Bipartisan semiconductor production bill passes in the House

The measure includes $52 billion for domestic manufacturing of chips and boosts the U.S.’s ability to compete with China.

The U.S. House of Representatives Thursday passed a bipartisan bill that includes $52 billion in grants and incentives for domestic semiconductor manufacturing, boosting the country’s ability to compete with China. The bill now goes to President Joe Biden for his signature.

The bill passed 243–187 with all Democrats voting in support of the bill, along with 24 Republicans, even with a last-minute push by GOP leaders to oppose it. The measure delivers a win for the Biden administration more than a year after legislation was first introduced in Congress.

Formally known as the CHIPS and Science Act, the bill includes more than $52 billion for U.S. companies producing computer chips as well as billions more in tax credits to incentivize them to invest in chip manufacturing. It also provides tens of billions of dollars to fund scientific research and to promote the innovation and development of other U.S. technologies such as 5G wireless technology.

House Speaker Nancy Pelosi, D-Calif., called the bill “a major victory for American families and the American economy.” She added that “Once enacted, the CHIPS and Science Act will bolster our nation’s production of semiconductor chips—reinvigorating American manufacturing and creating nearly 100,000 good-paying, union jobs.”

The president signaled that this is a positive step in that direction.

“Today, the House passed a bill that will make cars cheaper, appliances cheaper and computers cheaper,” Biden said in a statement. “It will lower the costs of everyday goods. And, it will create high-paying manufacturing jobs across the country and strengthen U.S. leadership in the industries of the future at the same time.”

The measure is expected to help alleviate the semiconductor shortage, which first hit the automotive industry during the COVID-19 pandemic. Production in China was halted at the beginning of the pandemic while consumer demand for cars and home electronics surged. U.S. production of chips has significantly declined in recent decades, while China and other countries have invested heavily in the industry.

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Some Republicans opposed the bill, saying that it lacked “guardrails” to prevent any of the funding from winding up in China’s hands. Other critics have argued that for the U.S. to have a real chance at competing with the world’s leading chip-makers, many billions more would need to be spent.

But, the bill’s advocates maintain that increasing domestic chip production is vital to America’s economy and national security.

Semiconductor revenue projected to fall

Not everyone is bullish on the immediate future of the semiconductor industry. Globally, Gartner is forecasting that semiconductor revenue will grow 7.4% in 2022, down from the 2021 growth of 26.3%. This is a decline from the previous quarter’s forecast of 13.6% growth in 2022.

“Although chip shortages are abating, the global semiconductor market is entering a period of weakness, which will persist through 2023 when semiconductor revenue is projected to decline 2.5%,” said Richard Gordon, practice vice president at Gartner. “We are already seeing weakness in semiconductor end markets, especially those exposed to consumer spending.”

Gordon cited rising inflation, taxes and interest rates, along with higher energy and fuel costs, as factors for the decline, as they put pressure on consumer disposable income. This is affecting spending on electronic products such as PCs and smartphones, he said.

PC shipments are expected to decline by 13.1% in 2022 after recording growth in 2020 and 2021. Semiconductor revenue from PCs is estimated to record a decline of 5.4% in 2022, and semiconductor revenue from smartphones is on pace to decline to 3.1% in 2022, compared to 24.5% growth in 2021.

“From an enterprise perspective, inventories are recovering rapidly, lead times are beginning to shorten and prices are starting to weaken,” Gordon said.