At the end of June, as it became known the day before with the filing of Reuters, the US authorities will begin accepting applications from companies applying for government subsidies directed to the construction of chip manufacturing enterprises in the US. The requirements for the recipients of funds are becoming less and less attractive: they will be forbidden to expand production in China and forced to share “surplus profits”.
Image Source: Micron Technology
Even the day before, it became known that American officials, when distributing funds aimed at stimulating the construction of chip manufacturing enterprises in the United States, would actively exploit the social agenda. Recipients of subsidies will have to provide childcare not only for employees involved in production, but also for specialists involved in the construction of enterprises. This can be achieved both through the payment of compensation to employees sending kindergartens, and through the construction of “departmental” preschool institutions in the immediate vicinity of enterprises. This step is aimed, according to US officials, to stimulate the development of the US labor market, since after the pandemic, some women still cannot return to active economic activity.
One of the unexpected requirements for recipients of subsidies was the obligation to return to the US authorities a portion of the profits in excess of a predetermined level. If the manufacturer, who built the enterprise for the production of chips with the support of the US authorities, in the future begins to earn more than the amounts specified in the original business plan, then part of the money will have to be returned to the state budget. However, the total amount cannot exceed 75% of the original subsidies. Under such conditions, profits will be monitored for those recipients of grants who claim to receive more than $150 million for the implementation of their projects.
A similar threshold of control has been set for the payment of dividends and share buybacks. Companies will not be able to use public funds to return capital to investors for five years after receiving subsidies. During the first five years, companies will have to coordinate the corresponding plans with the US authorities. Tellingly, the latter will also require companies building enterprises to use metals and building materials produced exclusively in the United States.
Government subsidies will in most cases cover 5 to 15% of a company’s capital expenditures. Combined with borrowed funds to be repaid, their share will not exceed 35% of total capital expenditures. In June, we will begin accepting applications from companies planning to organize the production of chips in the United States using different generations of lithography: from mature to advanced. In autumn, the selection of applications for the construction of research centers will begin.
As previously planned, recipients of subsidies will lose the right to expand their production in China or other countries unfriendly to the United States over the next ten years. They will also be prohibited from conducting joint research or licensing their technologies to companies from unfriendly countries. US officials promise to acquaint applicants with detailed rules for granting subsidies in the coming weeks.
According to Reuters, the conditions put forward by the US authorities for receiving subsidies caused some discontent in the ranks of applicants for their receipt, and it was the requirement to share surplus profits that became the main source of irritation. Companies will have to individually agree with officials on those profit thresholds, the excess of which will require the return of part of the subsidies to the budget. The second most dissatisfied demand is a five-year limitation on share repurchases and dividend payments, as this will scare away a number of outside investors from the business. This condition looks the strangest for foreign companies such as TSMC, although there is no information yet about its willingness to use US subsidies to build its facilities in Arizona. However, while additional difficulties have not forced one of the major applicants to abandon plans to create semiconductor production in the United States, as Reuters sources explain.
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