U.S. Awards Chip Supplier 2 Million to Bolster Critical Industries
U.S. Awards Chip Supplier 2 Million to Bolster Critical Industries

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

The agreement is the second award announced under a new program intended to help ensure that American 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.

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

“Today’s announcement with Microchip is a meaningful step in our efforts to bolster the supply chain for legacy semiconductors that are 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 modernize and expand a facility in Colorado Springs and $72 million to expand a facility in Gresham, Ore. The administration said the funding would help Microchip triple its output at the two sites and decrease the company’s reliance on foreign facilities to help make its products.

The company’s chips aren’t cutting-edge but are key components of nearly every military and space program. Microchip is one of the largest suppliers of semiconductors to the defense industrial base and a part of the military’s trusted foundry program. It also plays a crucial role in industries that are important for the national economy, U.S. officials said.

That role became more obvious during the pandemic, when a global chip shortage cast a spotlight on domestic suppliers like Microchip. With foreign chip factories shut down to help contain the virus, automakers and other companies scrambled to secure supplies. As a result, demand for Microchip’s products surged.

Those shortages also helped motivate lawmakers to pull together a funding bill aimed at shoring up American manufacturing and reduce reliance on foreign chips. The 2022 CHIPS and Science Act gave the Commerce Department $53 billion to invest in the semiconductor industry, including $39 billion for federal grants to encourage chip companies to set up U.S. facilities.

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

Microchip previously announced plans to increase its capacity in both Oregon and Colorado, but the government funding would be used to expand those enhancements and bring more production back to the United States, officials said. According to its filings, Microchip relies on outside facilities to make a significant proportion of its products — roughly 63 percent of its net sales in 2023 — a relatively common practice in the industry.

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

U.S. officials are questioning whether such investments could increase the United States’ reliance on China or allow Chinese firms to undercut competitors. The Commerce Department has said it plans to begin a survey this month to identify how U.S. companies are getting their legacy chips and reduce security risks linked to China.

The deal announced Thursday is a nonbinding preliminary agreement. The Commerce Department will carry out due diligence on the project before reaching the award’s final terms.

The department said it had received more than 570 statements 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.