By David Shepardson
WASHINGTON (Reuters) - The U.S. Commerce Department said Monday it plans to award $35 million to BAE Systems (LON:BAES) to quadruple production in New Hampshire for key semiconductor chips used in F-35 fighter jets and commercial satellites.
The announcement is the first from the $52.7 billion "Chips for America" semiconductor manufacturing and research subsidy program approved by Congress in August 2022 to ramp up U.S. chips production amid concerns about reliance on Asia.
President Joe Biden said in a statement "over the coming year, the Department of Commerce will award billions more to make more semiconductors in America" and boost research and development.
The department said it signed a non-binding preliminary memorandum of terms to provide $35 million to BAE Systems Electronic Systems, a unit of BAE Systems, to support modernizing the company’s Nashua, New Hampshire Microelectronics Center.
The Pentagon plans to spend $1.7 trillion on the F-35 program including buying 2,500 planes in the coming decades. White House National Security Adviser Jake Sullivan said the chips were critical to F-15s and F-35s.
"We do not want to be in a position where another country can cut us off in a moment of crisis," Sullivan told reporters.
The Commerce Department in September issued rules to prevent chip subsidies from being used by China and moved in October to halt shipments to China of advanced artificial intelligence chips.
Companies like Intel (NASDAQ:INTC), Micron (NASDAQ:MU), GlobalFoundries (NASDAQ:GFS) are among those seeking significant funding from the chip program.
Commerce Secretary Gina Raimondo said the BAE award "is the first of many announcements. We expect the pace of these announcements to accelerate in the first half of next year."
The New Hampshire project will reduce the price of future chips by half, more than offsetting the $35 million cost, an administration official said.
The chips are used for electronic warfare systems in battle environments for F-35s built by Lockheed Martin (NYSE:LMT).
The first chip award underscores the program "is about national security," Raimondo said, adding the aim is create "a thriving long-lasting domestic semiconductor manufacturing industry."
BAE Systems CEO Tom Arseneault said in a statement funding would boost its microelectronics which are key to "defense and aerospace customers -- from next-generation aircraft and satellites to military-grade GPS and secure communications."