Chapter 1: The Significance of Semiconductors

The semiconductor sector is vital for the nation's global competitiveness, as integrated circuits (ICs) are essential components in nearly every device—from defense systems and aircraft to automobiles and home electronics. The recent chip shortages have highlighted the necessity for reliable supply chains, underscoring their importance not just for economic stability, but also for national security and technological leadership.

In response to these challenges, the Biden Administration introduced the CHIPS and Science Act (CHIPS Act) two years ago, allocating $52.7 billion to fortify the U.S. position in the semiconductor landscape. Of this investment, $13.2 billion is earmarked for research and development (R&D) and workforce training, complemented by a 25% investment tax credit for expenses associated with semiconductor manufacturing and related technologies. The objective is to enhance domestic semiconductor production, bolster supply chain resilience, foster global competition, and tackle national security issues.

This initiative is set to catalyze innovation and strengthen competitiveness. Notably, the CHIPS Act includes provisions for R&D funding, which is expected to ignite advancements in semiconductor technology. These improvements will enhance performance and efficiency while unlocking new applications for ICs. For instance, our portfolio company, EnaChip, is pioneering power-integrated circuits, addressing the growing demand for sophisticated power systems on a chip amid the rise of AI and connected devices.

The CHIPS Act holds the promise of significantly benefiting companies like EnaChip and revitalizing early-stage investments that drive innovation. By reducing risks associated with investments in semiconductor R&D and manufacturing, the Act aims to cultivate a more secure domestic supply chain, which in turn can boost investor confidence in startups engaged in this sector.

Section 1.1: The Economic Ripple Effect

The CHIPS Act's influence on the tech ecosystem is expected to create a ripple effect, resulting in a more vibrant startup ecosystem due to improved infrastructure and resources. The substantial government investment reflects a strong commitment to the semiconductor industry, likely fostering greater confidence among investors and attracting more early-stage funding.

Subsection 1.1.1: Future Projections

According to the ambitious targets outlined in the CHIPS Act, the U.S. aims to produce approximately 20% of the world’s most advanced semiconductor chips by the end of the decade. Currently, the domestic production rate stands at less than 12%, a significant drop from about 37% in 1990. The most advanced chips are predominantly manufactured in Taiwan.

As economic historian Chris Miller aptly puts it, “Microchips are the new oil.” The modern economy's dynamics hinge on semiconductors, which are now vital for military, economic, and geopolitical power. A robust domestic semiconductor industry will facilitate rapid technological advancements and help maintain the U.S.'s economic leadership.

Chapter 2: The Impact of Government Funding

The financial support provided by the CHIPS Act is crucial for chip manufacturers, alleviating some of the heavy financial burdens associated with constructing facilities that can cost around $30 billion. Recently, semiconductor firms have committed over $230 billion to U.S. operations, often contingent upon receiving governmental backing.

Since the enactment of the CHIPS Act in 2022, subsidies have been limited, with only three American companies—BAE Systems, GlobalFoundries, and Microchip Technology—currently benefiting from this initiative. Reports indicate that Intel is negotiating to secure as much as $10 billion in government funding for its new facility in Ohio, where it aims to become the second-largest foundry by 2030.

Additionally, Taiwan Semiconductor Manufacturing Company (TSMC) is investing approximately $40 billion to establish a foundry in Phoenix, Arizona, set to produce cutting-edge 3nm process technology by 2026.

The CHIPS Act presents considerable opportunities for U.S. enterprises—both large and small. This legislative framework is designed to enhance the attractiveness of the U.S. as an investment destination and affirm the nation's leadership in crucial future industries.

Longview Innovation embodies the commitment to scientific advancement. The firm invests in and develops companies that showcase significant scientific breakthroughs, collaborating with innovators aiming to impact millions. Our investment portfolio spans various sectors, including life sciences, climate technology, manufacturing, semiconductors, transportation, and artificial intelligence.