First CHIPS Act award signals start of U.S. semiconductor push

It admittedly is not science to categorize companies in the government technology market, but in the bigger picture I tend to think of them in three buckets.

One of course is the contractors whose majority of revenue is in direct government work. A second being companies that are global and commercial in nature, but have a significant portfolio of direct government contracts.

The third is vendors in the channel largely without prime government contracts, but whose primary customers are in the first two categories and implement technologies for government environments.

Few technology areas cut across all three of those categories like computer chips, given how just about everything of importance in the world runs on them.

That shortage is why the Biden administration and Commerce Department in particular are undertaking the $52 billion "CHIPS For America" program to revitalize semiconductor research, development and manufacturing in the U.S.

BAE Systems Inc. is official recipient number one of those grants, having been awarded $35 million this week to modernize a microelectronics center in Nashua, New Hampshire, that produces chips for big-ticket defense programs such as the F-35 fighter jet.

IBM, Micron, Applied Materials, Tokyo Electron and others are involved in a separate $10 billion initiative to build a new semiconductor R&D complex in Albany, New York. That facility will be a centerpiece of New York state's push to get some of the funding.

All three categories of companies, including and especially the vendors, are represented in both of those announcements. That is a reminder of how important chips are to the economy and society, plus highlight the industrial capacity many believe is needed to boost production.

CHIPS For America stems from a law President Joe Biden signed in the summer of 2022 on concerns regarding China's ambition to lead the world in semiconductor manufacturing and proximity to Taiwan, which has become the world's main source for chips.

BAE's grant is specific for military applications, which points to how those systems are envisioned for a potential conflict. In many instances, defense systems have chips that are generations behind what is considered state-of-the-art.

For the New York State announcement, the parties involved there are taking a wider view of how they are looking at chip production. But it still feeds into the larger conversation about the need of more chips to go around.

Commerce made clear in its announcement on the BAE grant that there will indeed be more CHIPS For America funding to go around with the goal of fixing the semiconductor problem and restoring U.S. leadership in that domain. Expect the number of companies involved in the program to go up.

The BAE grant is a starting point and acknowledgement of how important microelectronics are for national defense, which is the largest aspect of the U.S. government's mission but not the only one to keep in mind.

After all, the federal government's IT systems also would seem to be dependent on a reliable chip supply. Just about everything is.

Below is a CNBC report aired Monday on the BAE grant and larger chip production matters.

BAE Systems to receive the first funding from the Chips Act. The company makes chips used in F-35 and F-15 fighter jets@MorganLBrennan reports #defense #chips pic.twitter.com/AyIYPs1CcB

— CNBCOvertime (@CNBCOvertime) December 11, 2023