US gives $1.5 billion to chipmaker GlobalFoundries

The Biden administration on Monday announced a $1.5 billion award to New York-based chipmaker GlobalFoundries, one of the first large grants from a government program aimed at revitalizing U.S. semiconductor manufacturing.

As part of the GlobalFoundries support plan, the administration will also provide another $1.6 billion in federal loans. The grants are expected to triple the company's production capacity in New York State over 10 years.

The funding represents an effort by the Biden administration and lawmakers from both parties to try to revitalize U.S. semiconductor manufacturing. Currently, only 12% of chips are manufactured in the United States, the bulk of which are manufactured in Asia. America's reliance on foreign sources of chips became a problem in the early part of the pandemic, when automakers and other manufacturers were forced to delay or shut down production amid scarcity of critical chips.

The grant awarded to GlobalFoundries will help the company expand its existing facility in Malta, New York, enabling it to fulfill a contract with General Motors to ensure the production of custom chips for its vehicles.

This project will also help GlobalFoundries build a new facility to manufacture critical chips that are not currently manufactured in the United States. This includes a new class of semiconductors that are suitable for use in satellites because they can withstand high doses of radiation.

The money will also be used to upgrade the company's operations in Vermont, creating the first U.S. facility capable of producing the type of chips used in electric vehicles, the power grid, and 5G and 6G smartphones. Without the investment, administration officials said the facility in Vermont would have faced closure.

These plans are part of the Biden administration's efforts to revitalize American semiconductor manufacturing after many factories moved to East Asia in recent decades.

A global chip shortage amid the pandemic has led to shutdowns, layoffs and furloughs at U.S. auto manufacturing plants, slowing the U.S. economy and raising prices for used and new cars. This encouraged Congress to pass a bill that would give more than $50 billion to the semiconductor industry, including $39 billion in grants and $11 billion for research and development distributed by the Commerce Department.

Commerce Secretary Gina Raimondo said on Sunday that the GlobalFoundries award will help secure a stable supply of chips to major auto suppliers and manufacturers, and prevent supply chain disruptions.

“Today’s announcement will ensure this never happens again,” Ms. Raimondo said.

Sen. Chuck Schumer of New York, the majority leader who has been a key supporter of the legislation, said the government funding would enable GlobalFoundries to invest more than $12 billion in the United States, as well as create 9,000 construction jobs and 1,500 permanent manufacturing jobs.

“The money the federal government is investing is enormous,” Schumer said. Adding: “This shows that our best days are not over yet.” “We can compete.”

GlobalFoundries will also receive the first government grant issued specifically for workforce development, officials said. The government will provide $10 million to support an investment of more than $60 million by the company to train new workers in the semiconductor industry. A shortage of trained workers is a common problem for chipmakers trying to operate in the United States.

Officials stressed that the announcement was only a preliminary agreement and that the company would undergo a period of due diligence, including achieving certain milestones in construction and production. The government will provide funding when these criteria are met.

The GlobalFoundries award comes at a time when the company, like many others in the industry, has seen a decline in revenue due to reduced demand among several key clients. Thomas Caufield, its chief executive, expressed hope that the government would also take steps to help boost demand for chips and encourage companies to shift some production to US factories.

“Now that they're saying we're allocating this money, I think the pressure will continue to bring more produce back in,” he said in an interview.

GlobalFoundries is among the few large-scale companies that make chips for other companies that design and market them, a company known in the industry as a foundry.

The company grew out of the former operations of Advanced Micro Devices, which was spun off in 2009 to focus on design rather than chip manufacturing. The financing was provided by Mubadala, Abu Dhabi's sovereign wealth fund that still holds a controlling stake.

GlobalFoundries opened a new factory in 2012 in Malta, New York, and in 2014 took over former IBM operations that included two factories. Both had significant margins in making specialty chips for the Pentagon. The Vermont plant, in particular, is known for the radio chips used in most smartphones and military devices.

In a major strategic shift, GlobalFoundries decided in 2018 to stop the costly practice of developing new production processes that pack more transistors onto each piece of silicon. It chose to specialize in legacy manufacturing technology to make chips needed for automobiles, consumer devices, and industrial and defense applications.

Biden officials stressed that they are singling out GlobalFoundries because it manufactures legacy chips, which are created using legacy production processes. Chips made using such technologies tend to be relatively inexpensive, but they are at the heart of automobiles and consumer electronic products that have caused major disruptions during chip shortages caused by the pandemic. It is also widely used in defense applications.

Other companies selected for the first two government grants have also used such cutting-edge technology.

Chinese companies are currently enhancing their capabilities to play a much larger role in supplying such older chips. The trend has alarmed the Biden administration and some members of Congress, who worry that cheap imports from China could undercut new American factories.

So far, the administration has not announced awards for companies that make more advanced chips, although that is expected to happen in the coming weeks and months. Such chips handle AI computations, smartphones, supercomputers and the most sensitive military devices.