CHIPS Act Update: Expanded Funding Opportunity for Suppliers

By T. Troy Galan and Brett W. Johnson

The Department of Commerce (the “Department”) expanded the first Notice of Funding Opportunity (“NOFO”) under the CHIPS Act incentive program, making upstream materials and manufacturing equipment suppliers critical to semiconductor manufacturing eligible for funding. Due to the expanded NOFO, funding is now available to construct, expand, or modernize semiconductor supplier facilities. The expanded NOFO is available to suppliers seeking to make a minimum USD $300 million capital investment. However, the Department also announced that a second NOFO with a lower capital investment threshold will be released in the fall of 2023. Any company involved in the semiconductor supply chain should review the expanded NOFO and consider submitting an application for CHIPS Act funding.

This expanded NOFO identifies several categories of supplier facilities that qualify for funding. These categories are inclusive, not exclusive. As such, facilities not specifically listed in the expanded NOFO may still be eligible for funding. The Department has discretion to determine that a facility qualifies under a specific category based on the information provided in the Statement of Interest (“SOI”) or the pre-application. Suppliers that do not necessarily fit within the categories listed below should work with experienced counsel to assist in clarifying to the Department the applicant’s eligibility.

I.    Material Facilities 

For material suppliers, the categories listed in the expanded NOFO are facilities for the production, growth, or extraction of materials used to manufacture semiconductors, including:

• Polysilicon. 
• Photoresists and ancillaries (e.g., developers, strippers, litho solvents, and anti-reflective and hardmask layers). 
• Sputter targets (e.g., tantalum, titanium, and aluminum).
• Materials specifically used in quantum information systems (e.g., hafnium and niobium).

II.    Manufacturing Equipment Facilities  

For manufacturing equipment suppliers, the categories listed in the expanded NOFO are facilities for the physical production of specialized equipment integral to the manufacturing of semiconductors and subsystems that enable or are incorporated into the manufacturing equipment, including:

• Deposition equipment (e.g., chemical vapor deposition, physical vapor deposition, and atomic layer deposition).
•  Etching equipment (e.g., wet etch, dry etch).
• Lithography equipment (e.g., steppers, scanners, extreme ultraviolet). 
• Wafer slicing equipment, wafer dicing equipment, and wire bonders. 
• Inspection and measuring equipment (e.g., scanning electron microscopes, atomic force microscopes, optical inspection systems, and wafer probes). 
• Certain metrology and inspection systems. 
• Ion implantation and diffusion/oxidation furnaces.

III.    Qualification Requirements

Generally, the qualification requirements for suppliers mirror the requirements in the first NOFO discussed here. This overlap provides suppliers with the benefit of informing their application materials (i.e., SOI, pre-application, and full application) with the feedback provided by the Department to applicants under the first NOFO. As a new and novel law, a helpful reference for potential applicants is other applicants currently navigating this process and their counsel. 

The expanded NOFO also sets forth additional qualification requirements. Primarily, a minimum USD $300 million capital investment. Included in this threshold calculation are the cost to complete construction of the facility and initiate operation such as land, labor, materials, equipment, infrastructure improvements, and administrative expenses directly attributable to the facility’s construction (e.g., engineering and permitting fees). Notably — the cost of legal services is also included in this calculation as an administrative expense. Potential applicants that cannot meet the capital investment requirement should consider applying as part of a consortium, thus spreading the capital investment among two or more consortium members. 

IV.     Evaluation Criteria 

As in the first NOFO, the Department will prioritize the CHIPS Act incentive program's economic and national security objectives when evaluating suppliers’ application materials. In this context, the expanded NOFO indicates the Department seeks funding facilities that will:

• Strengthen domestic supply chain resilience by reducing vulnerabilities associated with geographic concentration, supplier bottlenecks, and/or production in foreign countries of concern.
• Support building productive and self-sustaining manufacturing semiconductor ecosystems (e.g., by clustering with semiconductor fabrication facilities or otherwise improving the competitiveness and innovativeness of the domestic semiconductor ecosystem).
• Advance economic security by locating critical manufacturing in the United States and contributing to domestic semiconductor innovation. 

In addition, the Department released its “Vision for Success” in connection with the expanded NOFO. The information contained therein are not specific requirements. Instead, the Vision for Success outlines the Department’s primary goals relating to the CHIPS Act incentive program. Nevertheless, applicants should incorporate the goals outlined in the Vision for Success in their application materials and during meetings with the Department. 

The Vision for Success notes the Department’s emphasis on onshoring suppliers and reducing acute supply chain chokepoints. Foreign suppliers unwilling or unable to relocate facilities to the United States in the absence of CHIPS Act funding are highly encouraged to apply. In particular, suppliers operating in countries or regions vulnerable to geopolitical instability, namely the People’s Republic of China and Ukraine. Applicants are also encouraged to self-identify acute supply chain chokepoints by communicating with semiconductor manufacturers and demonstrating a symbiotic relationship with the supplier’s customers. For example, applicants should provide evidence of testing and feedback from customers.  

Conversely, the Vision for Success also notes factors that will discourage the Department from funding facilities. Suppliers that will organically relocate to the United States due to new semiconductor fabrication facilities will generally not qualify for funding. Supply chain issues being addressed by other U.S. government agencies are unlikely to qualify for funding either. The Department also does not seek to fund a self-sufficient semiconductor supply chain. Specifically, the Department will evaluate whether an applicant’s materials or manufacturing equipment can be reliably sourced from suppliers in partner or allied countries. However, experienced counsel should be consulted to assist in making this determination on a case-by-basis. 

V.    Next Steps 

The Department encourages suppliers to submit SOIs as soon as the potential applicant determines it may seek CHIPS Act funding, regardless of whether seeking funding under the expanded NOFO or the upcoming NOFO for capital investments below the USD $300 million threshold. A SOI must be submitted at least 21 days prior to submitting a pre-application or full application. 

Pre-application submissions for potential applicants under the expanded NOFO — which are recommended — will be accepted on a rolling basis beginning on September 1, 2023. Full applications will also be accepted on a rolling basis beginning on Monday, October 23, 2023. It is important to ensure that any application is compliant with the regulatory requirements.