Global Semiconductor Industry's Struggles
WSJ Declares "CHIPS Act Is a Socialist Industrial Policy"
The U.S. administration under Joe Biden is demanding semiconductor companies receiving subsidies to return excess profits and, in effect, disclose business secrets, raising concerns across the global semiconductor industry. Even within the United States, criticism is emerging that the Chips Act is a 'socialist industrial policy.'
According to major foreign media on the 1st (local time), the global semiconductor industry is caught in a dilemma over applying for subsidies due to unexpected toxic clauses such as excess profit sharing included in the Chips Act. The subsidy criteria are so stringent that it has become a case of 'the tail wagging the dog,' leading to complaints that it feels as if companies are being told not to invest in semiconductors in the U.S.
The detailed notice of funding support (NOFO) for the Chips Act, released on the 28th of last month, contains numerous clauses that shackle companies receiving subsidies. First, companies receiving subsidies exceeding $150 million must share any profits exceeding expectations with the U.S. government. This is the clause that companies feel most pressured by. The U.S. government plans to recover up to 75% of the subsidy as a profit-sharing limit, and these funds will be used to strengthen the domestic semiconductor ecosystem. Companies receiving subsidies must also refrain from dividends and share buybacks for the next five years.
The U.S. government also requires a detailed financial plan including cash flow, internal rate of return, and profitability indicators to ensure that not a single cent of the subsidy is wasted. From the perspective of semiconductor companies, this clause poses a significant risk of exposing management secrets. Additionally, the government has stipulated conditions such as allowing the Department of Defense access to production facilities, effectively requiring disclosure of core semiconductor process technologies. Companies receiving subsidies are also prohibited from expanding semiconductor production capacity in China for the next ten years. The notice also includes requirements such as hiring local construction workers paid fair wages and mandatory installation of daycare centers.
As the U.S. government has disclosed excessively stringent subsidy criteria, concerns within the semiconductor industry have grown. Criticism has also been raised that government interference in foreign companies' management has gone too far. A global semiconductor industry official told a foreign media outlet, "This excess profit sharing is an unexpected measure, and it is unclear how it will be applied as each company negotiates individually with the U.S. government," adding, "The negotiation process could make things even more difficult."
Restrictions on share buybacks are expected to dampen investment sentiment. Another industry insider said, "Share buybacks are a measure that can soothe investors in the chaotic semiconductor market, which shifted from shortage to oversupply in just two years," and predicted, "Some companies will face difficulties due to the share buyback restrictions."
The cost of building semiconductor factories in the U.S. is also likely to increase. The U.S. already incurs higher investment costs compared to other countries like Taiwan and Singapore. An industry official pointed out, "No one expected a 'free lunch,' but due to these unexpected measures, companies will once again have to recalculate the costs related to building factories in the U.S."
Criticism is also pouring in domestically. The Wall Street Journal (WSJ), in an editorial, introduced Goldman Sachs' forecast that the U.S. global semiconductor production share will not increase by even 1%, and sharply criticized the Chips Act as a socialist industrial policy. The newspaper commented, "Government subsidies are never free, and we are learning the price semiconductor companies pay after signing on to Biden's industrial policy," adding, "They will become slaves to progressive socialist policies."
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