Biden Administration to Impose Financial Restrictions for Chip Makers

WASHINGTON — Companies that receive federal subsidies from a $39 billion program to support semiconductor manufacturing will be required to meet strict financial conditions, including in some cases sharing unforeseen profits with the government, according to a document viewed by The New York Times.

The new guidelines, which will be released by the Commerce Department on Tuesday morning, will also require firms that apply for money to detail their plans for stock buybacks over the next five years. That information will be weighed as part of their application, with chip makers outlining more aggressive plans to repurchase stock — which can enrich shareholders, including corporate executives — likely to receive less funding.

Funding will also be doled out to companies in tranches as they reach certain project milestones, with the Commerce Department potentially suspending or clawing back funds if those targets are not met, according to the document.

The restrictions are part of a program aimed at revitalizing the United States’ semiconductor manufacturing. Last summer, lawmakers from both parties approved legislation that will deliver $52 billion for domestic manufacturing and research, plus additional tax credits for the construction of new factories.

The goal is to lessen U.S. dependency on foreign suppliers that today produce the bulk of chips needed for cars, appliances, electronics and defense technology.

The Global Race for Computer Chips

The process is now entering a crucial phase as the Biden administration prepares to begin accepting and evaluating applications from chip manufacturers and their suppliers. An additional $11 billion for research facilities is expected to be released later this year.

The government’s focus on protecting taxpayer funds highlights one major risk of the initiative: that funding given to companies may ultimately be squandered.

Some lawmakers on both the left and the right have questioned the wisdom of giving taxpayer money to the chip industry, which is generally profitable.

Executives have countered that the high cost of operating in the United States — and subsidies offered by foreign governments — make it cheaper for semiconductor companies to manufacture their products offshore.

Since American researchers invented the integrated circuit in the late 1950s, the U.S. share of global manufacturing has steadily declined, to around 12 percent.

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In a speech last week at Georgetown University, Gina Raimondo, the secretary of commerce, outlined an ambitious vision for reversing the trend, arguing that the United States needs to invest to once again build “a self-propelling engine of innovation and production.”

She added that the chip program would ultimately lead to the training of tens of thousands of workers and spur the creation of at least two manufacturing “clusters” in the United States to produce the most advanced kinds of chips by 2030.

Ms. Raimondo acknowledged that history would evaluate the effort based on whether it rebuilt the semiconductor industry and sparked a new “wave of innovation,” but also whether the administration was “good stewards of taxpayer money.”

The program is a “public investment in private industry of a size and scale without recent precedent,” she said. “And the people of America deserve transparency and accountability.”

The next few months will provide the first test of how the Commerce Department delivers on that task. In an interview Friday, Ms. Raimondo said that companies would have to open their books to her team, which will include those with significant experience in the industry to evaluate the applications.

According to the application, companies that have secured other sources of private capital will receive “strong preference.” And applicants need to have gotten some kind of incentive from their state or local government to be eligible for the funding.

The Commerce Department said it would look more favorably on state and local incentive programs that create “spillover benefits” for communities, like investments in work force, education or infrastructure, rather than policies like direct tax abatements that go to benefit one company.

The Commerce Department also plans to give preference to applicants that “credibly” commit to investing in the domestic semiconductor industry and refrain from stock buybacks. Stock buybacks are aimed at lifting the price of a stock by reducing the number of shares outstanding, rewarding existing shareholders.

Applicants are also prohibited from directly using any government funding for stock buybacks or dividends, though analysts have emphasized that company finances are fungible, making the practice potentially difficult to police.

Companies applying for awards will be required to submit detailed financial models for the proposed projects. And for projects that receive more than $150 million in direct funding, companies will be required to share a portion of cash flows or returns that exceed their projections above an established threshold, the document said. The terms will be set on a case-by-case basis, and any proceeds will go to supporting the purposes of the chips program, the department said.

The provision would encourage companies to be accurate in their financial projections, Ms. Raimondo said. “We don’t want to spend a dollar more than necessary to make these projects happen,” she said.

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