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Chip Makers May Pick Up Political Cost Without the Benefit

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Chip Makers May Pick Up Political Cost Without the Benefit #Chip #Makers #Pick #Political #Cost #Benefit Welcome to TmZ Blog, here is the new story we have for you today:

Everything has its price. For the U.S. semiconductor industry, certain costs may have to be paid before it is ever able to cash in on its growing political visibility.

Chip makers are growing antsy awaiting passage of legislation that would provide about $52 billion in funding for U.S.-based semiconductor-manufacturing operations. The measure was conceived following the shock of the chip-production shortage that began rocking industries across the world in late 2020, and which proved particularly painful for groups like auto makers. The inability to ship a $40,000 vehicle for want of a $1 microcontroller chip created a powerful sense of urgency for lawmakers, who were at the time keenly focused on dealing with the pandemics ill effects.

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But much has changed since. The war in Ukraine, soaring inflation and a possible economic downturn have taken much of the spotlight, while the latest Supreme Court rulings, hearings over the Jan. 6 Capitol riot and pending midterm elections have sucked up what is left while feeding polarization. More experts now think ultimate passage of the measure is unlikelyespecially if it doesnt clear Congress by the beginning of its August recess.

Paul Gallant,

Cowens policy analyst for tech, media and telecom issues, says there is a non-trivial risk to the chip bill, adding that Republicans are thinking hard about whether they want to give Biden a win here, and perhaps help Democrats hold the Senate this fall.

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Doubts about the measure have contributed to investors growing worries about the semiconductor sector. The PHLX Semiconductor Index has slid 19% in just the past monththree times the damage done to the Nasdaq Composite in that time.

The loss of $52 billion in funding to be spread over five years wouldnt be fatal to U.S. chip makers. But every little bit helps in a sector facing a surging bill for capital costs. Global spending on chip-fabrication equipment hit a record $91 billion in 2021up 42% from the previous year, according to data from SEMI. The industry organization also predicts equipment spending will top $100 billion for the first time this year. This isnt a short-term blip; according to data from TechInsights, spending on wafer-fab equipment has averaged 21% annual growth from 2017-2021 compared with 1% annual growth averaged in the previous five-year period.

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But the loss of subsidies could also come with an artificial shrinking of the potential market. Regulators are reportedly looking at new measures to limit the availability of advanced chip-making gear to China. The Information, a technology publication, reported in May that the Commerce Department is considering ways to widen the ban put in place in 2020 on selling advanced chip-making gear to Chinese chip giant

Semiconductor Manufacturing International Corp.

981 0.70%

, or SMIC. And Bloomberg reported this week that the U.S. is lobbying the Dutch government to limit

ASML Holdings

ASML -0.81%

sales of older lithography gear to Chinese chip makers; the Dutch chip-equipment maker is already unable to export the more advanced extreme ultraviolet, or EUV, tools that it specializes in to China.

There are no apparent talks yet of an even broader ban that could affect U.S. chip-equipment makers such as

Applied Materials

AMAT 0.65%

and

KLA

KLAC -0.87%

and

Lam Research.

LRCX 0.75%

But such a move cant be fully dismissed eitherespecially if the U.S. wants to avoid the appearance of hypocrisy. Those three stocks have averaged a 23% drop over the past month. Politics doesnt pay the bills, but it sure can add to them.

The Latest From Heard on the Street

Write to Dan Gallagher at dan.gallagher@wsj.com

Copyright 2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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