17 June 2020

60-second CFIUS: Senate Bill Would Support US Semiconductor Industry

CFIUS has almost cut off international funding for the US semiconductor industry. Much of that funding—minority investments and acquisitions—came from China, which has a stated national policy of creating a world-class semiconductor sector. China is already the world’s largest consumer of semiconductors, but lags in the design and production of the key electronic component.

The “Creating Helpful Incentives to Produce Semiconductors for America Act” was introduced on June 10, 2020 by Senators Mark Warner (D-VA) and John Cornyn (R-TX). The text of the bill, S.3933, is not available at the time of this writing but will be soon on the Congressional website.

According to Senator Warner's office, the bill would establish a semiconductor program within the Department of Commerce’s National Institute of Standards and Technology aimed especially at promoting the US 5G industry. The legislation would also make a 40% refundable tax credit available for semiconductor manufacturing equipment and other foundry investments; authorize new Defense Department funding for R&D, workforce training and other programs under the Defense Production Act; provide $11 billion in funding for R&D in basic research, advanced packaging and other areas; and make available up to $10 billion in federal matching funds to support state and local incentives for the semiconductor industry.

Resistance to Chinese investment in US semiconductor companies is a bipartisan proposition. In the final month of the Obama Administration, the President’s Council of Advisors on Science and Technology published a report on “ensuring long-term leadership in US semiconductors.” That report recommended funding for basic, or “pre-competitive,” research as well as tax credits for the capital-intensive semiconductor manufacturing sector. The Trump Administration did not pursue these initiatives, but the Senate has now taken up the task.

During the Trump Administration, CFIUS blocked a number of semiconductor deals, including the acquisition of Lattice Semiconductor by China-backed PE fund Canyon Bridge, the acquisition of Xcerra by UNIC Capital and China’s state-owned semiconductor fund, and several others which are still confidential. However, CFIUS cleared as many semi deals as it blocked during these years, including the acquisition of Akrion Systems by Naura Microelectronics, the OSRAM-LEDvance acquisition by Chinese state-owned investors and others, and the acquisition of Nexperia. CFIUS also cleared the transaction that took Santa Clara-based Omnivision public in China. The overall clearance rate in the semiconductor sector is about 60%, worse than under the previous administration, but much more than zero.

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