or expanded U.S. factories. The Commerce Department has indicated that about two-thirds of the money will be steered toward makers of leading-edge semiconductors, a category that includes TSMC, Samsung and Intel. All three companies have already broken ground on major expansions of their U.S. facilities.

The remaining third is expected to go toward legacy chips, which are heavily used in cars, appliances and military equipment.

Another $11 billion of funding is expected to go toward building a handful of chip research centers around the country. Government and academic institutions in Texas, Arizona, Georgia, Indiana, Florida and Ohio have filed documents describing why they should be considered for funding. Even tiny Guam has raised its hand.

One challenge for the Commerce Department will be to distribute the money widely enough across the nation to create several thriving “ecosystems” that can bring together raw materials, research and manufacturing capacity, but not undermine the effort by spreading it too thinly. With dozens of companies, universities and other players interested in snagging a share, the funding could go fast.

Commerce Secretary Gina Raimondo told reporters on Wednesday that the goal was to create “at least two” new clusters of manufacturing capacity for leading-edge chips, in addition to facilities producing other kinds of semiconductors. Each cluster would employ thousands of workers and support a web of businesses supplying the raw materials and services they need.

“We have very clear national security goals, which we must achieve,” Ms. Raimondo said, noting that not every chip maker will get what it wants. “I suspect there will be many disappointed companies who feel that they should have a certain amount of money, and the reality is the return on our investment here is the achievement of our national security goal. Period.”

The competition has intensified as the Biden administration prepares to release the ground rules for applications next week. The grants, which can range up to $3 billion or more per project, could start going out this spring.

Executives say huge spending by governments in South Korea, Taiwan, China and elsewhere has helped shape the chip industry globally. And the current U.S. policy push could again alter the market, by giving some companies advantages that allow them to edge out competitors.

Most chip companies, in publicly discussing the subsidies, have stressed the common goal of bolstering U.S. production. But clear differences among them have emerged. Many are outlined in the more than 200 filings that companies, organizations, universities and others submitted to the Commerce Department last March.

Beyond extolling the merits of their own manufacturing plans, some applicants made the case that rival projects deserved less funding or should face strict limits on how they operated, though few companies mentioned their competitors by name.

Intel, along with other U.S.-based firms like GlobalFoundries and SkyWater Technology, expressed concerns about foreign-owned companies, including whether their U.S. factories could continue operating in the event of a crisis in their home country.

Intel has argued that foreign investment is welcome, but that its longtime concentration of chip design, research and manufacturing in the United States meant that it should get special consideration.

But competitors argue that investing heavily in Intel could be a risky bet for the U.S. government, and some Biden administration officials have questioned whether Intel can follow through on its plans to catch up to its competitors technologically. The company has suffered from a severe drop in sales and announced on Wednesday that it would cut its stock dividend.

U.S. officials have also stressed the need to support a U.S. expansion by TSMC, in part because it produces leading-edge chips crucial to the military.

TSMC, which has broken ground on a $40 billion investment in two advanced factories in Arizona, countered in its filing that “preferential treatment based on the location of a company’s headquarters” would not be an effective or efficient use of U.S. money. AMD, one of TSMC’s largest customers, has advocated its U.S. expansion.

AMD and Intel, both based in Santa Clara, Calif., have competed fiercely for the market for microprocessor chips.

In its filing in March, AMD expressed concerns about whether certain unnamed competitors had proved that they could operate effectively as a foundry and make leading-edge chips. Intel has struggled on both counts. And AMD highlighted the risk that grant recipients would not immediately spend that money to outfit their factories with equipment.

“Any facility receiving federal assistance must be operational upon completion of construction,” AMD wrote. “A facility that sits idle or is held in reserve for demand increases should immediately forfeit any federal funds.”

Mr. Thompson of Intel declined to comment on the email. But he defended the “smart capital” strategy articulated by Patrick Gelsinger, Intel’s chief executive, which has stressed building factory shells and then investing to equip them in accordance with market demand.

Intel is continuing to follow that strategy with construction projects in Arizona, New Mexico and Ohio, to ensure that its new facilities are built out “in alignment with the market,” Mr. Thompson said. But Intel has no intention of using the government money for “basically just building shells,” he said. “The goal is to ensure that we have the capacity to support our customers.”

Ana Swanson reported from Washington, and Don Clark from San Francisco.