US Chips Plus Act has passed, does it deal Samsung the worst blow? Former TSMC General Counsel provides first-hand analysis.
Reporter: Lee Wen-yee Publication date: 2022-07-28
- US Senate passed the $52b US Chips Act on 7/27, strengthening US Semiconductor supply chain security and technology competitiveness.
- The most noteworthy restriction in this Act will affect future investments in China by big manufacturers like TSMC, Intel, and Samsung.
- The era of extreme conservative nationalism has dawned, when US, Europe, Japan all move to legislate subsidies to their semiconductor industries; an opportunity for Taiwan may exist.
“This Act is a significant progress for our country’s economic security and national security, as I have said, this is the future to America!” US Senator Chuck Schumer emphasized.
On July 27th, the US Senate finally passed the Chips Act by a vote of 64 to 33. On 7/29, this Friday, may be the soonest to see a vote in the US House of Representatives and if it passes the Bill, it will be submitted to the US White House to take effect after President Biden’s signature.
The budget of US $52 billion will be a significant bill in strengthening the security for US semiconductor supply chain and technology competitiveness. Other than deciding how much future subsidies TSMC, Samsung and Intel’s factories in the US may receive, the Bill also touches a sensitive nerve in the US/China/Taiwan triangle by effecting the future investments in China by these big semiconductor companies.
Prohibiting expansion in production of below 28 nano chips: Samsung is most adversely affected, while Intel the least.
According to this Chips Plus Act passed by the US Senate, this Bill will distribute during a 5 year time frame $39 billion towards semiconductor manufacturing, for which TSMC’s US fab is anticipated to be included. But, the Bill imposes restrictions on semiconductor manufacturers receiving such subsidies.
During the next 10 years, these manufacturers may not engage in significant transactions in the material expansion of below 28 nano production.
This amounts to restriction of subsdidy recipients such as TSMC, Intel, Samsung concerning their future expansion in China .
There are four major points in the Chips Act! Accepting US subsidies and investing in China could result in the return of US subsidies under certain conditions outlined in the Bill. Those key points are:
- Manufacturing subsidies: $39b distributed in 5 year time frame, $19b in the 2022 fiscal year, 2023 to 2026 each fiscal year will be $50m
- Subsidies for R&D and talent development: $11b to be used with NSTC’s projects in advance packaging, R&D and talent development.
- Tax reduction: Advance Fabs such as TSMC’s US fab could receive 25% investment tax credit when such fab begins production during 2023 to 2026.
- Restriction on expansion in China: During the next 10 years, subsidy recipients may not be able to expand production of below 28 nano chips in China. If this restriction is violated, received subsidies must be returned to the US government.
In this tough competition among the three semiconductor giants, Samsung may bear the brunt of the impact of the Bill’s restriction.
Samsung recently is planning to invest $20b to establishing a new in Texas, but Samsung also has two NAND FLASH factories in the city of Xian, producing advanced 3D NAND products. Because of this, if Samsung plans to accept a US subsidy on one hand while expanding in China, the impact Samsung will receive may be the strongest.
Unfortunately for Samsung, their Xian factories happen to be crucial arteries. According to reports by Trend Force, Xian factories accounts for more than 40% of Samsung’s NAND FLASH total production. Last year, Samsung’s NAND FLASH income equals 77% of their total semiconductor income.
To choose not to take subsidy is also an option for both TSMC and Samsung.
A former executive from a big Fab company opined that if the officially passed Chips Plus Act contains the aforementioned restriction as in the version passed by the US Senate, Samsung may opt not to take the US subsidy because it is a bad choice for them to undertake that much effort for the US subsidy just to adversely affect their highly profitable NAND FLASH business.
But, the impact of the restriction is also not small on TSMC.
At present, TSMC’s Nanking Fab is able to produce 16 nano chips. This means, if TSMC has plans for future expansion or forward development in the Nanking production process, they may run up against the restriction.
Furthermore, in the case of this Nanking Fab’s potential capacity to advance to 7 nano, although ASML’s EUV facility has already been restricted by the US in export to China, the 7 nano presently has the production capability without using EUV. The afore-mentioned Fab executive said, “ If there is no Geo-Politics, it is possible that TSMC may invest in 7 nano manufacturing in China, now with the Geo-Politics issue, TSMC should not want to get into the muddy water.
As for Intel who may receive the lowest impact. Intel presently has only a packaging test facility in China, and they have other test facilities in other countries. According to an anonymous analyst, Intel’s CPU are all packaged in Chengdu facility, if the facility falls under the Restriction, Intel can easily transfer Chengdu’s production to other sites in Malaysia or Vietnam. Besides, Intel deliberately postponed groundbreaking for their new Fab in Ohio in order to wait for the passage of the Chips Act and to receive their subsidy. It is highly unlikely for Intel to chose not to receive the US subsidy.
Former TSMC General Counsel: I am concerned, but the opportunity for Taiwan to wean itself from China may now be here.
Regarding the US CHIPS ACT and its impact on US/China/Taiwan relationship and on Taiwan Semiconductor industry, Business Week reached out to the former TSMC General Counsel and the President of RLT Global Consulting in the US for the following interview:
Business Week Q: The Chips Act version passed by the US Senate restricting subsidy recipients from producing below 28 nano chips in China in the next 10 years, does it mean TSMC will not be able to expand her Nanking Fab’s advance 16 nano production?
A: This depends on how one interprets the China-oriented phrasing. As a lawyer myself, I might argue the two technologies in 16 nano and 28 nano have no fundamental difference in their nature. Based on the wordings in the present Bill, I think argument could be made to lower the exclusion threshold to 22 nano because 28 nano is in truth is very similar to 22 nano. Besides, China already has 16 nano, so the national security risk to the US no longer exists. I emphasize again, the catalyst for the Bill is “National Security”. This is the focus of US concern.
Q: If the China restriction is also passed by the House, should Taiwan, Korean companies take the US subsidies?
A: If there are no new restrictions added to the Chips Act passed by the Senate, what the Act provides are guidance on interpretation by US officials and flexibility in individual decision making. But if further restriction is expanded, then there may be a problem. Also, if another future China-oriented Bill gets passed with further expanded restrictions, then any manufacturer hoping to receive subsidy will need to make a careful decision between taking or not taking the subsidy.
If TSMC does not receive the subsidy, it may expand the facility creation as usual. I concur with TSMC’s founder, Dr. Morris Chang’s comment, due to many factors, the cost of running a semiconductor fab in the US is extremely, extremely high, which makes the subsidy lacking in true substance.
Q: Will the restriction against China become the same against Taiwan?
A: The present Bill intentionally leaves the wording more vague than what was first proposed. The purpose is to give the Bill more flexibility. Today, the freedom in decision making is invested in US Secretary of Commerce and National Defense institutions. TSMC can hope to work with Washington DC to gain more flexibility for themselves. If the Bill remains the same as the present version, I believe industries can co-exist with it without serious problems for now. Remember, the US has existing export control regulations against China which are quite severe. TSMC has done a great job abiding by US export control regulations. Taiwan is now facing the risk of an era of extreme conservative protectionism.
Q: But, isn’t the restriction on investing in the production of 28 nano in China already a new more severe standard?
A: Yes. We are already in a conservative world environment and are possibly marching toward an even more conservative world order. Nationalism has become a more important element than before. This simply means all the countries in the world will become more conservative, and the standards set by the US will generate other rules and standards. I have no doubt, US will pressure allies such as Korea, Japan, England, Germany and other countries who rely on the US to follow the US footprint. I anticipate the US Chips Act Bill will cause China to invoke similar laws as punitive measure which will further restrict the business operations of foreign companies in China. We are now in, and are further stepping into an era of, extreme conservative national protectionism. This is very dangerous because it will ultimately destroy technological exchanges and competition. I am concerned for Taiwan in this kind of an Era.
Q: Is it possible for the restriction against China to increase in severity in the final passed Bill?
A: There may be more strict restrictions but they may be included in the individual legislation against China which is presently under discussion. We may see it this Fall.
Q: Overall, is the Chips Act a challenge or an opportunity to Taiwan?
A: The legislation should be beneficial to Taiwan. TSMC and UMC have great cooperation with the US, and everyone should make efforts to gain some benefit as a result, particularly on scientific research. Both TSMC and UMC have made great decisions to participate in Purdue University’s semiconductor program. Other companies should pay attention to this type of involvement and approach the Chips Act not only as a means for subsidy but also to build friendship and cooperation with other industries in other US States. Taiwan’s Presdient has commented on Taiwan’s goal to wean herself from dependence on China. This is a good opportunity. Taiwan can devote more focus on the US, or Japan and Europe. Different countries are all legislating assistance to aid their own semiconductor industries, they are all opportunities for Taiwan.
