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Biden to require chips companies winning subsidies to share excess profits

Published 02/28/2023, 05:04 AM
Updated 03/01/2023, 07:37 AM
© Reuters. FILE PHOTO: Semiconductor chips are seen on a printed circuit board in this illustration picture taken February 17, 2023. REUTERS/Florence Lo/Illustration

© Reuters. FILE PHOTO: Semiconductor chips are seen on a printed circuit board in this illustration picture taken February 17, 2023. REUTERS/Florence Lo/Illustration

By David Shepardson

WASHINGTON (Reuters) -The Biden administration on Tuesday said it will require companies winning funds from its $52-billion U.S. semiconductor manufacturing and research program to share excess profits and explain how they plan to provide affordable childcare.

The Commerce Department on Tuesday released its plans to begin accepting applications in late June for a $39-billion manufacturing subsidy program. The law also creates a 25% investment tax credit for building chip plants, estimated to be worth $24 billion.

The CHIPS Act plays a central role in the Biden administration's effort to bring semiconductor manufacturing back to the United States. Its success is vital to U.S. ambitions to keep ahead of China in global markets.

Semiconductor companies have already announced more than 40 new projects including nearly $200 billion in private investments to increase domestic production.

    Recipients who receive more than $150 million in direct funding "will be required to share with the U.S. government a portion of any cash flows or returns that exceed the applicant’s projections by an agreed-upon threshold," the department said.

Commerce expects "upside sharing will only be material in instances where the project significantly exceeds its projected cash flows or returns, and will not exceed 75% of the recipient’s direct funding award."

'NOT A FREE HANDOUT'

Democratic Senator Jack Reed praised the profit sharing plan, saying chips funding is "not a free handout for multi-billion dollar tech companies.... There is no downside for companies that participate because they only have to share a portion of future profits if they do exceedingly well."

Republican House Science Committee Chair Frank Lucas criticized the childcare and revenue-sharing provisions, saying they exceed authority granted by Congress. He says Commerce is "focusing less on the urgent need for chip production and more on attempting to impose their labor agenda on this critical industry."

Companies winning funding are also prohibited from using chips funds for dividends or stock buybacks, and must provide details of any plans to buy back their own shares over five years. The department will consider an "applicant’s commitments to refrain from stock buybacks."

Democratic lawmakers have noted that the largest U.S. semiconductor companies have poured hundreds of billions of dollars into stock buybacks in recent years, with Intel (NASDAQ:INTC) spending more than $100 billion on buybacks since 2005. Intel also pays a dividend.

It's not uncommon for states to require specific employment targets as a condition for tax subsidies, but the Biden administration is a significant expansion.

Commerce Secretary Gina Raimondo said companies must submit a plan that includes an outline of workforce needs. Applicants seeking more than $150 million in direct funding must submit "a plan for how they will provide affordable and accessible childcare for their workers."

PUBLIC INCENTIVES

White House economic adviser Heather Boushey said the announcement "is emblematic of using public incentives to simultaneously deliver on building strategic supply chains for our economic and national security while also investing in our care infrastructure."

The Biden administration laid out ambitious plans to pay millions of caretakers, mostly women, better salaries, and make child and elder care cheaper in 2021 but it failed to win majority support in Congress.

Applicants must address six program priority areas including plans "to commit to future investment in the U.S. semiconductor industry, including to build R&D facilities in the United States."

Applicants should also "create opportunities for minority owned, veteran-owned, and women-owned businesses; demonstrate climate and environmental responsibility; invest in their communities by addressing barriers to economic inclusion; and commit to using iron, steel, and construction materials produced in the United States."

The Semiconductor Industry Association said it was carefully reviewing the funding notice that "lays out the rules of the road for companies to apply for the CHIPS Act’s manufacturing grants."

Most direct funding awards are expected to range between 5% and 15% of project capital expenditures. Commerce said it generally expects the total amount of an award including loan or loan guarantee, to not exceed 35% of project capital expenditures.

"We're going to be doing our own diligence. We're not writing blank checks to any company that asks," Raimondo said. "We're making companies open their books."

The initial funding opportunity seeks applications for projects involving leading-edge, current-generation, and mature-node semiconductors. It will release funding opportunities for semiconductor materials and manufacturing equipment facilities in late spring and one for R&D facilities in the fall.

© Reuters. FILE PHOTO: Semiconductor chips are seen on a printed circuit board in this illustration picture taken February 17, 2023. REUTERS/Florence Lo/Illustration

Raimondo noted that companies winning awards will be required to enter into agreements restricting their ability to expand semiconductor manufacturing capacity in foreign countries of concern like China for 10 years after winning funding. They cannot engage in any joint research or licensing efforts with a foreign entity of concern involving sensitive technologies.

"We're going to be releasing very detailed regulations in the next few weeks that give companies a clearer sense of what the red lines are," Raimondo said.

Latest comments

corporate welfare. us government should mandate if any company receiving government hand outs, then a company needs to be headquartered in the USA and paying proper taxes.
Tax paying, yes; but headquartered too? Toyota shouldn't get subsidies for building battery manufacturing plant in US? It's a lot of good jobs.
they already do this..it's called Dividends
Dividends are taxes?
  Paid to holders of  a companies stock yes the NAV reflects that payout, but if the share prices rises   you make more money..So they are in a sense sharing. Now when i see all these important people hop on the first electric plane and start flying around i'll buy the BS,,, so i will in effect never buy THEIR bs.
I don't know why they are so against stock buy backs. They help everyone's retirement accounts
Yeah, but not really.
yeah, they are getting government hand out.
Decades of subsidies, declining corporate taxes, and minimum wage labor support all major industries and by extension, tax exempt buybacks that contribute to stock market returns. It's a top down approach that enhances standard of living and retirement for 40% of workers and retirees and phenomenal returns for the 10% that owns 90% of our nation's wealth. The remaining 60% are largely blamed for falling behind. A more equitable approach is not unreasonable when rewarding returns beyond a set amount are the result of government investment for growth and innovation.
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