US lends 162 million to chip supplier to bolster critical

U.S. lends $162 million to chip supplier to bolster critical industries

The Biden administration announced plans Thursday 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 under a new program designed to help ensure stable supplies for American companies that rely on semiconductors. Last month, the Biden administration announced a $35 million grant to BAE Systems, a defense contractor.

The investment will allow Microchip to increase its production of semiconductors used in cars, aircraft, home appliances, medical devices and military products. The administration said it expects the award to create more than 700 construction and manufacturing jobs.

“Today’s announcement with Microchip is a significant step in our efforts to strengthen the supply chain for legacy semiconductors found 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, Oregon. The government said the funding would help Microchip triple its production at the two sites and reduce the company's reliance on foreign facilities to help make its products.

The company's chips aren't state-of-the-art, but they are key components of almost every military and space program. Microchip is one of the largest suppliers of semiconductors to the defense industry and is part of the military's proven foundry program. It also plays a critical role in industries important to the national economy, U.S. officials said.

That role became even more apparent during the pandemic, when a global chip shortage put domestic suppliers like Microchip in the spotlight. As foreign chip factories closed to help contain the virus, automakers and other companies scrambled to secure supplies. As a result, demand for Microchip's products increased sharply.

Those shortages also helped motivate lawmakers to craft a funding bill aimed at boosting American manufacturing and reducing reliance on foreign chips. The CHIPS and Science Act of 2022 provided $53 billion to the Commerce Department to invest in the semiconductor industry, including $39 billion in federal grants to encourage chip companies to set up U.S. factories.

The Commerce Department is expected to announce major awards in the coming months for large chip manufacturing plants owned by companies such as Intel and Taiwan Semiconductor Manufacturing Company, known as TSMC.

Microchip had previously announced plans to increase its capacity in both Oregon and Colorado, but the state funds would be used to expand those improvements and bring more production back to the United States, officials said. According to the filings, Microchip relies on outside facilities to manufacture a significant portion of its products – about 63 percent of its net sales in 2023 – a relatively common practice in the industry.

While attention focuses on ensuring U.S. facilities can produce some of the world's most advanced chips, there are growing concerns about Chinese investments in less advanced semiconductors, also known as legacy chips, that are used to power cars, computers, rockets and dishwashers.

U.S. officials wonder whether such investments could increase U.S. dependence on China or allow Chinese firms to undercut rivals. The Commerce Department said it would launch a survey this month to find out how U.S. companies are getting their old chips and reducing security risks associated with China.

The deal announced on Thursday is a non-binding tentative agreement. The Department of Commerce will conduct due diligence on the project before finalizing the terms of the award.

The department said it received more than 570 expressions of interest and more than 170 pre-applications, full proposals and concept plans from companies and organizations interested in funding.

Don Clark contributed reporting from San Francisco.