CHIPS Act: Shoring Up the Supply Chain and Producing More Growth for Small Businesses
For small businesses, the semiconductor, or chip, scarcity has been a real detriment to the supply chain problem as its shortage rippled across a multitude of industries, including putting a halt to car production and deferring launches for electronic products.
To top it off, as an effect of supply and demand, there has been a sharp increase in inflation rates – reaching a 40-year high recently.
In response to the shortages and supply chain disruptions caused, the Creating Helpful Incentives to Produce Semiconductors for America and Science Act of 2022 (CHIPS Act) was recently passed by Congress. The $52 billion package includes substantial tax incentives to boost domestic production of chips.
This is good news for small businesses as the initiative will strengthen the country's leadership in chip-making and bolster various industries.
The Winners of the CHIPS Act Funding
With all this funding being made available, how do small businesses get a piece of the pie? Some sectors that will benefit from the passage of the funding include:
- Chip Manufacturers: To qualify for part of the $39 billion dedicated in this area, applicants are required to be "a private entity, a consortium of private entities, or a consortium of public and private entities" with a proven ability to significantly fund, construct, expand or upgrade a facility connected to the research and development of semiconductors. A 25% investment tax credit is also available for those who are eligible.
- Upstream Suppliers to Chip Manufacturers: Covered entities include those who provide "materials used to manufacture semiconductors, or semiconductor manufacturing equipment." A 25% investment tax credit is also available for those who are eligible.
To find out more about others who may be eligible for the CHIPS Act funds, visit CHIPSACT.com.
Meanwhile, How Can Businesses Deal with Ongoing Shortage?
Although the most significant hurdle has passed with the passage of the funding, it may take some time before the chip numbers are back to pre-shortage levels, with some predicting at least another year.
To help minimize the impacts in the interim, consider implementing these ideas in your small business:
- Plan Ahead. Make sure you're ready to return to normality by considering whether you have the resources and staffing as demand rises.
- Re-evaluate research and development and production to instill efficiencies. Do you need to implement automation to keep up with additional production?
- Reinforce your supplier connections. By ensuring you're frequently communicating with your supplier, you'll be able to relay your needs and set up future expectations correctly.
- Reassess inventory processes. Review your production models to see if it's now more logical to reserve supplies for higher production amounts.
However, the key remains to keep an open mind to change and be prepared to pivot and adapt operations as needed. That way, you'll be able to take a proactive stance rather than playing catch-up.
Others also advise considering moving your computing workloads to the cloud so that you can scale as the situation changes.
"By moving workloads to the cloud, you can purchase what you require today and add resources as your needs grow," writes Kevin Tobey, Technical Sales Engineer, Med Tech Solutions, in a post for Spiceworks. "This is a much more efficient and cost-effective approach than purchasing hardware and resources that you don’t plan to operate for the next five years."
The Critical Need for the CHIPS Act
There are a few reasons for the chip shortage – a rise in demand for consumer electronics and the simultaneous decline in manufacturing due to the pandemic. Today, the U.S. makes just 12 percent of the world's quantities of semiconductors – compared to 37 percent in 1990. The need for higher production can be attributed to accelerated technological gains in 5G, artificial intelligence, high-performance data centers, autonomous cars, and more.
"Semiconductors are essential to nearly every sector of the economy," said U.S. Chamber Executive Vice President and Chief Policy Officer Neil Bradley in a statement before the passage of the funding. "Unfortunately, demand for chips has outstripped supply, creating a global shortage and resulting in lost growth and jobs here at home."
According to the statement, more than 240 state and local chambers and business organizations spoke up in support of the CHIPS Act.
The CHIPS Act boosts U.S. leadership in the semiconductor field. Among its promises are:
- $39 billion in manufacturing incentives to develop, broaden or upgrade local facilities and equipment in semiconduction research and development.
- $10 billion devoted to regional modernization and technological centers to unite sectors, including local and state governments, higher education, businesses, and community-based groups meant to form partnerships to further technological, innovation, and manufacturing areas.
- $1.5 billion to promote and execute wireless technologies supply chain advancements.