Biden demands that chip companies win subsidies to share excess profits

WASHINGTON, Feb 28 (Reuters) – The Biden administration said on Tuesday it will require companies winning funds from its $52 billion U.S. semiconductor manufacturing and research program to share profits and explain how they plan to provide affordable child care.

The Commerce Department on Tuesday announced plans to begin accepting applications in late June for a $39 billion manufacturing subsidy program. The law also creates a 25% investment tax credit to build tile plants estimated to be worth $24 billion.

The CHIPS Act plays a central role in the Biden administration’s efforts to bring semiconductor manufacturing back to the United States. Its success is crucial for the US’s ambitions to stay ahead of China in global markets. Semiconductor companies have already announced more than 40 new projects including nearly $200 billion in private investment to boost domestic production.

Recipients receiving more than $150 million in direct funding “will be required to share with the U.S. government a portion of any cash flow or return that exceeds the applicant’s estimate by an agreed threshold,” the department said in its funding announcement.

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

Companies that win funding are also prohibited from using tokens for dividends or share buybacks, and must provide details of any plans to buy back their own shares over five years.

The Department will assess an “applicant’s obligations to refrain from repurchasing shares in the application review process” in a five-step application.

Democratic lawmakers have noted that the biggest U.S. semiconductor companies have poured hundreds of billions of dollars into share buybacks in recent years, with Intel ( INTC.O ) spending more than $100 billion on buybacks since 2005. Intel also pays dividends.

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

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 investing in our care infrastructure.”

Applicants must address six program priority areas, including plans “to commit to future investments in the U.S. semiconductor industry, including building 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 ground rules for companies to apply for CHIPS Act manufacturing grants.”

Most direct funding allocations are expected to vary between 5% and 15% of project investment. Commerce said it generally expects the total amount of an award, including loans or loan guarantees, not to exceed 35% of the project’s capital expenditures.

“We’re going to do our own due diligence. We’re not writing blank checks to any company that asks,” Raimondo said. “We get companies to open their books.”

The first funding opportunity seeks applications for projects involving leading, current-generation semiconductors and mature nodes. It will free up financing opportunities for facilities for semiconductor materials and production equipment in late spring and one for R&D facilities in the fall.

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

“We’re going to be releasing very detailed rules in the next few weeks that give companies a clearer sense of what the red lines are,” Raimondo said Monday ahead of the announcement.

Reporting by David Shepardson; Editing by Chris Sanders, Robert Birsel, Lisa Shumaker and Mark Porter

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