Odd Lots - Eight Months In, What Is Happening With Biden's CHIPS Act?

Episode Date: April 13, 2023

In August of last year, the White House signed the CHIPS and Science Act of 2022, a bipartisan effort to bring more advanced semiconductor manufacturing onto US shores. Of course, it already has plenty of critics. There are concerns that the bill is being larded up with red tape, or non-core progressive priorities, that will undermine the bill. On this episode, we speak to two leaders playing key roles in the act's implementation. Mike Schmidt, director of the CHIPS Program Office, and Todd Fisher, the program's chief investment officer, join us to talk about the act's goals, what's been achieved so far, and why they believe it can succeed.See omnystudio.com/listener for privacy information.

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slash audio. That's vanguard.com slash audio. All investing is subject to risk vanguard marketing Corporation Distributor. Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Wisenthal. And I'm Tracy Allaway. Tracy, you know, one of the things we talk about and the themes we come back to quite a lot is just this idea of like U.S. government, really all government, but I guess sort of U.S.-centric government intervention, active role in the economy, which is something that

I would say is characterized a lot of like early Biden policymaking so far. Yes, and a perhaps unappreciated role at certain time. So we talked a lot about the history of Silicon Valley and how there was a lot of U.S. government money that actually flowed into both that place and that industry and that had a massive impact. And now fast forward to, you know, the post-pandemic era. And it feels like we're seeing a bit of a resurgence. Yeah, that's a good thing that you remind that reminder. Like it feels like, you know, the U.S. political appetite for. public investment, public direction of money and capital into certain industries. It ebbs and flows. Sometimes that's really out of favor or it's seen as anti-capitalism or something like that. And clearly at least the last few years, it's been sort of back in favor or at least, you know, maybe even a little bit under Trump, but certainly under Biden in a very significant way, both with the Chips Act and, of course, the Inflation Reduction Act of seriously, public investment and the infrastructure bill, public investment into different industries.

Right. I think we spoke about this with Ezra Klein, the new sort of supply side liberalism, this idea that the pandemic really exposed a lot of fault lines in the economy and also in supply chains. And now there's a lot of attention focused on actually fixing those. And I'm glad you mentioned one of the preeminent sort of set pieces of this particular type of policy, which is, of course, the Chips Act. So the Big Chips Act, other than the Infrastructure Act, the Chips Act is the kind of, I guess, the shining symbol of this new direction. Well, you mentioned supply chains, and we did a lot of episodes on broken chip supply chains. So this brings it together. But here's the other thing that I think is key, which is that if there's going to be momentum on this front, if active public investment into industry is going to be something that's sustained and not just like a two-year, a couple bills passed, there's a big question like, is it being done well? Are people happy with the results? And I presume if people are happy with the results and people see change, then maybe there's more momentum.

And if people are like, oh, this is what happens every time the government and gets involved in some industry and it's red tape and cost overruns and wasted taxpayer money and so forth, then that really sort of like kneecaps any momentum. Yeah. And it feels like the stakes are quite high for this particular program, the Chipsack, because it is, you know, symbolic in many ways. First of all, there is always an, I would say, a almost knee-jerk suspicion of government spending from, you know, certain parts of America. But then secondly, this particular bill, I believe it did come with some new sort of conditions attached to it requirements that companies receiving government funding have sufficient child care, things like that. And that has garnered additional scrutiny recently. So there are lots of questions over exactly how this is being implemented and how will measure. its success. You mentioned scrutiny. I think some of it's from our own colleagues at the Bloomberg opinion side. There was a headline eight days ago, $52 billion chipmaking plan is racing towards

failure. That was the opinion side of the house. That's not our opinion. Nonetheless, this is the question. So let's have this question. Like, where are we? This bill was passed last August. We're already seen a lot of activity in the wake, but how is it actually going? I'm very excited about our guests. We're going to be speaking with Mike Schmidt. director of the CHIP's program office, as well as Todd Fisher, chief investment officer of the CHIP program office. I didn't even know CIOs were a role within government, so that's interesting. Anyway, Mike and Todd, thank you so much for coming on Oddlott. Thank you. Thank you, Joe. Thank you, Tracy, for having us, really. I'm a big fan of the podcast,

so very excited to be on. This is Mike Schmidt. I'm the director of the program office, and Todd is our chief investment officer. And we're, you know, excited to be here to to talk chips. Fortunately, your listeners won't need us to explain how critical chips are, given all the episodes you've already done on it. But just to lay that foundation, chips are critical to virtually every technology that underpins modern life, anything with an on-off switch, automobiles and medical devices, but also satellite communications and military technology. They're going to be foundational to the technologies that will fundamentally shape society and geopolitics in the coming years, things like artificial intelligence, biotech, and clean energy.

And so, you know, we as the U.S. have long been a leader in chip design and R&D, and that's a really, really good thing. But we've fallen significantly behind in manufacturing. We account for only about 10% of global semiconductor production today, down from several times that a few decades ago, especially where some is on the advanced chips, the leading edge chips, where we produce functionally none of that today. And so at Commerce, we have 50 billion to address this problem. 39 billion is that for manufacturing incentives, 11 billion is for R&D. Todd and I are on that incentive side, on that 39 billion side. And we view ourselves fundamentally as managing a $39 billion investment program on behalf of taxpayers, but our return.

is not financial. Our return is in supply chain resilience and in advancing our economic and national security. And I think we're off to a pretty good start here. Right. Well, I was going to say, you know, Tracy mentioned in the beginning there's a big symbolic element, but also just like a very real element. You mentioned the geopolitics, which is like the stakes are literally very high about for all modern life of whether, you know, the U.S. always has a ongoing supply of sort of advanced and less advanced chips. So, Mike, that was a really good intro to the sort of stakes involved. But why don't we bring in Todd? And maybe, Todd, you could explain, you know, Joe alluded to this in the intro, but what does the chief investment officer of the chips program office actually do? Thank you, Tracy.

It's really great to be here. I'm also a big fan of your show. We call it chief investment officer, the role is basically to figure out how to effectively invest and allocate the $39 billion that we have to accomplish our overall goals and vision for success. So I spent my career, I spent 30 years in the financial industry and 25 years at KKR, basically making investments, sitting on investment committees, et cetera. And given that this is a new government program that really hasn't been done in this way in many decades. That concept of creating a chief investment officer and an investment office to think about the way we are allocating this money seem to make sense to us. I was just going to jump in and maybe explain a little bit of the broader theory of the

case in terms of how we're building the team. Because fundamentally, we have two objectives here, right? Number one, we need to make a set of investments that are advancing our economic and national security. So we have a set of strategic objectives, but then we have to do so in a way that is, safeguarding taxpayer dollars and really getting good deal. So we built our office here around chief strategy officer, managing an office of strategy, technology, and policy. That's Morgan Dwyer. She comes from the senior leadership of the Defense Department and the Office of Science Technology Policy. And then Todd bringing his considerable financial commercial expertise as the investment office, you know, gives us a way of kind of like mediating a conversation and coming up with an

overall approach that is going to advance both the taxpayer protection side of the equation, but also the kind of strategic and economic. Well, let me ask, and you know, with a sort of traditional investment, CIO, like it's fairly easy to measure, did they do a good job or not, because you can look at returns, maybe you can look at volatility and a few things. It's like, oh, this investor made money or they at least avoided losing money, et cetera. Obviously, as you mention Mike and Todd, both of you, you know, it's different with public money because the goal is to foster an industry and the goal is to build something that creates sort of positive externalities. But still, I mean, I wonder, like, are there hard benchmarks that we can look at in terms of,

was tax payer money well spent? Are there hard benchmarks in terms of how much chip production is happening in the United States today, verse 2028, verse 233, that we could say, if we don't hit these levels, it was unsuccessful? Or if we do hit these levels, that's a success. What can the public look at to know whether it's working or not? We've spent a lot of time thinking about this. I mean, we fundamentally believe that we've been entrusted with a very large sum of taxpayer money, and it's a public investment in private industry without recent precedent in terms of its scale and its strategic significance. And so we think we kind of owe it to the public and a broad range of stakeholders, you know, industry and applicants, foreign governments, Congress to explain

what we're trying to get with their money. And we put out, after a lot of analysis, what we call our vision for success document, and that lays out what we want the future to look like after we've invested these funds in 2030 and beyond. And so we say in leading edge logic, we want to have at least two large-scale leading-edge logic manufacturing clusters. We talk about the importance of advanced packaging, which is absolutely critical, both from a supply chain resiliency standpoint, but also from a technology leadership standpoint. We talk about memory. We talk about current generation immature. So really across these segments, we have tried to put some kind of North Stars out there that we're going to tie ourselves to. The measure I think about

a lot, Joe, beyond all of those specifics, is whether we can create self-sustaining dynamics going forward. So can we be in a position where, you know, in the coming years, based on the investments we've made, based on the scale and the ecosystems we've been able to create, do the major chip manufacturers view investing in the United States as quartered their business model. And if we're able to do that, then I think we will be on a really solid trajectory with respect to our economic and national security objectives going forward. Todd, do you want to add to that at all? Yeah, I would say, you know, in 10 years, when we look back, we want to really see this act in this period of time as an inflection point. Mike's already said that over the last

30 years, we've seen the percentage of manufacturing of chips happening in this country go from 37% to 10%. We need to turn that around. And so the success will be to see that number instead of continuing to go down to start to go up. And then in the very specific areas that we've already laid out, meaning leading edge logic, where we now today produce 0% of the world's chips in leading edge, we've said very clearly we want to see two self-sustaining ecosystems at a minimum. And we have no real advanced packaging in this country either. We want to see a quite robust aspects there and we want to start to see cost competitive memory plants being done in this country. And we want to see all the pieces of the ecosystem, including suppliers, come together around

those goals. And so that's how we're thinking about measuring ourselves. Today's show is brought to you by Vanguard. To all the financial advisors listening, let's talk bonds for a minute. Capturing value and fixed income is not easy. Bond markets are massive, murky, and let's be real. Lots of firms throw a couple flashy funds your way and call it a day. But not Vanguard. At Vanguard, institutional quality isn't a tagline. It's a commitment to your clients. We're talking top-grade products across the board of over 80 bond funds, actively managed by a 200-person global squad of sector specialists, analysts, and traders. These folks live and breathe fixed income. So if you're looking to give your clients consistent results year in and year out, go see the record for yourself at vanguard.com slash audio. That's vanguard.com slash audio.

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Discoverhellifax.ca. I have a bunch of questions about how the government can help build a resilient industry that can sort of manage through various economic cycles. But before we get to those, maybe just to back up for a second, could you talk about how the process of dispersing this substantial amount of money? You know, you talked about $50 billion, $39 billion for manufacturing, and then $11 billion for R&D, how does it actually work in terms of handing it out, you know, and applying it? Do people come to you or do you identify prospective companies that could benefit from this? How exactly

does that work? The broad aspect of what we've laid out in our notice of funding opportunity is a very clear cut and very specific application process. So we are expecting companies to come to us. Our portal is right now open for what we call statements of intent, where anybody that qualifies for this or any of our later funding opportunities can put in a statement of the kind of project that they're looking for potential funding for. And then there is a series of other approaches, a pre-application and application that accumulates very detailed information that we can then evaluate and make decisions based on to put money out to the various parts of the ecosystem. In addition to that, I would say that we are trying to be proactive to date before we put our funding opportunity out. We've talked to dozens of industry players and companies. We are trying to identify the parts of the ecosystem that are potential barriers or roadblocks so that we can encourage specific applicants. But ultimately, the applicants have to come to us.

We'll do like a review of the application and we'll decide, you know, based on the criteria we've laid out, based on our economic and national security objectives. This is a project we want to support. That will lead us to extending what we call a preliminary memorandum of terms, but basically a term sheet, right? And then you're in a commercial relationship with the company where we're going to try to align on a set of economic terms that allows a project or a set of projects to move forward. If we can align, then we'll do our due diligence and we'll move towards making that award. Let's jump right into some of the criticisms. One of the big ones that got a lot of attention a few weeks ago was this message that was put out about new construction and the requirement

that companies had to take child care of the employees seriously. And I think the concern was, or some of the criticism, was that Democrats having failed to pass some sort of child care bill in the first two years are trying to attach sort of progressive interests onto the bills that they did pass and that this is potentially going to sort of lard up the whole process. And that companies, if we really want them to just move, move fast, compete, be dynamic, then why are we adding all of these extra strings and obligations that aren't related to the production of advanced semiconductors? Why is that criticism wrong in your view? The nofo lays out six evaluation criteria. It has economic and national security,

which we say is the core criteria, the primary criteria, and we'll receive the most weight. And then we're going to evaluate applicants based on commercial viability, financial, strength, technical feasibility, workforce, and a set of broader impacts. And we view workforce is absolutely essential to meeting the economic national security objectives. Every time we talk to a company, workforce concerns are at the top of their list. We know it's a tight labor market. We need workforce to build these fabs. We need workforce to operate these fabs. It's absolutely essential. And the statute requires us to ask applicants for a workforce plan. And as part of that, one thing we hear a lot from companies is that lack of access to affordable, accessible child care

is a barrier to getting the type of broad, diverse workforce we need in the system in order to achieve our objectives. So we view child care as really part and parcel of the broader set of objectives that we have around workforce, which is then, of course, essential to meeting the broader objectives on economic and national security. So as part of the work. force plan, we have asked companies to provide a plan with respect to access to child care that will be part of that holistic evaluation process that covers those six evaluation criteria. If I could add one or two things to that, I left KKR five years ago with the intention to like shift my whole second career to something in the public and not-for-profit sector.

And my main focus was workforce. And so I spent the last four years with a maniacal focus on workforce. because I believe the workforce system in this country is broken, or at least not where it needs to be. And when you look at this industry where over the last 20 years, we've lost a third of the workers in the semiconductor industry at the same time as the industry has tripled globally, and you listen to the companies in terms of their, one of their, if not their biggest challenge, is attracting workers for their desire to build plants in this country. It is very clear that workforce is going to be a,

a really critical aspect of success in the long term. In fact, when you look at someone like TSM or Samsung over in Asia, a core part of their success is the productivity. They're able to get out of their workers and the sort of aligned system that the Koreans and the Taiwanese have around workforce. And so this aspect is really critical. And so childcare is part of sort of expanding that fundamental funnel at the front end so that there is more capability for different types of workers to enter the semiconductor industry.

And I did a little bit of Googling this weekend. I literally went on the TSM and Samsung and Intel and Micron website. All of them, all of them offer some kind of child care. Micron just announced in Idaho that they're building a child care center where there are in D-FAB out there. And so I think this is a little bit of a red herring because I think it's really core to what all of these companies need to do to attract their workers. So I'm glad we're talking about the labor force of this industry because this is something that's come up in various ways. So aside from child care, what else are you doing in order to attract people to this space or what can be done? Because, you know, one of the reasons that people need childcare for these types of jobs is they are very intense. And, you know, in some parts of Asia, we're talking about 12 hours.

shifts where you have to be incredibly focused and diligent and detail-oriented. And I know there has been some concern about whether or not the U.S. will be able to find enough people who want to do this type of work. I mean, I think these are really high-quality jobs for many people in this country. And what we need to do is to help individuals across this country understand and what these jobs involve, understand the quality and attractiveness and potential for advancement in the jobs. And so that means that we need a system that trains and attracts that skill set. There should be no reason that our workforce in the U.S. can't be as productive as any other workforce around the globe. And so the other things, in addition to things like child care, you would talk about aligning local systems,

community colleges, four-year institutions, training organizations, with appropriate wraparound support around transportation and technology skills and things of those nature and aligning those systems so that there's clear pathways and clear curriculum and clear training paths so that more talent can experience the quality of the jobs that there are in this industry. The other thing I was just say is on the kind of engineering side of things, this is just a personal view. But like I think we as a country would be really better off if more engineers were interested in working on semiconductors, you know, as opposed to say software. And I think

all of us can, you know, play a role in trying to shape that narrative. I mean, semiconductors, it is really like the peak of human innovative capacity. And I think, you know, we need to make semiconductors cool here. It does seem like, I don't know, and you could go into software and make a lot of money and hang out and play ping pong and stuff like that. Sit on bean bags. Yeah, go into semiconductors and it'd be like really grueling and not sit on bean bags. And that's like kind of tough.

Like if you want to like attract the most advanced technical talent, I want to ask another question. And I'm sorry, I'm going to keep cribbing question ideas from our brutal Bloomberg opinion columnist. The $52 billion chip making plan is racing towards film. But this is something they bring up, and it's something I've heard from many, you see a lot, which is that one challenge in America is things like local environmental regs that make buildings slower than it does in other countries, land use questions, environmental reviews, lawsuits, things like that. Just so far in the eight months since this bill was passed, what are you seeing on the ground specifically

in terms of the challenges that potentially new fabs have in dealing with the local laws that govern the ability to build anything? It's a great question. I think it is a reality of our American system, the federal system, that we have kind of overlapping expectations or requirements on the kind of permitting environmental review side, including both federal and state and local. we are building a team here that is focused exclusively on those issues, right? And so our job is not to admire the problem, but to kind of jump in and try to solve it. And, you know, I think with the right capacity on our side as well as the right capacity being brought to bear from our applicants, it's just a lot of blocking and tackling. But, you know, we are optimistic that permitting and environmental review won't end up being what we'd all the long pole in the tent. But, you know, there's no question. It's a challenge, and we are taking

it very seriously and investing necessary resources in order to, you know, make sure that we're able to meet our objective. Sorry, can you just talk a little bit more specifically? Are there specific types of issues that come up in the applicants you've seen? And I know we've already seen, like, various investment announcements over the last eight months, but are there specific types of things that companies run into when it comes to the permitting necessary to sort of fulfill? fulfill the goals of the program. What you do see is that it is very project-specific, right? And so, you might have a set of dynamics in one area, right, that are very different than another in terms of what federal, state, local permits are required, what the NEPA review process will look like.

And so what that means for us is it ends up being a pretty bespoke interaction, right? And so we need substantial resources on our side in order to help manage that. So this actually reminds me of something I wanted to ask you, which is, you know, you spoke about diversity of labor force. Is geographic diversity a concern for you? Because my impression is that so far, a lot of the money seems to be heading towards Arizona and Texas, which, you know, speaking about regulation and perhaps environmental concerns, you know, those are not the two states that spring to mind when we're talking about, you know, an abundance of water, which is necessary for fabs and things like that. So how are you sort of dispersing the money from a geographical

perspective? We're not, you know, driving the geographical diversification. We are trying to encourage applicants to find their best locations that work for them from, and you mentioned water and electricity and also local labor force and the quality. of educational institutions in those areas and state and local incentives that, you know, might be part of any application. The large leading edge fabs that are written mostly about are already focused on certain geographic locations. That is where many of them have even started to construct on those locations. And we hope and expect to see, you know, broad ecosystems of suppliers and customers and others, you know, build around those ecosystems. However, that is

not the, you know, that is not all of our money. We also are trying to support current and mature nodes of semiconductors, some of the things that really cause some of the slowdowns in the pandemic, auto, healthcare, MRI machines, etc. that are not like the leading edge of logic, but are, you know, mature nodes that have been produced for a while, but are still really necessary to produce lots and lots of different consumer products and auto products and communications products. Those will be spread throughout the country, I'm sure. And I think there are many, many states and localities that are vying to build effective ecosystems and attract companies to their own geographies. And my guess is we'll have a relatively broad dispersion of that money in that

regard. So this actually leads very nicely into another thing that I wanted to ask, which is I know you mentioned placing an emphasis on leading edge tech in the beginning. But one of the things that we learned from the past couple of years was that, you know, a lot of the, I guess, pressure points that emerged in various supply chains. And you just mentioned the car industry, for instance, that had to do with pretty basic chips that were no longer coming from traditional sources like Asia. So how are you sort of balancing those two mandates, the sort of basic bread and butter chips for lack of a better expression versus the sort of leading edge, high-tech stuff that you want the U.S. to be a specialist in in the future? That's a really good and important question. And it's those types

of questions, which is why we felt compelled to put out that vision for success statement that I talked about earlier. We are trying to articulate the broad range of objectives that we are kind of realistically trying to achieve with what, let's be real, is a limited. sum of money. I mean, $39 billion is a huge amount in an absolute sense, but relative to the global semiconductor investment we expect to see over the next several years, it's a small amount. And we are ultimately going to take a portfolio level approach, right, where we're going to try to maximize what we can achieve on the leading edge side, but also we hope to see really strong applicants on the current generation and mature side that are meaningfully contributing

to supply chain resiliency and meaningfully providing that kind of resilience to critical industries like critical infrastructure, like auto, like the defense industrial base, obviously being a critically important factor there from a national security perspective. And we'll look across these like various priorities and overlay. the importance of putting to tax-fair money to work efficiently and getting kind of the most bang for a buck and try to produce a overall portfolio that is achieving this this range of objectives. Maybe just a few comments to add there if it's all right. The statute itself calls for $2 billion of investment into current and mature nodes. We view that very much as a floor. So to Tracy's point,

these companies and these nodes of semiconductors are really important to the fundamental supply chain resiliency of this country. And actually, if you look at the auto industry, the auto industry is really very interesting. The global semiconductor industry grows by about six percent of years. $600 billion market. By 2030, it'll likely be about a trillion dollars. The auto industry and the demand for chips within the auto industry is growing double that. So the estimate for the next eight or 10 years is about 12 percent. And that's driven by classic EVs and autonomous vehicles, et cetera. And so what you're seeing, you're seeing the auto companies really clearly with their pocketbooks and with their statements demanding, demanding that the supply chain for those chips

sits in this country. You saw recently GM announced a dedicated capacity corridor with global foundries and a big deal in New York. You've seen Port Warner that has put $500 million into a recent debt offering from Wolfspeed in an effort to secure $650 million of annual capacity a year. You've seen similar things being done by Renault, by Denio, by different auto companies. And so there's real demand and there's real action by the customers to try to push and force that supply chain diversification and resiliency. Yeah, the importance of the customer piece cannot be overstated here.

And it's true for, as Todd said, for current generation and mature, but it's also true on leading edge where the major leading edge customers like an Apple, like the big fabulous firms, are also now more interested in geographic diversification of their supply chain. And that puts us in a position where we are allocating our funds in a way that is kind of building on tailwinds in the industry already. and those dynamics and trying to sustain those dynamics is going to be hugely important going forward. There's a healing element in salt, in sweat, in tears, in the ocean. In Halifax, being surrounded by salty water and fog is just enough grit to help polish away the pressure of to-do lists,

to just make time for things that feel good, to let the salt cure whatever ails you. Halifax could be the break that finally leaves you feeling like you took one, As long as you're willing to rub salt in your wounds, discover helifax.ca. The news doesn't stop on the weekends. Context changes constantly. And now Bloomberg is the place to stay on top of it all. Hi, I'm David Gura.

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markets and the world. That on Sundays, we speak with journalists, columnists, and key political figures to prepare you for the week ahead. Join us as soon as you wake up and bring us with you wherever your weekend plans take you. Watch us on Bloomberg Television. Listen on Bloomberg Radio, stream the show live on the Bloomberg business app, or listen to the podcast. That's Bloomberg. this weekend. Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg television, radio, and wherever you get your podcasts. So I want to ask you a question, and I posed this to former NEC chair, Brian Dees, when we had him on right before he left the job. But, you know, when you think about prior periods of big public investment in tech, a key element

was this sort of buyer of last resort, particularly the Defense Department. And so you mentioned the importance of the customer. And I get, you know, of course, GM and some of these other car companies are thinking about geographic diversity and it's understandable after the last few years. But, you know, legacy nodes, legacy tech, like it does seem like it's a very boom and bus cycle industry and there's not always going to be a chip shortage, presumably. Are you worried about, you know, okay, right now there is a lot of demand and a lot of investment, but that in a few years, while you hope to have this sort of self-sustaining industry, that some of these fabs will not have an end buyer because there is no sort of like sustained government buyer of last resort. And how do you sort of think about that risk of commodification, the bus cycle a few years down the road?

I would answer that question yes and no. I mean, yes, of course we focus a lot and will focus a lot at the fundamental analysis of each of these applications on the overall supply demand and long-term protection. for those specific products of those specific nodes. And we're also going to be very focused, and the funding opportunity lays us out, on specific evidence of customer demand over time. And you've seen in this industry many customers who are willing to make, you know, forward commitments, three-year forward commitments, et cetera. So we're really looking for that because we're very mindful that the supply and demand dynamics

and these sort of micro parts of this industry are really critical. All that being said, and I know we're right now in a situation where we've seen in a very rapid fashion, sort of the bus side of your boom and bust as the economy shifts. But when you look over long periods of time in this industry, there are massive secular trends that are tailwinds for this industry. It will always be somewhat cyclical. That's the nature of it. But even if you go back decades, you can see within those cycles, the chart is up and two, to the right. And I think those fundamental drivers, which I mentioned a couple before, like EV,

but also AI and cloud, 5G and Internet of Things, like all of those aspects are driving fundamental mid to high single digit growth in this company in this industry secularly, which are really important. And so our job is to take advantage of that, to make sure more of that capacity gets built in this country and to make sure we're also doing our job by taxpayers and making sure that we are really mindful of the way supply and demand dynamics evolve over time. And agree with all of all that. And would just add one other dynamic, Joe, which is that we will be a part of the capital stack, right, as the federal government. And there's an investment tax credit. And, you know, there's going to be state and local incentives, right? But private

investment is going to be driving this, right? And so, fundamental, when it comes to the kind of supply demand dynamics of any particular FAB or any particular award, we're going to do our due diligence, as Todd said. We think that's like quarter our job. But we're going to be investing, in a sense, alongside private capital, who will also have a measure of confidence that, yes, there will be ups and downs, as there always are in this industry, but that the overall demand profile is going to lead to healthy and self-sustaining dynamics. On the topic of private investment,

it does feel like the semiconductor industry is in some respects in a weird place right now because there is a lot of concern about demand potentially slowing down, about a potential glut of supply, and yet there is also simultaneously this recognition that long term, it feels like people are just going to want more and more chips.

So I'm curious what you're hearing from Apple, right now in terms of their appetite for investment. What are they telling you and what are their major concerns at this point in time? But we've heard from companies is broadly what we've already talked about, which is long term. This industry is very clearly driven by some really strong secular drivers. There is no reason in the current sort of economic shift to doubt that. And so most companies are, you know, looking forward with their capital investment and saying, you know, over a X year, five, 10 year period, we still expect to spend the same amount of money that we anticipated before. That might take different shapes. We might invest a little less next year, particularly in certain parts of the industry that are much more cyclical like memory. But broadly speaking, they don't see any changes to their overall capital investment over time. I want to ask a question about stock buyback. very controversial in almost any area and people are always fighting about them. And the reason I'm

curious about them is I've seen some comments from the White House or from the administration about making sure the money doesn't go towards stock buybacks. And I kind of get that on some level. But on the other hand, like if there's going to be a self-sustaining sort of self-propagating industry in the United States that this initial investment of $52 billion is going to sustain, then presumably it's going to be because shareholders are going to want to see returns. And obviously all these companies are for-profit companies and shareholders are going to want to see over time stock go up. And so I'm sort of curious, like, how you think maybe buyback specifically or more broadly about the sort of tension, it's like, okay, you don't want like this money to just go straight in the

hands of shareholders. But on the other hand, there's not going to be an industry that booms in the United States unless people see that they're making a lot of money at it because ultimately that's why people would invest in anything. And so I'm curious, like, how you think about, like, the shareholder return element of making sure that the Chips Act does its job. So level set to start, we want this industry to be hugely successful, right? We want the economic returns from these investments to propel additional investment going forward.

That is hugely critical to our long-term success. So I fully agree with you there. there's a provision in the law that says the money we give companies can't be used for stock buybacks. That's kind of self-evident because they're supposed to use the money to build fabs. So there's not much of a trade-off there. We have also said that we will favor applications that want to make long-term investments in R&D and manufacturing cabassing production here in the United States, which we believe is absolutely critical to meeting those economic and national security objectives as well. Yeah, I think that's an important point when you, there is no restriction on stock buybacks in our funding opportunity.

The only comment about stock buybacks is in relationship to what Mike just said. And basically we're saying that what we really want to see is long term companies commit to continue to invest, in this country, both capital, R&D dollars for people, for facilities, for process improvements, etc. And one way to show that is to demonstrate your commitment to those dollars, but also to, you know, limit or otherwise, you know, restrict your buybacks or dividend programs to show that you're doing that. That is not a restriction or a requirement. It is just an example of how to demonstrate that over time, your plan is to continue to invest in this country and in this industry. So this is a related question, but if the goal of this program is to build up a more resilient,

domestic semiconductor industry so that it creates lots of good jobs and also ensures that the U.S. isn't vulnerable to supply chain disruptions in the future, does that mean that companies who take this money, and by the way, I stole the this question off of our discord that we're running, the All Thoughts Discord. So people who are interested should definitely check that out. But does that mean that companies who take this money, these subsidies to build FABs, do they have specific obligations to prioritize U.S. customers? Well, I think there are a few elements to that. Number one, some of that pressure, as we indicated earlier is coming from the other direction, right? Which is to say it's U.S. customers who are saying

we want additional supply chain resilience and driving interest in geographic diversification and then specifically investment in the United States. And in particular, the fact that we have such a thriving fabless semiconductor company ecosystem here. So these are these are the semiconductor companies who don't manufacture the chips, but they then design them and work with the foundry to produce them. The fact that we have so many of those leaders here means that there's there are a lot of synergies to be gained by investing in the United States doing joint research and development and that kind of thing. So there's a lot of, there's a push coming from that direction, which again, we find to be hugely constructive. And then in terms of serving kind of our economic

and national security interests, I think, you know, one thing we have said in the NOFO is that we will really encourage companies to submit projects that are going to support our defense industrial base, right? And, you know, producing chips that will end up supporting in a very direct way, our national security is obviously a hugely important part of this program and something we're going to be looking to do at scale. I have one last quick question, but on that point, and I hear this conversation more than the context of the Inflation Reduction Act, what have you encountered so far about some of the reaction of our trading partners, particularly Europe?

You know, Chips is a really global industry, and we know how any given, you know, wafer or product crosses a million, you know, 30 borders before the time it enters a U.S. consumers' hands. Have we seen some of our trading partners want to invest in their own? Like, what is the reaction elsewhere? And do any countries feel defensive about, okay, well, if the U.S. is doing this, trying to bring industry here, do we have to do this? And will there be sort of this sort of like de-globalization or reversal or every country trying to recreate what you're doing for themselves? Yeah, it's a really important question. I'm glad you raised it. One way to think of our goal, what we're trying to do here, is contribute to you.

to global supply chain resilience, right? And working with partners and allies to develop a more resilient global supply chain. As you said, the semiconductor supply chain is already massive and scale, very complicated and very global. That's not going to change, nor should it, right? There are tremendous efficiencies that are gained as a result of that. And so in no way is our goal to build a self-sufficient semiconductor ecosystem. And if we have allies and partners that are also investing in various parts of the supply chain and increasing capacity, I think that's good for all of us, right?

The important thing is that we don't let kind of unconstructive, competitive dynamics take hold, right? Like, we don't want a race to the bottom. We want to have healthy dialogue. And to the extent we can, a coordinated global approach with partners and allies, One of the, I mentioned at the outset our Office of Strategy, Technology, Technology, and Policy under Morgan Dwyer, one of the offices within that office for the CHIPS program is an office of international engagement, right? So we actually just had a team who was out in Korea, Taiwan, Japan, having these meetings directly with our international counterparts. Secretary Romando has been raising these issues directly with.

with foreign leaders. It's a really important part of the agenda for our Trade and Technology Council with Europe. So we are really, really active in this international dialogue. I think you're right that there's a risk of these kind of unconstructive dynamics, but there's also a huge opportunity for us to work with partners and allies

in ways that are mutually beneficial. Mike Schmidt and Todd Fisher, thank you so much. There's a million more things we could talk about, but let's do them in a year from now. Come back on the show. We'll check in again. do a check-in. Sounds great.

Let us know what you there. So much. Thank you. That was great. I really appreciate your time. Yeah, thank you. That was really interesting. Tracy, I got to say, like, this seems like it's going to be really hard.

No, seriously, like really hard. It feels like there are a lot of different considerations, like not necessarily even stakeholders, like official stakeholders, but a lot of different things you have to be considerate of. What I will say, though, is, you know, I read that. and some of the criticisms that were in it. And I think one of the lines in it was that writing checks was never going to be enough. But frankly, I'm always kind of, you know, surprised when we do manage to write a check of this size. And I think, you know, 50 billion in total going into this area, clearly a sizable amount. And clearly there are some big questions over exactly how it's being dispersed. But that, you know, is still a huge sum. Yeah, you know, like, so my takeaway is I thought that the two of them, Mike and Todd, like, they have clearly really thought about these things, including, say, like,

you know, there's a lot of flack about the child care component, and I kind of suspect that's not going to be ultimately, like, that's not going to make or break this problem. No. Like, that's, like, a pretty minor thing. And I think they've, like, all of these things that people bring up, local permitting, et cetera, like, they've clearly thought about them. On the other hand, like, that's really tough to like overcome. And these are going to be like real challenges. So while I, my, my takeaway is that all of these concerns that people have are like Mike and Todd and others within the administration and the commerce are like taking them very seriously. The question is whether like taking them very seriously is enough to sort of overcome some of this inertia

that we've seen from the long term decline of domestic manufacturing. Yeah, that to me is the bigger issue. And I'm glad you asked that question about sort of managing through the cycles and the whole buyer of last resort idea. Because that's the point at which, you know, if you keep flinging money at an industry that can't sort of stand on its own or has significant pro cyclicality issues, like that's when it becomes really problematic. And we're not going to have like supply chain problems in cars forever, right? I take the point about how there are serious tailwinds, particularly with related to EVs and so forth. But still, at some point you would expect some sort of like, I don't know, maybe like, maybe

the, maybe I'm wrong. Maybe the tailwinds from like auto is just so great because of the great transition that that isn't a concern. And again, you know, they point out it's not like they're not taking these things into account when they're looking at an applicant. But it does seem like still this very big difference between sort of past periods of successful domestic U.S. industrial policy versus now, like how much is that going to sustain the industry going forward?

years for years. Yeah, you're kind of thinking fundamental questions about how capitalism and private investment is supposed to work plus the future of technology. I think Mike and Todd can figure out. You think they can do it? Fundamental issues of capitalism. All right, on that happy note, shall we leave it there? Let's leave it there. Okay. This has been another episode of the All Thoughts podcast. I'm Tracy Allo. You can follow me on Twitter at Tracy Allo. And I'm Joe Wisenthall. You can follow me on Twitter at the stalwart. Follow our producers, Roman Rodriguez at Carmen Armin and Dash Bennett at Dashbot and check out all of our podcasts here at Bloomberg under the handle at podcasts. And for more Odd Lots content, go to Bloomberg.com slash Odd Lots where we have transcripts, a blog, and a newsletter, and for even more, check out the Discord.

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