US awards $162 million to chip supplier to support critical industries

The Biden administration announced plans Thursday to award $162 million in federal grants to Microchip Technology, an Arizona-based semiconductor company that supplies the automotive, defense and other industries.

The deal is the second award announced under a new program intended to ensure that U.S. companies that rely on semiconductors have a stable supply. Last month, the Biden administration announced a $35 million grant for BAE Systems, a defense contractor.

This investment will allow Microchip to increase its production of semiconductors used in cars, airplanes, household appliances, medical devices and military products. The administration said it hopes the award will create more than 700 jobs in construction and manufacturing.

“Today’s announcement with Microchip is a significant step in our efforts to strengthen the supply chain for existing semiconductors that are used in everything from cars to washing machines to missiles,” Commerce Secretary Gina M. Raimondo said in a statement.

Microchip plans to use $90 million to upgrade and expand a facility in Colorado Springs and $72 million to expand a facility in Gresham, Oregon. The administration said the funding would help Microchip triple its production at the two sites and reduce the company’s dependence on foreign facilities. to help it manufacture its products.

The company’s chips are not cutting-edge, but are key parts of almost every military and space program. Microchip is one of the largest suppliers of semiconductors to the Defense Industrial Base and a designated trusted foundry for the military. It also plays a crucial role in sectors important to the national economy, U.S. officials said.

That role became more evident during the pandemic, when a global chip shortage put the spotlight on domestic suppliers like Microchip. With foreign chip factories shuttered to help contain the virus, automakers and other companies have rushed to secure their supplies. As a result, demand for Microchip products exploded.

Those shortages also helped motivate lawmakers to craft a funding bill aimed at bolstering U.S. manufacturing and reducing reliance on foreign chips. The CHIPS and Science Act of 2022 gave the Commerce Department $53 billion to invest in the semiconductor industry, including $39 billion in federal grants to encourage chipmakers to set up facilities in the United States. United.

The Commerce Department is expected to begin announcing larger awards in the coming months for major chipmaking facilities owned by companies like Intel and Taiwan Semiconductor Manufacturing Company, known as TSMC.

Microchip previously announced plans to increase capacity in Oregon and Colorado, but government funding would be used to expand those improvements and bring more production back to the United States, officials said. According to its documents, Microchip relies on outside installations to make a significant proportion of its products – approximately 63% of its net sales in 2023 – a relatively standard practice in the industry.

While attention has focused on ensuring that U.S. facilities can make some of the most advanced chips in the world, Chinese investments in less advanced semiconductors, also known as legacy chips, which help powering cars, computers, missiles and dishwashers, there are growing concerns.

U.S. officials question whether such investments could increase U.S. dependence on China or allow Chinese companies to compete with rivals. The Department of Commerce said it plans to launch an investigation this month to identify how U.S. companies obtain their old chips and reduce China-related security risks.

The agreement announced Thursday is a preliminary, non-binding agreement. The Ministry of Commerce will carry out due diligence of the project before reaching the final conditions of the award.

The ministry said it received more than 570 expressions of interest and more than 170 pre-applications, full applications and concept plans from companies and organizations interested in the funding.

Don Clark contributed reporting from San Francisco.