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US Says It Will Limit Size of Government Subsidy on Semiconductor Chips

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By Reuters | Updated: 30 July 2022

The US Commerce Department said late on Friday it will limit the size of government subsidizes for semiconductor manufacturing and will not let firms use funding to “pad their bottom line.” On Thursday, the US House of Representatives gave final approval to legislation that provides $52 billion (nearly Rs. 4 lakh crore) in government funding to boost semiconductor manufacturing and research. President Joe Biden is expected to sign the legislation early next week. The Commerce Department Friday told chips companies awards will be “no larger than is necessary to ensure the project happens here in the United States” and added it will discourage “race-to-the-bottom subsidy competitions between states and localities.”

Congressional Progressive Caucus chair Pramila Jayapal said the group backed the legislation after lengthy negotiations with Commerce Secretary Gina Raimondo after the group expressed concerns chips companies would use funding for stock buybacks or pay dividends.

A caucus spokeswoman said Friday “progressives were able to vote for the bill yesterday, confident that the department would be ensuring the funding could not be used for corporate self-enrichment.”

Commerce said applicants must supply detailed financial information and projections for proposed projects and capital investment plans: “The department will go over these with a fine-tooth comb and make sure that companies are not padding their models to ask for outsized incentives.”

A Commerce Department spokesperson declined to comment beyond the web posting.

The department vowed to “give preference in awards to companies who commit to make future investments that grow the domestic semiconductor industry … and not engage in stock buybacks.”

The legislation does not prohibit stock buybacks by companies receiving government funding but does prohibit the use of grant funds for the buybacks.

Companies winning funding will be prohibited for 10 years “from engaging in significant transactions in China or other countries of concern involving any leading-edge semiconductor manufacturing capacity or material expansions of legacy semiconductor manufacturing capacity designed to export to the US and other countries.”

© Thomson Reuters 2022

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Intel Said to Select Veneto as Preferred Site for Multibillion-Euro Chip Plant in Italy: All Details

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By Reuters | Updated: 26 September 2022

Mario Draghi’s outgoing government and Intel have picked the town of Vigasio in the northeastern Veneto region as their preferred site for a new multibillion-euro chip factory in Italy, two people familiar with the matter said.

Intel’s investment in Italy is part of a wider plan announced by the US chipmaker last March to invest as much as EUR 80 billion (roughly Rs. 6,27,930 crore) over the next decade in building capacity across Europe.

With an initial investment worth some EUR 4.5 billion (roughly Rs. 35,340 crore) expected to rise over time, Intel has said the Italian plant would create 1,500 jobs plus an additional 3,500 jobs across suppliers and partners, with operations to start between 2025 and 2027.

The Italian factory would be an advanced semiconductor packaging and assembly plant, using new technologies to weave together full chips out of tiles.

Asking not to be named due to the sensitivity of the matter, the sources said that the parties had detailed a comprehensive agreement in early September, but no public announcement would be made before the outcome of Sunday’s general election.

A spokesperson for Intel did not comment as negotiations are ongoing and confidential. Draghi’s office also declined to comment.

Located near Verona, on the strategic Brenner motorway and railway, Vigasio is the preferred option from a shortlist of two sites which also includes one in the northwestern Piedmont region.

Among other reasons, the site is well connected with Germany and in particular with the city of Magdeburg, where Intel will build two factories, one of the sources added.

Intel and the government had also initially considered sites in the Lombardy, Apulia, and Sicily regions.

Draghi’s close aides aim to enter into behind-the-scenes negotiations with their likely successors to avoid any risk the deal might be challenged by Italy’s new government, the people said, adding the choice for the site is highly sensitive politically.

Opinion polls have all predicted that Giorgia Meloni’s nationalist Brothers of Italy group will emerge as the leading party on Sunday and share power with its allies the League, headed by Matteo Salvini, and Silvio Berlusconi’s Forza Italia.

The sources declined to provide further details, but Reuters has previously reported that Rome is ready to fund as much as 40 percent of Intel’s total investment in Italy.

The state contribution to Intel’s investment programme is something that must necessarily be shared with the next government before any deal is eventually formalised, one of the sources said, adding Draghi could let the next government make the announcement.

To boost domestic chipmaking, Rome is also in talks with French-Italian STMicroelectronics, Taiwan chipmakers MEMC Electronic Materials Inc and TSMC, and Israeli Tower Semiconductor, which Intel bought earlier this year.

© Thomson Reuters 2022

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Nvidia CEO Says US Export Restrictions on Top Data Centre Chips Leave ‘Large Space’ for China Sales

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By Reuters | Updated: 22 September 2022

Nvidia Chief Executive Jensen Huang said Wednesday that he continues to see a large market for Nvidia’s data centre chips in China despite US restrictions on exports of two of its top chips to the country.

At a news conference after the company’s fall product launch, Huang said that the restrictions disclosed earlier this month have specific thresholds for both the performance of a chip as well as the processor’s ability to connect other chips.

He said that the rules leave “a large space for us” in the Chinese market.

“The vast majority of our customers are not affected by the specification,” Huang said.

“So our expectation is that for the United States and also for China, we will have a large number of products that are architecturally compatible, that are within the limits and that require no license at all.”

Nvidia said September 1 that it had been told by the US government to stop exports of its A100 and H100 chips to China, which could affect up to $400 million (roughly Rs. 3,228 crore) in sales for the company in its current fiscal quarter. The two products are Nvidia’s fastest chips and are used in data centres to speed up artificial intelligence tasks such as natural language processing.

At the news conference, Huang said that both chips are part of larger chip lineups with a “large number of products” that can still be sold in China. Huang also said that Nvidia will seek licenses from the US government for Chinese customers who want its top chips.

“You could surmise that the goal is not to reduce or hamper our business. The goal is to know who it is that would need capabilities above this limit and give the United States the opportunity to make a decision about whether that level of technology should be available to others,” Huang said.

© Thomson Reuters 2022

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China Claims US CHIPS And Science Act Will Disrupt International Trade, Distort Global Semiconductor Supply Chains

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By Associated Press | Updated: 11 August 2022

China on Wednesday criticized a US law to encourage processor chip production in the United States and reduce reliance on Asian suppliers as a threat to trade and an attack on Chinese business. The law signed this week by President Joe Biden promises $52 billion (roughly Rs. 4,11,300 crore) in grants and other aid to investors in US chip factories. It responds in part to warnings that supplies might be disrupted if China attacks Taiwan, which produces up to 90 percent of high-end chips. China’s ruling Communist Party claims the self-ruled island as part of its territory.

The measure will “disrupt international trade and distort global semiconductor supply chains,” said a Foreign Ministry spokesperson, Wang Wenbin. “China firmly opposes that.”

Parts of the law “restrict companies’ normal investment and economic and trade activities in China,” Wang said, without giving details.

Disruption in chip supplies following the coronavirus pandemic hampered production of goods from smartphones to autos and highlighted the world’s reliance on Taiwanese chips and Chinese factories that assemble most electronic devices.

Fears of disruption have been heightened by Chinese threats to attack Taiwan, which split with the mainland in 1949 after a civil war.

Beijing launched military drills around the island last week in retaliation for a visit by Speaker Nancy Pelosi of the US House of Representatives. China believes visits by American officials to Taiwan might encourage its leaders to make its de facto independence permanent, a step the mainland says would lead to war.

The “CHIPS and Science Act” calls for research spending that would total about $200 billion (roughly Rs. 15,81,900 crore) over 10 years, according to the Congressional Budget Office.

The Communist Party has spent tens of billions of dollars developing China’s own chip production industry. Its factories make low-end chips for autos and other products but cannot supply high-end smartphones and other devices.

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CHIPS Bill: US President Joe Biden to Sign Bill to Boost US Semiconductor Industry on August 9

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By Reuters | Updated: 4 August 2022

US President Joe Biden next Tuesday will sign a bill to subsidize the US semiconductor industry and boost efforts to make the United States more competitive with China, the White House said on Wednesday. The legislation aims to alleviate a persistent shortage that has affected everything from cars, weapons, washing machines and video games. Thousands of cars and trucks remain parked in southeast Michigan awaiting chips as the shortage continues to impact automakers.

A rare major foray into US industrial policy, the bill provides about $52 billion (roughly Rs. 4,11,400 crore) in government subsidies for research and US production of semiconductors. It also includes an investment tax credit for chip plants estimated to be worth $24 billion (roughly Rs. 1,89,800 crore).

“The bill will supercharge our efforts to make semiconductors here in America,” Biden said Tuesday.

US President Joe Biden next Tuesday will sign a bill to subsidize the US semiconductor industry and boost efforts to make the United States more competitive with China, the White House said on Wednesday. The legislation aims to alleviate a persistent shortage that has affected everything from cars, weapons, washing machines and video games. Thousands of cars and trucks remain parked in southeast Michigan awaiting chips as the shortage continues to impact automakers.

A rare major foray into US industrial policy, the bill provides about $52 billion (roughly Rs. 4,11,400 crore) in government subsidies for research and US production of semiconductors. It also includes an investment tax credit for chip plants estimated to be worth $24 billion (roughly Rs. 1,89,800 crore).

“The bill will supercharge our efforts to make semiconductors here in America,” Biden said Tuesday.

The legislation authorizes $200 billion (roughly Rs. 15,82,000 crore) over 10 years to boost US scientific research to better compete with China. Congress would still need to pass separate appropriations legislation to fund those investments.

China had lobbied against the semiconductor bill. The Chinese Embassy in Washington said China “firmly opposed” it, calling it reminiscent of a “Cold War mentality.”

Many US lawmakers had said they normally would not support hefty subsidies for private businesses but noted that China and the European Union have been awarding billions in incentives to their chip companies. They also cited national security risks and huge global supply chain problems that have hampered global manufacturing.

Some progressive lawmakers had raised concerns about the size of government grants to profitable chip companies.

The Commerce Department said Friday it will limit the size of government subsidizes for semiconductor manufacturing and will not let firms use funding to “pad their bottom line.”

Congressional Progressive Caucus chair Pramila Jayapal said the group backed the legislation after lengthy negotiations with Commerce Secretary Gina Raimondo after the group expressed concerns chips companies would use funding for stock buybacks or pay dividends.

© Thomson Reuters 2022

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US Chip Export Restrictions to China May Hurt Global Supply Chain, Say Experts

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By Reuters | Updated: 3 August 2022

Export restrictions being considered by Washington to halt China’s advances in semiconductor manufacturing could come at a substantial cost, experts say, potentially disrupting fragile global chip supply chains – and hurting US businesses.

Reuters reported on Monday that the United States is considering limiting shipments of American chipmaking equipment to memory chip producers in China that make advanced semiconductors used in everything from smartphones to data centres.

The curbs would stop chipmakers like South Korean giants Samsung Electronics and SK Hynix from shipping new technology tools to factories they operate in China, preventing them from upgrading plants that serve customers around the world.

Samsung and SK Hynix, which control more than half of the global NAND flash memory chip market, have invested heavily in China in recent decades to produce chips that are vital to customers including tech giants Apple, Amazon, Facebook owner Meta, and Google. As well as computers and phones, the chips are used in products like electric vehicles that require digital data storage.

“Samsung’s China production alone accounts for more than 15 percent of global NAND flash production … If there’s any production disruption, it will make chip prices surge,” said Lee Min-hee, analyst at BNK Securities.

The potential for fresh turmoil – the curbs have yet to be approved – comes just as a global chip supply shortage that has disrupted businesses from autos to consumer devices for more than a year is finally showing signs of easing. Supply chain adjustments and weakening consumer demand amid the slowing global economy have combined to repair damage.

But the shortage has yet to be fully resolved. Any signs of fresh disruption could rekindle supply uncertainty, triggering a price surge – as seen earlier this year when China imposed COVID-19 restrictions in Xian where Samsung manufactures chips.

Chipmaking equipment has to be installed and fully tested months before production is due to start. Any delay in shipping the gear to China would pose a real challenge to chipmakers as they seek to manufacture more advanced chips in China facilities.

“Many US companies, like Apple, use Samsung and SK Hynix memory chips. No matter what strategy (the South Korean firms) end up choosing, it will have global implications,” said BNK Securities analyst Lee.

Samsung and SK Hynix declined to comment. Apple, Amazon, Meta, and Google didn’t respond to emails seeking comment outside regular US business hours.

Ambitions, complications

In Samsung’s memory chip operation in Xian, central China, one of the largest foreign chip projects in the country, the company has invested a total of about $26 billion (roughly Rs. 2,05,310 crore) since it broke ground on the site in 2012, including chip production as well as testing and packaging.

The tech giant makes 128-layer NAND flash products in Xian, analysts said, chips that store data in devices such as smartphones and personal computers, as well as in data centres.

The facility accounts for 43 percent of Samsung’s global NAND flash memory production capacity and 15 percent of the overall global output capacity, according to TrendForce late last year.

The US crackdown, if approved, could also complicate SK Hynix’s ambition to expand its presence in the NAND market where it is ranked third as of first quarter behind Samsung and Japan’s Kioxia Holdings, which was spun out of Toshiba.

SK Hynix completed late last year the first phase of its $9 billion (roughly Rs. 71,070 crore) purchase of Intel’s NAND business, including its Dalian, China NAND manufacturing facility.

China strategies

The move being considered by the United States is one of several recent signs of deepening tensions between Beijing and Washington over the tech sector.

Congress last week approved legislation to subsidise semiconductor production in the United States. It bars any company that receives federal subsidies from investing in certain chip technology in China during the subsidy period.

The deepening tensions could leave Samsung and SK Hynix having to review strategies on China investments, analysts and industry sources said.

“Until now, companies tended to invest in countries like China, where costs were cheap,” said Kim Yang-jae, analyst at Daol Investment & Securities.

“That’s no longer going to be the only consideration. The biggest change these potential limits will bring will be where the next chip factories are built.”

They could also face potentially diminishing returns from their multi-billion dollar China plants, which could be stuck making older-technology, less lucrative chips.

SK Hynix has not been able to upgrade its DRAM memory chip production facilities in Wuxi, China with the latest extreme ultraviolet lithography (EUV) chipmaking machines made by Dutch firm ASML as US officials do not want advanced equipment used in the process to enter the country.

The EUV machines are used to make more advanced and smaller chips that are used in high-end devices such as smartphones.

© Thomson Reuters 2022

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Chip Manufacturer Stocks Fall Globally as Taiwan Tensions Mount Ahead of Expected Nancy Pelosi Visit

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By Reuters | Updated: 2 August 2022

Semiconductor stocks fell globally on Tuesday as an expected visit by the US House of Representatives Speaker Nancy Pelosi to Taiwan, which China claims as its territory, fueled a fresh escalation in tensions between Washington and Beijing.

China views the visit by Pelosi, second in the line of succession to the US presidency and a long-time critic of China, as sending an encouraging signal to the pro-independence camp in Taiwan and has repeatedly warned against it.

Taiwan is home to the world’s biggest manufacturer of semiconductors on contract, Taiwan Semiconductor Manufacturing Co (TSMC). Shares of the company closed down 2.4 percent, while peer United Microelectronics Corp (UMC) fell 3 percent.

Taiwanese stocks dropped 1.6 percent, marking their biggest percentage decline in three weeks, while stocks in China posted their biggest fall in more than two months as mounting tensions unsettled Asian financial markets.

“The outlook for trade in Asia is likely to weigh on semiconductors, given how much of the world’s global production comes from Taiwan,” said Michael Hewson, chief markets analyst at CMC Markets UK.

Semiconductor stocks globally felt the heat. Germany’s Infineon declined 2.3 percent, while Dutch firms ASML, ASMI, and BESI fell between 3 percent and 4 percent. The US chip stocks such as Nvidia, Intel, Qualcomm, and Micron dipped more than 1 percent each in trading before the bell.

“This market reaction is expected following the strong performance of equity markets in July,” said Andrea Cicione, head of strategy at TS Lombard in London.

“The longer-term impact is unlikely to be significant unless the situation escalates, which wouldn’t be my expectation right now.”

Pelosi was set to visit the island on Tuesday, three sources said, as several Chinese warplanes flew close to the median line dividing the Taiwan Strait, a source told Reuters.

© Thomson Reuters 2022

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