Editor's Note: Recently, the United States has released the application process for chip subsidies. At the same time, they also published a white paper that discloses their vision in manufacturing, which we excerpt and translate as follows.

Semiconductors are an indispensable part of the U.S. economy and national security, powering our consumer electronics, automobiles, data centers, critical infrastructure, and almost all military systems. However, despite the United States still leading the world in semiconductor design and research and development (R&D), it has fallen behind in manufacturing, currently accounting for only about 10% of global commercial production. Today, the most advanced logic and memory chips—chips that power personal computers, smartphones, and supercomputers—are not produced on a commercial scale in the United States.

In addition, many elements of the semiconductor supply chain are geographically concentrated, making them vulnerable to disruption and jeopardizing the global economy and U.S. national security. Furthermore, the lack of U.S. production capacity also endangers its technological leadership and long-term global competitive ability, as continuous investment in manufacturing technology and related R&D enhances technological knowledge and promotes a virtuous cycle of innovation.

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Against this backdrop, the U.S. Department of Commerce's CHIPS program office has released its first financing opportunity, seeking applications for the construction, expansion, or modernization of semiconductor manufacturing commercial facilities for cutting-edge technology front-end and back-end, current generation, and mature nodes, and has released a vision for these projects, covering four aspects: cutting-edge logic, advanced packaging, cutting-edge memory, and mature nodes.

The CHIPS program office stated that the funds managed by the department only account for a small part of the investment needed to achieve this successful vision. At the same time, trade-offs are necessary, and not every applicant will receive funding, and many projects will not receive as much support as the applicants request. Moreover, although the CHIPS program office launched its first financing opportunity during a cyclical downturn in the industry, CHIPS funds will not be used as a crutch to help companies endure temporary downturns. Instead, the CHIPS program office will focus on advancing the goals of the U.S. economy and national security.

The CHIPS program office is well aware of the scale of the challenges it faces. It is by no means an easy task for the United States to rebuild a highly complex manufacturing industry that has been declining for decades. Success requires long-term ambition: to establish a domestic semiconductor ecosystem, revitalize American manufacturing, and cultivate the next generation of scientists, engineers, and technicians. To address this challenge, the CHIPS program office has identified nine cross-cutting themes to guide its implementation work, including:

1. Promoting private investment;

2. Encouraging customer demand;

3. Engaging with American partners and allies;

4. Building a skilled and diverse workforce;5. Reduce construction time;

6. Lower costs through innovation;

7. Promote operational safety, supply chain security, and cybersecurity of CHIPS-funded facilities;

8. Foster regional economic development and inclusive economic growth;

9. Strengthen guardrails;

The success of these themes will help ensure that CHIPS funding promotes the United States' leadership in the field of chip manufacturing, enhances the stability of the semiconductor supply chain, and promotes the economic and national security of the United States.

Cutting-edge Logic

The economic and national security of the United States depends on our ability to design and produce cutting-edge logic chips. These advanced chips power our computers, smartphones, servers, and supercomputers. They are increasingly the foundation of the United States' critical infrastructure and military modernization efforts. They are essential for future technologies ranging from artificial intelligence to biotechnology to clean energy.

Today, all commercial production of leading logic chips takes place in East Asia, but this is a recent development. East Asian chip manufacturers have surpassed the United States in process technology (the manufacturing method that allows engineers to install more transistors and other electronic components on a single chip) and scale, attracting a broad customer base that supports their continued expansion and innovation. This is partly due to the "pure foundry" business model pioneered by East Asian companies. Unlike integrated device manufacturers that design and manufacture their own chips, pure wafer foundries manufacture chip designs from various customers on a contract basis. As a result, many American companies have become "fabless," leading the world in the field of semiconductor design while outsourcing manufacturing to East Asian foundries.

The strength of the United States in chip design is a key commercial and strategic asset, but the decline of U.S. manufacturing—and the subsequent geographical concentration—has created supply chain vulnerabilities. It also undermines the United States' technological leadership: without foundries, it is difficult to establish domestic manufacturing technologies that help stimulate process technology innovation and chip design-related progress. A core priority of the CHIPS program office is to help the United States produce the most advanced chips on a sustainable basis at a competitive scale once again, either through the pure foundry model or alternative models that allow companies to manufacture chips on a large scale. Accordingly, the CHIPS program office has set the following goals:By the end of this century, the United States will have at least two new large-scale frontier logic factory clusters. To this end, the CHIPS Program Office defines a cluster as a geographically compact area with multiple commercial-scale wafer fabs owned and operated by one or more companies; a large, diverse, and skilled workforce; nearby semiconductor industry suppliers, R&D facilities, public services, and specialized infrastructure, such as chemical processing and water treatment facilities.

Given the importance of the United States' continued logic chip production capabilities and the rapid changes in the competitive landscape of advanced logic chip production, relying on a single cluster poses a serious risk. Therefore, the CHIPS Program Office hopes to focus its leading logic investments on at least two clusters where companies manufacture highly advanced chips in the United States.

Each frontier cluster will have the scale, infrastructure, and other competitive advantages to ensure that chip manufacturers view the continued expansion in the United States as economically attractive and central to their business model, even without future funding from the CHIPS Program Office. The CHIPS Program Office will assess applications based on the extent of the applicants' credible business commitments to ongoing private investment in the United States. The CHIPS Program Office will also be committed to ensuring that each U.S. cluster has sufficient scale to reduce the cost of future capacity expansion and strongly encourages applicants to explore other innovative methods for long-term cost reduction.

In addition, the CHIPS Program Office will encourage fabless companies and original equipment manufacturers to prioritize supply chain security by increasing demand for domestically produced chips.

American workers will develop and expand the process technologies that form the foundation of future generations of logic chips. Applicants will be required to submit their ongoing reinvestment strategies in the U.S. semiconductor industry, and the CHIPS Program Office will prioritize applicants who are confident in committing to R&D investments in the United States, such as by building domestic R&D wafer fabs or other domestic R&D facilities. Conducting R&D within the United States will facilitate the transfer of new frontier process technologies to high-volume production and demonstrate chip manufacturers' intention to invest in the United States for the long term.

Each CHIPS Act-funded wafer fab will be supported by an ecosystem of reliable suppliers committed to operating and innovating in the United States. The CHIPS Program Office encourages applicants to take measures to attract relevant suppliers, such as by identifying plans for major suppliers to locate in the same area, identifying infrastructure suppliers that can benefit the applicants as well as materials or manufacturing equipment, or incorporating these suppliers into the applicants' workforce development or R&D commitments. The CHIPS Program Office will also issue separate funding opportunities for materials and manufacturing equipment facilities in late spring 2023.

The U.S. Department of Defense and national security sector will be able to access secure frontier logic chip manufacturing within the U.S. commercial production environment. The U.S. military currently cannot procure cutting-edge chips from domestic facilities, making critical military systems vulnerable to supply disruptions. Therefore, producing secure chips in the United States is a strategic priority.

Advanced Packaging

Assembly, Test, and Packaging (ATP) are the final steps in semiconductor production. These steps are typically carried out in specialized facilities and have historically been labor-intensive. Today, most packaging capabilities are located in East Asia and Southeast Asia, where ATP facilities can be located near companies that perform electronic assembly. The United States currently has limited ATP capacity, and this shortage represents a strategic vulnerability, as enhancing front-end manufacturing capabilities without investing in packaging will limit supply chain resilience.

The industry divides packaging into two categories: traditional packaging and advanced packaging. Although the United States must keep some conventional packaging onshore for national security purposes, it is generally difficult to establish economically competitive conventional packaging facilities in the United States. For traditional packaging, the CHIPS Program Office will coordinate with other departments and agencies to support ongoing work with allies and partners, including countries in the Americas and regions participating in the Indo-Pacific Economic Prosperity Framework, to ensure global adequacy of capacity and guaranteed supply.At the same time, the CHIPS Program Office will invest in projects that support the United States in taking a leading position in the field of advanced packaging—a subset of packaging technology that uses new technologies and materials to improve the performance, power, modularity, and/or durability of integrated circuits. Chip manufacturers are increasingly viewing the progress of advanced packaging as the key to maintaining a leading edge in the production of logic and memory chips. In fact, advanced packaging is expected to play an important role in the development of chips for artificial intelligence, cloud computing, medical applications, and many other next-generation technologies.

Therefore, the CHIPS Program Office has set the following goals for advanced packaging:

By the end of this century, the United States will have multiple large-scale advanced packaging facilities. Given the importance of advanced packaging to cutting-edge logic and memory manufacturing, the CHIPS Program Office encourages applicants to invest in advanced packaging beyond wafer manufacturing. The CHIPS Program Office welcomes applications from outsourced assembly and testing companies, as well as from integrated device manufacturers and foundries with internal advanced packaging capabilities.

The United States will become the global technology leader in commercial-scale advanced packaging for logic and memory chips. The CHIPS R&D Office has established the National Advanced Packaging Manufacturing Program, which will use part of its funds to promote the rapid development of advanced packaging in the next decade, accelerating the progress of strategic industries such as artificial intelligence, cloud computing, and the next generation. The CHIPS Program Office aims to consolidate this progress by ensuring that the latest advanced packaging technology is implemented on a commercial scale in the United States.

Semiconductors produced by wafer fabs funded by CHIPS will have a variety of packaging service options, including facilities in the United States and other facilities located outside relevant countries. In addition, the United States and its allies and partners will greatly reduce their dependence on traditional packaging from countries of concern. Together with state governments, the Department of Commerce will cooperate with the United States' allies and partners to help them attract investment in traditional packaging facilities. For applicants seeking funding for front-end manufacturing facilities, the CHIPS Program Office will consider the national security risks associated with the location of any upstream and downstream steps in the manufacturing process.

Cutting-edge Memory

Memory chips are an essential component of all computing systems, from supercomputers to smartphones, accounting for a large part of the global semiconductor market. Although the United States was once a leader in memory production, cost competition and market consolidation have led most American companies to exit the memory business in the 1980s and 1990s. Most manufacturing—even by American-owned wafer fabs—is now carried out in East Asia. Therefore, investment in leading memory production in the United States will enhance the country's technological leadership and diversify the global supply chain.

Unlike logic chips, memory products are standardized and generally interchangeable: memory chips from one company can usually replace those from another company. These characteristics tend to increase the resilience of the memory market, as memory customers are willing to pay for mainstream market prices that can usually be procured from any memory manufacturer in the market. As a result, memory chip manufacturers must primarily compete on price and operate with lower profit margins compared to logic chip manufacturers. Therefore, American memory producers need to achieve a sufficient scale to benefit from the economies of scale enjoyed by the larger clusters in East Asia.

The CHIPS Program Office has set the following goals for memory chips:

By the end of this century, American wafer fabs will produce large volumes of leading dynamic random-access memory (DRAM) chips under economically competitive conditions. The CHIPS Program Office welcomes applications from memory companies to establish advanced memory capacity in the United States, especially those that identify innovative methods to reduce the cost of production in the United States. Fund applicants should demonstrate that their American storage facilities remain economically competitive and sustainable after the end of the CHIPS incentive program through continuous upgrades, and the CHIPS Program Office encourages applicants to explore innovative methods for long-term cost reduction.The development of next-generation memory technology, crucial for supercomputing and other applications, will take place in the United States. DRAM will become key to supercomputing and other advanced technologies. Moreover, with innovations in advanced packaging technology, memory and logic technologies will work in concert to achieve advanced computing, with logic and memory functions eventually being more deeply integrated into single or common-packaged chips.

Current and Mature Node Semiconductors

The resilient supply of current and mature node chips is vital to the U.S. economy and national security. These chips are widely used in modern technology, including automotive, aerospace and defense systems, medical devices, and critical infrastructure. However, the COVID-19 pandemic and its economic impacts over the past few years have exposed the potential vulnerabilities of these supply chains. Between 2020 and 2021, there was a surge in demand for semiconductors related to computing, communication, as well as consumer and industrial products. As the industry strived to increase supply, the resulting shortages exacerbated the ongoing imbalance between supply and demand, leading to production delays in a range of goods, including automotive and medical devices.

While COVID-19 was unprecedented, it revealed structural issues in semiconductor supply chain management that will persist unless actively addressed. Companies upstream and downstream of chip manufacturers typically have limited visibility into their supply chains, often only understanding their direct customers and suppliers. Procurement often involves the use of third-party distributors and short-term purchasing contracts. These characteristics make it difficult for companies to assess supply chain risks and diagnose and resolve shortages when they occur. Additionally, the production of current and mature node is geographically very concentrated, with East Asia accounting for the majority of the global legacy space capacity, and the Chinese government actively subsidizes additional investments in mature node production.

The limited interoperability of chips manufactured by different suppliers or to different specifications further exacerbates these challenges. If an unexpected shortage occurs at one chip manufacturer, other chip manufacturers struggle to fill the gap. These issues are particularly evident for the long tail of mature process chips used in the defense industrial base.

Considering these challenges, the CHIPS program office will invest in current and mature production based on the following objectives:

By the end of this century, the United States will increase the production of current and mature node chips that are most important to the U.S. economy and national security. For example, this includes certain semiconductors used in automotive, aerospace and defense, medical devices, or other critical infrastructure sectors in the United States. The CHIPS program office believes that developing new capacity within the scope of current and mature nodes can promote the U.S. economy and national security, and will require applicants seeking project funding at specific nodes to explain how their proposed approach will advance this objective.

Additionally, the CHIPS program office encourages applicants to explore innovative approaches to reducing costs in the long term. It also plans to engage with semiconductor customers, including fabless companies and original equipment manufacturers, to increase demand for U.S.-made chips and enhance the resilience of their own supply.

The United States will increase the production of compound semiconductors and other specialty chips and maintain technological leadership. Innovation in semiconductor manufacturing is not limited to reducing the feature size on logic and memory chips. For example, semiconductors made from composite materials such as silicon carbide or gallium nitride will increasingly become the core of defense applications, electric vehicles, and next-generation communication infrastructure. Specialty process technologies such as fully depleted insulator-on-silicon are also crucial for defense applications, and specialty chips will become key inputs for emerging technologies such as quantum information systems. The CHIPS program office does not seek to replace private capital already invested in these technologies but encourages applications for CHIPS funding where appropriate.

The United States will coordinate with allies and partners to ensure resilient production and access to current and mature node chips. The United States does not seek self-sufficiency in chip manufacturing and expects allies and partners to also increase chip production to reduce the global concentration of current and mature node chips. International coordination will help mitigate the risk of overproduction and fill known gaps in the ecosystems of allies and partners.Chip manufacturers will be able to respond more flexibly to supply and demand shocks. If a particular chip manufacturer is unable to meet customer needs, other chip manufacturers should promptly fill the gap to avoid delays of months or years. When assessing proposals for current generation and mature node facilities, the CHIPS program office will consider the extent to which the proposed manufacturing processes can be easily converted to produce different types of semiconductors during periods of disruption.

In the view of the CHIPS program office, they are embarking on a once-in-a-lifetime investment in the U.S. industry. This document sets forth a vision for successful investment in the front-end and back-end manufacturing of cutting-edge, current generation, and mature node semiconductors. It will guide the Department of Commerce on how to implement, focusing on advancing the U.S. economy and national security, enhancing the resilience of global supply chains, and solidifying the United States' leadership in designing and building the technologies that will define our future.