Dividends and After initial hesitation, chip designers warm to US bill to boost industry

If you have a computer or laptop, there might be a advertisement from intel on it saying the chip inside. If you are similar to most people, they really do not know what is inside and which company it is made from, they just want the computer to work efficiently when they turn on the computer. However it is important to note who makes the chip inside, for the large companies involved it is a billion dollar business. The reality is most of the hardware inside the phone or computer is made outside the US, in many cases the design is made in the US, but the chips and hardware – China or Taiwan or Japan or somewhere in the Far East. For many years that was good and ok with policy makers. President Trump liked to announce a company was going to build but little ground was ever broken. The Senate has taken up the case and maybe some chips will be made in the US.

In an article by Stephen Nellis of Reuters, the Senate wishes to pass a bill that is worth $52 billion in subsides and investment tax credit to boost US computer chip manufacturers.

Similar to all bills passed or expected to be passed by government, there are some winners and losers depending on how their business model is structured.

A company such as Intel which had released press releases to spend $20 billion on a factory in Ohio as well as 2 new plants in Arizona would be expected to benefit from the bill.

Companies such as Texas Instruments and Micron Technology who design and build their chips would benefit.

Companies such as Advanced Micro Devices (AMD), Qualcomm, and Nvidia design their own chips but use partners to make the chips would see no direct benefit from the subsidies to build plants or tax support for tools. The companies support a bill which contains both the manufacturing tax credit and a tax credit for chip design. The second aspect would benefit the companies.

The association of chip designers is called the Semiconductor Industry Association (SIA) and it supports the second bill or benefits to both designers and manufacturers.

One person who is not from Intel said Intel could get $20 billion with CHIPS Act plus $5 or $10 billion under the FABS Act. So $30 billion benefit to a direct competitor and nothing to you, is that fair?

The House and Senate passed the bill in the last week of July, although they added a few more items including robotics, quantum computing and artificial intelligence to increase the bill to $252 billion. Gina Raimondo, the Secretary of Commerce said there are a lot of strings attached and a lot of taxpayer protection.

Linking to dividend paying stocks, most of deal with hundreds and thousands and a few million if we are fortunate, large companies often deal in billions. Would the billion benefit change the decision to invest in the US or is it better to deal with partner firms making chips? There are always plus and minus each way, however the fact the government is willing to give the company billions in tax incentives and subsidies means a smaller company would have a hard time competing. There is a reason why they are called moats.

There are more questions than answers, till the next time – to raising questions.

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