The U.S. division of BAE, Europe’s largest defense contractor, will receive $35 million in U.S. grants to help upgrade the company’s factory in Nashua, N.H., which produces chips for U.S. military equipment including the F-35 stealth fighter jet. The Commerce Department said the grant will help BAE quadruple its chip production in New Hampshire.
“Semiconductor manufacturing is an expensive thing,” Tom Arseneault, CEO of the company’s U.S. unit, said in an interview. “This will be a meaningful supplement to the path of investment that we’ve been on.”
Arseneault said BAE has about 3,700 employees in New Hampshire, where they are building out their 110,000-square-foot microelectronics center. Like other advanced chipmaking factories, the BAE facility has “clean rooms” for making chips, since a speck of dust can mar a chip’s microscopic circuitry. “We have a special security agreement that protects the work that we do and allows us to work on highly classified programs,” he said.
The choice of a defense supplier for the first grant reflects the national security focus of the program. “This first CHIPS announcement shows how central semiconductors are to our national defense,” Commerce Secretary Gina Raimondo said in a statement.
U.S. officials are concerned about China’s growing share of the global chip market, not just because chips power consumer gadgets like smartphones and laptops — but because chips are also what make “smart” weapons smart.
“If you look at this particular facility, its chips are used in military communications, in space, in radars, in electronic warfare systems. So there’s a pretty clear link here between what the security interest is, and what the CHIPS Act is accomplishing,” said Chris Miller, a Tufts University economic historian who researches the chip industry.
Separately on Monday, New York Gov. Kathy Hochul (D) announced that the state is investing $1 billion in a $10 billion chip technology center in partnership with IBM, Micron, Applied Materials and Tokyo Electron that she hailed as creating 700 jobs. A statement from Hochul’s office said the project will bolster her state’s bid for $11 billion in funding under the CHIPS Act.
U.S. officials have been worried about the national security implications of the chip manufacturing sector’s center of gravity shifting to East Asia. Most of the world’s leading tech hardware companies — including American companies such as Apple, Intel and Qualcomm — rely on a single company, Taiwan Semiconductor Manufacturing (TSMC), to produce their chips. The supply chain situation hasn’t been an issue so far, but it could be a serious problem for the United States in a worst-case scenario of war with China.
Taiwan has been a self-governed democracy for decades. Taiwanese companies, led by TSMC, produce more than 90 percent of the world’s high-tech chips, including for U.S. military jets, missiles and other equipment. Beijing still claims Taiwan as its territory and says it will seize it by force if necessary. China has ramped up military drills near Taiwan in recent years, raising concerns among the island’s people and in Washington.
The new U.S. program includes both a carrot and a stick: To qualify for the federal subsidies, chipmakers have to agree not to increase their investment in China for at least the next decade.
Ronnie Chatterji, a Duke University business professor and former White House coordinator for the CHIPS Act, said the program was sparked in part by shortages the United States experienced during the coronavirus pandemic.
“During the pandemic, a lot of things we were used to getting didn’t show up,” he said. “We realized that some of these global supply chains were a little more fragile than we imagined. The idea of having … a backstop — that started to make a lot more sense.”
Semiconductors are expensive to manufacture because of the microscopic precision of the circuitry, with factory budgets normally running in the billions of dollars. A single advanced “lithography” machine to etch circuits into wafers can cost $200 million. At $35 million, this first grant to BAE is almost a symbolic gesture.
Larger grants are expected in the coming months, including for leading U.S. chip players such as Intel and Micron. John Neuffer, CEO of the Semiconductor Industry Association, a lobbying group representing U.S. chipmakers, said the Commerce Department has been careful in negotiating the larger projects because of the dollars involved. He said companies were eager to get “shovels in the ground.”
“We recognize there’s a lot of taxpayer money on the line here,” he said.
The United States was once the world leader in chip manufacturing. For decades, U.S. companies outsourced this production work while retaining the lead in the more lucrative field of designing the circuitry. Today, the global front-runners in chip manufacturing are Taiwan’s TSMC and South Korea’s Samsung, and the success of Biden’s program will depend in part on how enthusiastically those two companies participate. So far, so good: TSMC is constructing a $40 billion factory near Phoenix and Samsung is building a $17 billion facility near Austin, with both projects expected to be grant recipients.
Biden signed the CHIPS and Science Act into law in August 2022. The association estimates that U.S. chip industry investment to date associated with the CHIPS Act will add 44,000 jobs to the U.S. economy. Miller, the Tufts professor, said that chips are one of the more promising manufacturing industries to try to bring back, since the factories are highly automated.
“Labor costs matter [for semiconductor manufacturing], but they’re not as decisive as in textiles, or in footwear, or the classic outsourcing sectors,” he said. “There are plenty of chipmakers in the U.S. who have been operating profitably for decades.”
BAE’s New Hampshire factory was founded in 1952 as a U.S. company called Sanders Associates, which made printed circuits and wiring boards for the military. It was purchased by Lockheed in 1986, then sold to the U.K.’s BAE in 1999.
