The Biden administration will announce Monday that BAE Systems, a defense contractor, will receive the first federal grant in a new program aimed at shoring up U.S. manufacturing of critical semiconductors.
The company is expected to receive a $35 million grant to quadruple its domestic production of a type of chip used in the F-15 and F-35 fighter jets, administration officials said. The grant is intended to help ensure a more secure supply of a component that is 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 funds that Congress authorized under the CHIPS and Science Act of 2022. The money is earmarked for encourage the construction of chip factories in the United States and recover a key type of manufacturing that has been offshored in recent decades.
Gina Raimondo, the Commerce Secretary, said Sunday that the decision to select a defense contractor for the first award, rather than a commercial semiconductor facility, was intended to emphasize the administration’s focus on national security.
“We cannot gamble with our national security by relying solely on one part of the world or even one country for crucial advanced technologies,” he said.
Semiconductors originated in the United States, but the country now makes only about a tenth of the chips made globally. 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.
The 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.
The global chip shortage during the pandemic shuttered auto factories and hit the US economy, highlighting the risks of supply chains that are outside the control of the United States. The chip industry’s incredible dependence on Taiwan, a geopolitical flashpoint, is also seen as an unsustainable security threat given that China views the island as a breakaway part of its territory and has talked about reclaiming it.
The BAE chips that the program would help fund are produced in the United States, but administration officials said the money would allow the company to upgrade aging machinery that poses a risk to the facility’s continued operations.
Like other grants in the program, the funding would be distributed 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 intended to shore up that resilience and ensure that 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 that generate high-frequency radio signals and are used in electronic warfare and aircraft-to-aircraft communications.
The award will be formally announced at the company’s factory in Nashua, NH, on Monday. The facility is part of the Pentagon’s “trusted foundry” program, which makes chips for defense-related needs under strict security restrictions.
In the coming months, the Biden administration is expected to announce much larger subsidies for major semiconductor manufacturing facilities run by companies such as Intel, Samsung or Taiwan Semiconductor Manufacturing Company, known as TSMC.
Speaking to reporters on Sunday, Raimondo said the grant was “the first of many announcements” and that the pace of those grants would accelerate in the first half of next year.
The Biden administration hopes to create a thriving U.S. chip industry, which would encompass the industry’s most advanced manufacturing and research, as well as factories that produce older types of chips and various types of suppliers to make chemicals and other products. raw materials needed by chip facilities.
Part of the program’s focus has been establishing a secure source of chips to power products needed by the U.S. military. The supply chains that power weapons systems, fighter jets and other technologies are opaque and complex. Chip industry executives say some military contractors have surprisingly little knowledge of where some of the semiconductors in their products come from. At least some of the chip supply chains that power American military products pass through China, where companies manufacture and test semiconductors.
Since Biden signed the CHIPS Act into law, companies have announced plans to invest more than $160 billion in new manufacturing facilities in the United States in hopes of winning a share of federal money. The law also offers a 25 percent tax credit for funds chip companies spend on new American factories.
The funding will be a test of the Biden administration’s industrial policy and its ability to choose the most viable projects, while ensuring taxpayer money is not wasted. The Commerce Department has created a task force of about 200 people who are now reviewing companies’ applications for funds.
Technology experts hope the law will help reverse a three-decade decline in U.S. participation in global chip manufacturing, but it remains uncertain how much of the industry can recover from the program.
While the amount of money available under the new law is large by historic proportions, it could run out quickly. Chip factories have some of the most advanced machinery in the world and are therefore incredibly expensive; the most advanced facilities cost 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 still offer lucrative subsidies for new chip installations, as well as a large number of qualified 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 significant increase in investment across the U.S. semiconductor supply chain as a result. of the law.
“I think the big question that remains is how durable these investments will be over time,” he said. “Are they specific cases or will a second and third round follow for the companies involved?”
Don Clark contributed reports.