Biden Administration Selects Military Supplier for First CHIPS Act Grant

The Biden administration will announce Monday that BAE Systems, a defense contractor, will receive the first federal grant from a new program aimed at supporting U.S. manufacturing of critical semiconductors.

The company is expected to receive a $35 million grant to quadruple domestic production of a type of chip used in F-15 and F-35 fighter jets, government officials said. The grant is intended to help ensure safer delivery of a component critical to the United States and its allies.

The award is the first of several expected in the coming months as the Commerce Department begins distributing the $39 billion in federal funding that Congress authorized under the CHIPS and Science Act of 2022. The money is intended to to stimulate the construction of chip factories in the United States and lure back an important form of manufacturing that has disappeared abroad in recent decades.

Gina Raimondo, the Commerce Secretary, said Sunday that the decision to select a defense contractor for the first prize, rather than a commercial semiconductor facility, was intended to emphasize the administration’s emphasis on national security.

“We cannot gamble with our national security by relying solely on one part of the world or even one country for critical advanced technologies,” she said.

Semiconductors originated in the United States, but the country now produces only about a tenth of the chips made worldwide. While American chip companies still design the world’s most advanced products, much of the world’s manufacturing has migrated to Asia in recent decades as companies sought lower costs.

Chips power not only computers and cars but also missiles, satellites and fighter jets, prompting officials in Washington to view the lack of domestic manufacturing capacity as a serious national security vulnerability.

A global chip shortage during the pandemic shuttered auto factories and dented the U.S. economy, highlighting the risks of supply chains beyond America’s control. The chip industry’s incredible dependence on Taiwan, a geopolitical flashpoint, is also seen as an intolerable security threat as China considers the island a breakaway part of its territory and has discussed reclaiming it.

The BAE chips that would be funded by the program are produced in the United States, but government officials said the money could allow the company to upgrade outdated machines, posing a risk to the plant’s continued operations.

Like other grants under the program, the funding would be disbursed to the company over time, after the Commerce Department conducts due diligence on the project and as the company reaches certain milestones.

“When we talk about supply chain resilience, this investment is about strengthening that resilience and ensuring the chips are delivered when our military needs them,” said Jake Sullivan, President Biden’s national security adviser.

BAE, partly through operations acquired from Lockheed Martin, specializes in chips called monolithic microwave integrated circuits, which generate high-frequency radio signals and are used in electronic warfare and aircraft-to-aircraft communications.

The award will be formally announced Monday at the company’s plant in Nashua, NH. The facility is part of the Pentagon’s “trusted Foundry” program, which produces chips for defense-related needs under strict security restrictions.

In the coming months, the Biden administration is expected to announce much larger subsidies for large semiconductor manufacturing facilities from companies such as Intel, Samsung or Taiwan Semiconductor Manufacturing Company, known as TSMC.

Ms. Raimondo told reporters on Sunday that the grant was “the first of many announcements” and that the pace of those awards would accelerate in the first half of next year.

The Biden administration hopes to create a booming chip industry in the United States, which would include the industry’s most advanced manufacturing and research operations, as well as factories pumping out older types of chips and different types of suppliers to make the chemicals and others. raw materials that require chip facilities.

Part of the program’s focus is on creating a secure source of chips that can be used in products needed by the U.S. military. The supply chains that power weapons systems, fighter jets and other technology are opaque and complex. Chip industry executives say some military contractors have surprisingly little insight into where some semiconductors in their products come from. At least part of the chip supply chains that supply U.S. military goods pass through China, where companies produce and test semiconductors.

Since Mr. Biden signed the CHIPS Act into law, companies have announced plans to invest more than $160 billion in new U.S. manufacturing facilities in hopes of capturing some of the federal money. The law also provides a 25 percent tax credit for money chip companies spend on new U.S. factories.

The funding will be a test of the Biden administration’s industrial policy and its ability to select the most viable projects while ensuring taxpayer dollars are not wasted. The Commerce Department has put together a special team of about 200 people who are now reviewing company applications for the funds.

Technology experts expect the law will help reverse a three-decade decline in the U.S. share of global chip production, but it remains uncertain how much of the industry the program can regain.

While the amount of money available under the new law is historically large, it could happen quickly. Chip factories are equipped with some of the most advanced machinery in the world and are thus incredibly expensive, with the most advanced facilities costing tens of billions of dollars each.

Industry executives say the cost of running a chip factory and paying workers in the United States is higher than in many other parts of the world. East Asian countries continue to offer lucrative subsidies for new chip facilities, as well as a large supply of skilled engineers and technicians.

Chris Miller, a professor at Tufts University and author of “Chip War,” a history of the industry, said there was “clear evidence” of a major increase in investment in the semiconductor supply chain in the United States as a result of the law.

“I think the big question that remains is how sustainable these investments will be over time,” he said. “Are they one-off or will they be followed by a second and third round for the companies involved?”

Don Clark reporting contributed.