What Apple gets out of the Chips Act that Biden just signed into law

From Glenn O'Donnell's "The Chips Act Puts the Semiconductor Industry Back on the Right Path" posted Saturday by Barron's:

Beneficiaries of the Chips Act are obviously the chipmakers. Intel, Micron, Samsung, and TSMC are some of the more prominent names at the center of this movement because they actually own and run the fabs. Many others, such as AMD, Apple, NVIDIA, and Qualcomm, are one step away. This “fabless” group doesn’t manufacture their chips; someone like TSMC does. While chip makers will get help, a few points are worth noting:

    1. This isn’t a bailout like the automakers got in 2009. Detroit car makers were suffering from the Great Recession in 2009. They had already cut many jobs, and the prospects were grim for the rest. Because the auto industry is another major linchpin of the overall economy, the ripple effects were profoundly destructive to the economy. Chip makers face numerous pressures, but they are hardly destitute. This Chips Act is about building more manufacturing on U.S. soil, not about lining the pockets of wealthy tech behemoths.
    2. Don’t expect a windfall for any of the chipmakers. Even in government circles, $54 billion is a lot of money. As this pie gets sliced and diced, however, the actual amount each chipmaker will get is far smaller. Any of this money that is spent on a new fab must result in significant economic growth and skills development for the local community.
    3. Funds will indirectly benefit players in the chip supply chain. Chip making requires a lot of specialized equipment from companies like ASML, Lam Research, and Teradyne and a lot of chemicals and gasses from companies such as Air Products, DuPont, and Entegris. As chipmakers build more fabs, these suppliers will surge. They will also set up a local presence in the community where the new fab is built, adding more jobs.
    4. Foreign companies can get a share. A particularly interesting point here is that the act is not protectionist of U.S. companies. TSMC is Taiwanese and Samsung is South Korean. Both made huge commitments to building fabs in America. Chips Act funds can only be applied to fabs on U.S. soil, but the company’s HQ location doesn’t matter.
    5. Don’t expect immediate returns. Chip making is a long process. Building a chip fab takes even longer. The new fabs planned in places like Arizona, Texas, and Ohio will each take two to three years to build and cost about $20 billion each. Only a few of these proposed facilities have broken ground, and only recently. We won’t see them producing chips until the 2024–2026 time frame.

My take: I've got my eyes on the TSMC plant in Arizona. New Federal money tends to get poured into projects that are shovel-ready.

14 Comments

  1. Gregg Thurman said:
    My money is on TSMC to go operational first. TSMC’s technical chops are best in class. A production start date of 2025 should result in significant sustainable increase in Apple revenue.

    Just in time for new chip consuming Apple products

    4
    August 13, 2022
    • Fred Stein said:
      Yes, my money as well is on TSMC, literally. Like Apple, they have the best, as in best technology, best customers, best ecosystem, best leadership.

      1
      August 13, 2022
    • Steven Philips said:
      Gregg: I’m not seeing any reason to think a US chip fab will effect Apple’s income. It will probably be cheaper to get the high end chips from Taiwan.
      And I SUSPECT these US fabs will focus on lower level chips for cars etc. Honestly I doubt a unionized US work force can compete on production.
      What am I missing in your view?

      3
      August 13, 2022
      • Fred Stein said:
        Steven, you’re correct, regardless if the fabs are unionized. I recommend you search YouTube for Morris Chang’s comments on TSMC’s experience in Oregon.

        I’m not making judgements or political views. TSMC’s foundries in Taiwan are the best. Hence, any other foundry will look worse.

        0
        August 13, 2022
      • Gregg Thurman said:
        It will probably be cheaper to get the high end chips from Taiwan.

        It isn’t cheaper if you can’t get what you need to satisfy demand. Apple’s need for chips is only going to increase.

        Converting unsatisfied demand to realized revenue boosts everything.

        2
        August 13, 2022
  2. When decisions, laws, or regulations are made benefitting certain public firms, the shares in those firms get attention, rising or falling on the ruling. Think what FDA approval does to particular pharma stocks. The delay and perhaps scrapping of the tech antitrust law (The American Innovation and Choice Act) benefitted Apple and others. It may return though.
    In any event, the biggest gain from govt approvals goes to those who hold shares long.
    Deeper down the supply chain it is tougher to predict the impact. Solar panel installers, lithium and rare earth miners may not see more investment right off. Apple becomes even more antifragile.
    Useful link to TSMC’s topping out ceremony, Phil. Thanks!

    2
    August 13, 2022
  3. Fred Stein said:
    The real winners will be the companies that attract the best talent, here in the US, for the foundry jobs. In the US, we excel in chip architecture and design, attracting this highly paid talent pool from around the world. The pool of workers skilled in foundry job has to expand a lot to run these fabs.

    Again, my money is on TSMC to get the best talent. But even they state that their Oregon facility does not compare well with their Taiwan facilities.

    No complaints, though. China, Taiwan, and So. Korea all subsidize their semi industry.

    4
    August 13, 2022
  4. Gregg Thurman said:
    It just occurred to me that Apple’s proprietary chips cost far less than sourcing from Samsung, Qualcomm or Intel.

    I’ll wager there’s enough price differential between Intel et al to make a US based fab plenty affordable.

    0
    August 13, 2022
  5. Steven Noyes said:
    The Chips Act will have minimal impact but will drive costs higher. Like the new EV incentives, what good is stimulus if you don’t have the human/material resources to satisfy demand?

    Already, we have seen the cost of the F150 Lightning go up in cost to make sure 100% of the new EV incentives go to Ford and not the consumer. If you want a Mach-E now, you will have to wait until the 2024 model comes out. A Tesla, nearly a 1 year wait. A Rivian? Another nearly year wait. Incentives will simply drive up demand with no supply driving up costs.

    The Chips Act is no different. The issue is NOT a shortage of capital but a shortage of human resources and over-regulation.

    I expect the Chips Act to accomplish very little.

    1
    August 14, 2022
    • Fred Stein said:
      Agree. The CHIPS act will accomplish little. It’s a reaction to the impact on the auto industry, shutting factories, furloughing workers and increasing prices. It’s also a reaction to our defense industry suppliers’ reliance on Taiwan. It would be better to address the specific problems.

      0
      August 14, 2022
    • David Drinkwater said:
      intended to be in response to Steven Notes, but apparently misattributed:

      I don’t really agree. Without sharing proprietary data, that I don’t really have, but that suppliers have indicated to me, I’ll say this:

      There are American companies that want to keep their supply chains and Intellectual Property on American Soil. China has no respect for these, especially IP. Taiwan might be better. I hope so, given Apple’s interest in TSMC.

      More separately.

      0
      August 14, 2022
  6. David Drinkwater said:
    1). Chip margins are low, packaged parts margins are where the money is.

    2). No comment here.

    3) Physical plant to supply fabs will dictate where they are built, not the other way around. Supplies to Fabs have sucked on things that I will not put in print. MAJOR hassles for fabs. Also, modern fabs will not employ a lot of people. Once you cross 200 mm diameter wafers, fabs are mostly heavily, heavily automated. SMIF boxes do not require many humans.

    4) IP is a valuable asset. A non-American company is still not American, no matter where they build their fabs. Some companies want to keep their IP inside America’s “four walls”.

    5). Agree. Slow returns. Building a fab and qualifying the processes is expensive and slow. Qualifying the Products that those fabs will make is also slow. And it is all very, very expensive..

    0
    August 14, 2022

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