Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.
Speaker 1: I'm Joe Wisenthal and I'm Tracy Alloway. Tracy, you know,
Speaker 1: one of the things we talk about and the themes
Speaker 1: we come back to quite a lot, is just this
Speaker 1: idea of like US government really all government, but I
Speaker 1: guess sort of US centric government intervention active role in
Speaker 1: the economy, which is something that I would say is
Speaker 1: like characterized a lot of like early Biden policymaking so far, yes,
Speaker 1: and a perhaps unappreciated role at certain times. So we
Speaker 1: talked a lot about the history of Silicon Valley, yes,
Speaker 1: and how there was a lot of US government money
Speaker 1: that actually flowed into both that place and that industry
Speaker 1: and that had a massive impact. And now fast forward
Speaker 1: to you know, the post pandemic era, and it feels
Speaker 1: like we're seeing a bit of a resurgence. Yeah, that's
Speaker 1: a good thing. Your that reminder, Like it feels like,
Speaker 1: you know, the US political appetite for public investment, public
Speaker 1: direction of money and capital into certain industries, it ebbs
Speaker 1: and flows. Sometimes that's really out of favor or that's
Speaker 1: seen as anti capitalism or something like that. And clearly
Speaker 1: least the last few years it's been sort of back
Speaker 1: in favor or at least, you know, maybe even a
Speaker 1: little bit under Trump. It's certainly under Biden in a
Speaker 1: very significant way, both with the Chips Act and of
Speaker 1: course the Inflation Reduction Act of seriously public investment and
Speaker 1: the Infrastructure built public investment into different industries. Right. I
Speaker 1: think we spoke about this with as recline the new
Speaker 1: sort of supply side liberalism, this idea that the pandemic
Speaker 1: really exposed a lot of fault lines in the economy
Speaker 1: and also in supply chains, and now there's a lot
Speaker 1: of attention focused on actually fixing those. And I'm glad
Speaker 1: you mentioned one of the preeminent sort of set pieces
Speaker 1: of this particular type of policy, which, of course the
Speaker 1: Chips Act, So the Big Chips Act, other than the
Speaker 1: Infrastructure Act, the Chips Act is the kind of I
Speaker 1: guess the shining symbol of this new direction. Well, you
Speaker 1: mentioned supply chains, and we did a lot of episodes
Speaker 1: on broken chip supply chains, so this brings it together.
Speaker 1: But here's the other thing that I think is key,
Speaker 1: which is that if this is gonna if there's gonna
Speaker 1: be momentum on this front, if active public investment into
Speaker 1: industry is going to be something that sustained. And now,
Speaker 1: just like a two year, a couple bills passed, there's
Speaker 1: a big question like, isn't being done well? Are people
Speaker 1: happy with the results? And I presume if people are
Speaker 1: happy with the results and people see change, then maybe
Speaker 1: there's more momentum. And if people are like, oh, this
Speaker 1: is what happens every time the government and gets involved
Speaker 1: in some industry and it's red tape and cost overruns
Speaker 1: and wasted taxpayer money and so forth, then that really
Speaker 1: sort of like kneecaps any momentum. Yeah, and it feels
Speaker 1: like the stakes are quite high for this particular program
Speaker 1: the sacked because it is, you know, symbolic in many ways.
Speaker 1: First of all, there is always an I would say,
Speaker 1: a almost knee jerk suspicion of government spending from you
Speaker 1: certain parts of America. But then secondly, this particular bill,
Speaker 1: I believe it did come with some new sort of
Speaker 1: conditions attached to it, requirements that companies receiving government funding
Speaker 1: have sufficient childcare things like that, and that has garnered
Speaker 1: additional scrutiny recently. So there are lots of questions over
Speaker 1: exactly how this is being implemented and how we'll measure
Speaker 1: its success. You mentioned scrutiny. I think some of it's
Speaker 1: from our own colleagues at the Bloomberg opinion side. There's
Speaker 1: a headline eight days ago, fifty two billion dollars ship
Speaker 1: making plan is racing towards failure. That was the opinion
Speaker 1: side of the House. That's not our opinion. Nonetheless, this
Speaker 1: is the question, So let's have this question. Look where
Speaker 1: are we that this bill was passed last August. We're
Speaker 1: already seen a lot of activity in the way, but
Speaker 1: how's it actually going. I'm very excited about our guests.
Speaker 1: We're going to be speaking with Mike Schmidt, director of
Speaker 1: the Chips Program Office, as well as Todd Fisher, chief
Speaker 1: Investment Officer of the Chip Program Office. I didn't even
Speaker 1: know CIOs were a role within government, so that's interesting anyway.
Speaker 1: Mike and Todd, thank you so much for coming on
Speaker 1: Odd Lot. Thank you, thank you Joe, thank you Tracy
Speaker 1: for having us. Really I'm a big fan of the podcast,
Speaker 1: so very excited to be on. This is Mike Schmidt,
Speaker 1: I'm the director of the Program Office, and Todd is
Speaker 1: our chief investment officer. And we're excited to be here
Speaker 1: to talk chips. Fortunately, your listeners won't won't need us
Speaker 1: to explain how critical chips are, given all the all
Speaker 1: the episodes you've already done on it, but just to
Speaker 1: lay that foundation, chips are critical to virtually every technology
Speaker 1: that underpins modern life, anything with an on off switch,
Speaker 1: automobiles and medical devices, but also satellite communications and military technology.
Speaker 1: They're going to be foundational to the technolo algies that
Speaker 1: will fundamentally shape society and geopolitics in the coming years,
Speaker 1: things like artificial intelligence, biotech, and clean energy, and so
Speaker 1: you know, we the US have long been a leader
Speaker 1: in chip design and R and D, and that's a really,
Speaker 1: really good thing, but we've fallen significantly behind and manufacturing.
Speaker 1: We account for only about ten percent of global semiconductor
Speaker 1: production today, down from several times that a few decades ago,
Speaker 1: especially where some is on the advanced chips, the leading
Speaker 1: edge chips, where we produce functionally none of that today.
Speaker 1: And so at commerce we have fifty billion to address
Speaker 1: this problem. Thirty nine billion is that for manufacturing incentives,
Speaker 1: eleven billions for R and D. Todd and I are
Speaker 1: are on that incentive side. On that thirty nine billion side,
Speaker 1: and we view ourselves fundamentally as managing a thirty nine
Speaker 1: billion dollar investment program on behalf of taxpayers. But our
Speaker 1: return is not financial. Our return is apply chain resilience
Speaker 1: and in advancing are our economic and national security. And
Speaker 1: I think we're off a pretty good start here, right. Well,
Speaker 1: I was gonna say, you know, Tracy mentioned the beginning,
Speaker 1: there's a big symbolic element but also just like a
Speaker 1: very real element. You mentioned the geopolitics, which is like
Speaker 1: the stakes are literally very high, but for all modern
Speaker 1: life of whether you know, the US always has a
Speaker 1: ongoing supply of sort of advanced in less advanced chips. So, Mike,
Speaker 1: that was a really good intro to the sort of
Speaker 1: stakes involved. But why don't we bring in Todd and
Speaker 1: maybe um Todd you could explain, you know, Joe alluded
Speaker 1: to this in the intro, but what does the chief
Speaker 1: Investment Officer of the Chips Program Office actually do? Thank you, Tracy,
Speaker 1: it's really great to be here. I'm also a big
Speaker 1: fan of your show. We college chief investment officer. The
Speaker 1: role is basically to figure out how to effectively invest
Speaker 1: and allocate the thirty nine billion dollars that we have
Speaker 1: to a complish our overall goals and vision for success.
Speaker 1: So I spent my career, I spent thirty years in
Speaker 1: the financial industry, twenty five years at KKR, basically making investments,
Speaker 1: sitting on investment committees, etc. And given that this is
Speaker 1: a new government program that really hasn't been done in
Speaker 1: this way in many decades, that concept of creating a
Speaker 1: chief investment Officer and an investment office to think about
Speaker 1: the way we are allocating this money seem to make
Speaker 1: sense to us. I was just going to jump in
Speaker 1: and maybe explain a little bit of like the broader
Speaker 1: theory of the case in terms of how we're building
Speaker 1: the team, because fundamentally, we have two objectives here right
Speaker 1: Number one, we need to make a set of investments
Speaker 1: that are advancing our economic and national security. So we
Speaker 1: have a set of strategic objectives. But then we have
Speaker 1: to do so in a way that is safeguarding taxpayer
Speaker 1: dollars and really getting good deal. So we built our
Speaker 1: office here around chief strategy Officer managing strategy, technology and policy.
Speaker 1: That's more and Dwyer, she comes from the senior leadership
Speaker 1: of the Defense Department and the Office of Science Technology Policy,
Speaker 1: and then Todd bringing his considerable financial commercial expertise as
Speaker 1: the Investment Office, you know, gives us a way of
Speaker 1: kind of like mediating a conversation and coming up with
Speaker 1: an overall approach that is kind of advance both the
Speaker 1: tastpayer protection side of the equation but also the kind
Speaker 1: of strategic and economic Well let me ask, and you know,
Speaker 1: with a sort of traditional investment CIO, like, it's fairly
Speaker 1: easy to measure did they do a good job or
Speaker 1: not because you can look at returns, maybe you can
Speaker 1: look at volatility and a few things. It's like, oh
Speaker 1: this this investor made money, or they at least avoided
Speaker 1: losing money, etc. Obviously, as you mentioned Mike and Todd,
Speaker 1: both of you, you know, it's different with public money
Speaker 1: because the goal is to foster an industry and the
Speaker 1: goal is to build something that creates sort of positive externalities.
Speaker 1: But still, I mean, I wonder, are the hard benchmarks
Speaker 1: that we can look at in terms of taxpayer money
Speaker 1: well spent? Are the hard benchmarks in terms of how
Speaker 1: much chip production is happening in the United States today
Speaker 1: Verse twenty twenty eight, Verse twenty thirty three that we
Speaker 1: could say if we don't hit these levels it was unsuccessful,
Speaker 1: or if we do hit these levels that to success.
Speaker 1: What can the public look that to know whether it's
Speaker 1: working or not. We've spend a lot of time thinking
Speaker 1: about this. I mean, we fundamentally believe that we've been
Speaker 1: entrusted with a very large sum of taxpayer money and
Speaker 1: it's a public investment in private industry without recent president
Speaker 1: in terms of its scale and its strategic significance, and
Speaker 1: so we think we kind of owe it to the
Speaker 1: public and a broad range of stakeholders, industry and applicants,
Speaker 1: foreign governments, Congress to explain what we're trying to get
Speaker 1: with their money. And we put out, after a lot
Speaker 1: of analysis, what we call our Vision for Success document,
Speaker 1: and that lays out what we want future to look
Speaker 1: like after we've invested these funds in twenty thirty and beyond.
Speaker 1: And so we say in Leading Edge Logic, we want
Speaker 1: to have at least two large scale Leading Edge Logic
Speaker 1: manufacturing clusters. We talk about the importance of advanced packaging,
Speaker 1: which is absolutely critical both from a supply chain resiliency standpoint,
Speaker 1: but also from a technology leadership standpoint. We talk about memory.
Speaker 1: We talk about current generation to mature. So really across
Speaker 1: these segments, we have tried to put some kind of
Speaker 1: north stars out there that we're gonna tie ourselves to.
Speaker 1: The measure I think about a lot. Joe. Beyond all
Speaker 1: of those specifics is whether we can create self sustaining
Speaker 1: dynamics going forward. So can we be in a position
Speaker 1: where in the coming years, based on the investments we've made,
Speaker 1: based on the scale and the ecosystems we've been able
Speaker 1: to create, do the major chip manufacturers view investing in
Speaker 1: the United States has quartered their business model? And if
Speaker 1: we're able to do that, then I think we will
Speaker 1: be on a really solid trajectory with respect to our
Speaker 1: economic and national security objectives going forward. Do you want
Speaker 1: to add to that at all? Yeah, I would say,
Speaker 1: you know, in ten years when we look back, we
Speaker 1: want to really see this act in this period of
Speaker 1: time as an inflection point. Mike's already said that over
Speaker 1: the last thirty years, we've seen the percentage of manufacturing
Speaker 1: of chips happening in this country go from thirty seven
Speaker 1: percent to ten percent. We need to turn that around,
Speaker 1: and so the success will be to see that number
Speaker 1: instead of continuing to go down, to start to go up,
Speaker 1: and then in the very specific areas that we've already
Speaker 1: laid out, meaning leading edge logic where we now today
Speaker 1: produced zero percent of the world's chips and leading edge.
Speaker 1: We've said very clearly we want to see two self
Speaker 1: sustaining ecosystems at a minimum, and we have no real
Speaker 1: advanced packaging in this country either. We want to see
Speaker 1: quite robust aspects there, and we want to start to
Speaker 1: see cost competitive memory plants being done in this country.
Speaker 1: And we want to see all the piece of the ecosystem,
Speaker 1: including suppliers, come together around those goals. And so that's
Speaker 1: how we're thinking about measuring ourselves. I have a bunch
Speaker 1: of questions about how the government can help build a
Speaker 1: resilient industry that can sort of manage through various economic cycles.
Speaker 1: But before we get to those, maybe just to back
Speaker 1: up for a second, could you talk about how the
Speaker 1: process of dispersing this substantial amount of money. You know,
Speaker 1: you talked about fifty billion, thirty nine billion for manufacturing
Speaker 1: and then eleven billion for R and D. How does
Speaker 1: it actually work in terms of handing it out, you know,
Speaker 1: and applying it. Do people come to you or do
Speaker 1: you identify prospective companies that could benefit from this? How
Speaker 1: exactly does that work the broad aspect of what we've
Speaker 1: laid out in our notice, the funding opportunity is a
Speaker 1: very clear cut and very specific application process, so we
Speaker 1: are expecting companies to come to us. Our portal is
Speaker 1: right now open for what we call statements of intent,
Speaker 1: where anybody that qualifies for this or any of our
Speaker 1: later funding opportunities can put in a statement of the
Speaker 1: kind of project that they're looking for potential funding for,
Speaker 1: and then there is a series of other approaches, a
Speaker 1: pre application and application that accumulates very detailed information that
Speaker 1: we can then evaluate and make decisions based on to
Speaker 1: put money out to the various parts of the ecosystem.
Speaker 1: In addition to that, I would say that we are
Speaker 1: trying to be proactive to date, before we put our
Speaker 1: funding opportunity out, we've talked to dozens of industry players
Speaker 1: at companies. We are trying to identify the parts of
Speaker 1: the ecosystem that our potential barriers or roadblocks so that
Speaker 1: we can encourage specific applicants, but ultimately the applicants have
Speaker 1: to come to us. Yeah, we'll do like a review
Speaker 1: of the application, and we'll decide based on the criteria
Speaker 1: we've laid out, based on our economic and national security objectives.
Speaker 1: This is a project we want to support that will
Speaker 1: lead us to extending what we call a preliminary memorandum
Speaker 1: of terms but basically a term sheet, right, and then
Speaker 1: you're in a commercial relationship with the company where we're
Speaker 1: going to try to align on a set of economic
Speaker 1: terms that allows a project or a set of projects
Speaker 1: to move forward. If we can align, then we'll do
Speaker 1: our due diligence and we'll move towards making that award.
Speaker 1: Let's jump right into some of the criticisms. One of
Speaker 1: the big ones that got a lot of attention a
Speaker 1: few weeks ago was there's message that was put out
Speaker 1: about new construction and the requirement that companies had to
Speaker 1: take childcare of the employees seriously. And I think the
Speaker 1: concern was, or some of the criticism was that Democrats,
Speaker 1: having failed to pass some sort of che wildcare bill
Speaker 1: in the first two years, are trying to attach sort
Speaker 1: of progressive interests onto the bills that they did pass,
Speaker 1: and that this is potentially going to sort of lard
Speaker 1: up the whole process and the companies they if we
Speaker 1: really want them to just move fast, compete, be dynamic,
Speaker 1: then why are we adding all of these extra strings
Speaker 1: and obligations that aren't related to the production of advanced semiconductors.
Speaker 1: Why is that criticism wrong in your view? The no
Speaker 1: FOLLOW lays out sex evaluation criteria. It has economic and
Speaker 1: national security, which we say is the core criteria, the
Speaker 1: primary criteria. We'll receive the most weight, and then we're
Speaker 1: going to evaluate applicants based on commercial viability, financial strength,
Speaker 1: technical feasibility, workforce, and a set of broader impacts. And
Speaker 1: we view workforce is absolutely essential to meeting the economic
Speaker 1: national security objectives. Every time we talk to a company,
Speaker 1: workforce concerns are at the top of their list. We
Speaker 1: know it's a tight labor market. We need workforce to
Speaker 1: build these fabs, we need workforce to operate these fabs.
Speaker 1: It's absolutely essential, and the statute requires us to ask
Speaker 1: applicants for a workforce plan, and as part of that,
Speaker 1: one thing we hear a lot from companies is that
Speaker 1: lack of access to affordable, accessible childcare is a barrier
Speaker 1: to getting the type of broad, diverse workforce we need
Speaker 1: in the system in order to achieve our objectives. So
Speaker 1: we view childcare as really part and parcel of the
Speaker 1: broader set of objectives that we have around workforce, which
Speaker 1: is then, of course essential to meeting the broader objectives
Speaker 1: on economic and national security. So as part of the
Speaker 1: workforce Plan, we have asked companies to provide a plan
Speaker 1: with respect access to childcare that will be part of
Speaker 1: that holistic evaluation process that covers those six evaluation criteria.
Speaker 1: But if I could add one or two things to that,
Speaker 1: I left KKR five years ago with the intention to
Speaker 1: shift my whole second career to something in the public
Speaker 1: and not for profit sector, and my main focus was workforce,
Speaker 1: And so I spent the last four years with a
Speaker 1: maniacal focus on workforce because I believe the workforce system
Speaker 1: in this country is broken, or at least not where
Speaker 1: it needs to be. And when you look at this
Speaker 1: industry where over the last twenty years we've lost third
Speaker 1: of the workers in the semiconductor industry at the same
Speaker 1: time as the industry has tripled globally. And you listen
Speaker 1: to the companies in terms of their one of, if
Speaker 1: not their biggest challenge is attracting workers for their desire
Speaker 1: to build plants in this country. It is very clear
Speaker 1: that workforce is going to be a really critical aspect
Speaker 1: of success in the long term. In fact, when you
Speaker 1: look at someone like TSMC or Samsung over in Asia,
Speaker 1: a core part of their success is the product the
Speaker 1: productivity they're able to get out of their workers, and
Speaker 1: the sort of aligned system that the Koreans and the
Speaker 1: Taiwanese have around workforce, and this aspect is really critical.
Speaker 1: And so childcare is part of sort of expanding that
Speaker 1: fundamental funnel at the front end so that there is
Speaker 1: more capability for different types of workers to enter the
Speaker 1: semiconductor industry. And I did a little bit of googling
Speaker 1: this weekend. I literally went onto TSMC and Samsung and
Speaker 1: Intel and Micron website, all of them. All of them
Speaker 1: offer some kind of childcare. Micron just announced in Idaho
Speaker 1: that they're building a childcare center where their R and
Speaker 1: D fab out there. And so I think this is
Speaker 1: a little bit of a red herring because I think
Speaker 1: it's really core to what all of these companies need
Speaker 1: to do to attract their workers. So I'm glad we're
Speaker 1: talking about the labor force of this industry because this
Speaker 1: is something that's come up in various ways. So aside
Speaker 1: from childcare, what else are you doing in order to
Speaker 1: attract people to this space or what can be done,
Speaker 1: because you know, one of the reasons that people need
Speaker 1: childcare for these type jobs is they are very intense
Speaker 1: and you know, in some parts of Asia, we're talking
Speaker 1: about twelve hour shifts where you have to be incredibly
Speaker 1: focused and diligent and detail oriented. And I know there
Speaker 1: has been some concern about whether or not the US
Speaker 1: will be able to find enough people who want to
Speaker 1: do this type of work. I mean, I think these
Speaker 1: are really high quality jobs for many people in this country,
Speaker 1: and what we need to do is to help individuals
Speaker 1: across this country understand what these jobs involved, understand the
Speaker 1: quality and attractiveness and potential for advancement in the jobs.
Speaker 1: And so that means that we need a system that
Speaker 1: trains and attracts that skill set. There should be no
Speaker 1: reason that our workforce in the US can't be as
Speaker 1: productive as any other workforce around the globe. And so
Speaker 1: the other things in addition to things like childcare, you
Speaker 1: would talk about aligning local whole systems, community colleges for
Speaker 1: your institutions, training organizations with appropriate or wrap around support
Speaker 1: around transportation and technology skills and things of those nature,
Speaker 1: and aligning those systems so that there's clear pathways and
Speaker 1: clear curriculum and clear training paths so that more talent
Speaker 1: can experience the quality of the jobs if there are
Speaker 1: in this industry. The other thing I would just say
Speaker 1: is on the kind of engineering side of things. This
Speaker 1: is just a personal view, but like I think we
Speaker 1: as a country would be really better off if more
Speaker 1: engineers were interested in working on semi conductors, you know,
Speaker 1: as opposed to say software. And I think all of
Speaker 1: us can play a role in trying to shape that narrative.
Speaker 1: I mean semiconductors. It is really like the peak of
Speaker 1: human innovative capacity, and I think, you know, we need
Speaker 1: to make semi conductors cool. Here it does seem like,
Speaker 1: I don't know, and if you could go into software
Speaker 1: and make a lot of money and you know, hang
Speaker 1: out and play ping pong and stuff like that, or yeah,
Speaker 1: you go to semi conductors and it'd be like really
Speaker 1: grueling and not sit on beam bags, and that's like
Speaker 1: kind of tough. Like if you want to like attract
Speaker 1: the most advanced technical talent, I want to just get
Speaker 1: another question, and I'm sorry, I'm going to keep cripping
Speaker 1: questioned ideas from our brutal Bloomberg opinion columnists. The fifty
Speaker 1: two billion dollar plan is racing towards failure. But this
Speaker 1: is something they bring up, and it's something I've heard
Speaker 1: from many. You see a lot, which is that one
Speaker 1: challenge in America is things like local environmental rags that
Speaker 1: make buildings slower than it does in other countries, land
Speaker 1: used questions, environmental reviews, lawsuits, things like that. Just so
Speaker 1: far in the eight months since this bill was passed,
Speaker 1: what are you seeing on the ground specifically in terms
Speaker 1: of the challenges that potentially new fabs have in dealing
Speaker 1: with the local laws that govern the ability to build anything.
Speaker 1: It's a great question, I think. I think it is
Speaker 1: a reality of our American system, the federal system, that
Speaker 1: we have kind of overlapping expectations or requirements on the
Speaker 1: kind of permitting an environmental review side, including both federal
Speaker 1: and state and local. You know, we are building a
Speaker 1: team here that is focused exclusively on those issues, right
Speaker 1: and you know our so our job is not is
Speaker 1: not to admire the problem, but to kind of jump
Speaker 1: in and try to solve it. And you know, I
Speaker 1: think with the right capacity on our side as well
Speaker 1: as the right capacity being brought to bear from our
Speaker 1: from our applicants, it's just a lot of blocking and tackling.
Speaker 1: But you know, we are we are optimistic that permitting
Speaker 1: an environmental review won't won't end up being what we
Speaker 1: call the long pull in the tent. But you know,
Speaker 1: there's no question it's a challenge and we are taking
Speaker 1: it very seriously and investing necessary resources in order to
Speaker 1: make sure that we're able to meet our objections. Sorry,
Speaker 1: can you just talk a little bit more specifically? Are
Speaker 1: there specific types of issues that come up in the
Speaker 1: applicants you've seen and I know we've already seen like
Speaker 1: various investment announcements over the last eight months, But are
Speaker 1: there specific types of things that companies run into when
Speaker 1: it comes to the permitting necessary to sort of fulfill
Speaker 1: fulfill the goals of the program. What you do see
Speaker 1: is that it is very project specific, right, and so
Speaker 1: you might have a set of dynamics in one area,
Speaker 1: right that are very different than another in terms of
Speaker 1: what federal, state, local permits are required, what the NEEPER
Speaker 1: review process will look like. And so what that means
Speaker 1: for us is it ends up being a pretty bespoke interaction, right,
Speaker 1: and so we need substantial resources on our side in
Speaker 1: order to help manage that. So this actually reminds me
Speaker 1: of something I wanted to ask you, which is, you know,
Speaker 1: you spoke about diversity of likeabor force. Is geographic diversity
Speaker 1: a concern for you? Because my impression is that so
Speaker 1: far a lot of the money seems to be heading
Speaker 1: towards Arizona and Texas, which, you know, speaking about regulation
Speaker 1: and perhaps environmental concerns, you know, those are not the
Speaker 1: two states that spring to mind when we're talking about,
Speaker 1: you know, an abundance of water, which is necessary for
Speaker 1: fabs and things like that. So how are you sort
Speaker 1: of dispersing the money from a geographical perspective. We're not,
Speaker 1: you know, driving the geographical diversification. We are trying to
Speaker 1: encourage applicants to find the best locations at work for
Speaker 1: them from and you mentioned water and electricity and also
Speaker 1: local labor force and the quality of educational institutions in
Speaker 1: those areas, and state and local incentives that you might
Speaker 1: be part of any any application. The large leading edge
Speaker 1: fabs that are and mostly about are already focused on
Speaker 1: certain geographic locations. That is where many of them have
Speaker 1: even started to construct on those locations, and we hope
Speaker 1: and expect to see you know, broad ecosystems of suppliers
Speaker 1: and customers and others, you know, build around those ecosystems. However,
Speaker 1: that is not the you know, that is not all
Speaker 1: of our money. We also are trying to support current
Speaker 1: and mature nodes of semiconductors, some of the things that
Speaker 1: really cause some of the slowdowns in the in the
Speaker 1: pandemic auto healthcare, MRI machines, etc. That are not like
Speaker 1: the leading edge of logic, but are mature nodes that
Speaker 1: have been produced for a while but are still really
Speaker 1: necessary to produce lots and lots of different consumer products
Speaker 1: and auto products and communications products. Those will be spread
Speaker 1: throughout the country, I'm sure, and I think there are
Speaker 1: many many states and localities that are buying to build
Speaker 1: effective ecosystems and attract company to their own geographies, and
Speaker 1: my guess is we'll have a relatively broad dispersion of
Speaker 1: that money in that regard. Oh so, this actually leads
Speaker 1: very nicely into another thing that I wanted to ask,
Speaker 1: which is I know you mentioned placing an emphasis on
Speaker 1: leading edge tech in the beginning, but one of the
Speaker 1: things that we learned from the past couple of years
Speaker 1: was that, you know, a lot of the I guess
Speaker 1: pressure points that emerged in various supply chains, and you
Speaker 1: just mentioned the car industry for instance, that had to
Speaker 1: do with pretty basic chips that were no longer coming
Speaker 1: from traditional sources like Asia. So how are you sort
Speaker 1: of balancing those two mandates, the sort of basic bread
Speaker 1: and butter chips for lack of a better expression, versus
Speaker 1: the sort of leading edge high tech stuff that you
Speaker 1: want the US to be a specialist in in the future.
Speaker 1: It's a really good, important question, and it's those types
Speaker 1: of questions, which is why we felt compelled to put
Speaker 1: out that Vision for Success statement that I talked about earlier,
Speaker 1: where we are trying to articulate the broad range of
Speaker 1: objectives that we are kind of realistically trying to achieve
Speaker 1: with what, let's be real is a limited sum of money.
Speaker 1: I mean, thirty nine billion dollars is a huge amount
Speaker 1: in an absolute sense, but relative to the global semiconductor
Speaker 1: investment we expect to see over the next several years,
Speaker 1: it's a small amount, and we are ultimately going to
Speaker 1: take a portfolio level approach right where we're going to
Speaker 1: try to maximize what we can achieve on the leading
Speaker 1: edge side, but also we hope to see really strong
Speaker 1: applicants on the current generation and mature side that are
Speaker 1: meaningfully contributing to supply chain resiliency and meaningfully providing that
Speaker 1: kind of resilience to critical industries like critical infrastructure like auto,
Speaker 1: like the defense industrial base obviously being critically important factor
Speaker 1: there from a national security perspective. And we'll look across
Speaker 1: across these various priorities and overlay the importance of putting
Speaker 1: to tax fare money to work efficiently and getting kind
Speaker 1: of the most bang for our buck and try to
Speaker 1: produce an overall portfolio that is achieving this range of objective.
Speaker 1: So maybe just a few comments they add there, if
Speaker 1: it's all right. The statute itself calls for two billion
Speaker 1: dollars of investment into current and mature nodes. We view
Speaker 1: that very much as a floor. So to Tracy's point,
Speaker 1: these companies and these nodes of semiconductors are really important
Speaker 1: to the fundamental supply chain resiliency of this country. And
Speaker 1: actually if you look at the auto industry. The auto
Speaker 1: industry is really very interesting. The global semiconductor industry grows
Speaker 1: by about six percent years six hundred billion dollars market.
Speaker 1: By twenty thirty, it'll likely be about a trillion dollars
Speaker 1: the auto industry, and the demand for ships within the
Speaker 1: auto industry is growing double that. So the estimate for
Speaker 1: the next eight or ten years is about twelve percent.
Speaker 1: And that's driven by classic you know, evs and autonomous vehicles, etc.
Speaker 1: And so what you're seeing, you're seeing the auto companies
Speaker 1: really clearly with their pocketbooks and with their statements demanding,
Speaker 1: demanding that the supply chain for those chips sits in
Speaker 1: this country. You saw recently GM announced a dedicated capacity
Speaker 1: corridor with global foundaries and a big deal in New York.
Speaker 1: You've seen Poor Warner that has put five hundred million
Speaker 1: dollars into a recent debt offering from wolf Speed in
Speaker 1: an effort to secure six hundred and fifty million dollars
Speaker 1: of annual capacity a year. You've seen similar things being
Speaker 1: done by Renault, by Denio, you know, by different different
Speaker 1: auto companies. And so there's there's real demand and there's
Speaker 1: real action by the customers to try to push and
Speaker 1: force that supply chain diversification and resiliency. Yeah, the important
Speaker 1: the importance of the customer piece. That cannot be overstated here.
Speaker 1: And it's true for this Todd set for current generation
Speaker 1: and mature, but it's also true on on leading edge,
Speaker 1: where the major leading edge customers like an Apple, like
Speaker 1: the big fabulist firms are also now more interested in
Speaker 1: geographic conversification of their supply chain. And that puts us
Speaker 1: in a position where we are allocating our funds in
Speaker 1: a way that is kind of building on tailwinds in
Speaker 1: the industry already, and those dynamics and trying to sustain
Speaker 1: those dynamics are it's gonna be huguely important going forward.
Speaker 1: So I want to ask you a question, and I
Speaker 1: pose this to former NBC chair Brian Deese when we
Speaker 1: had him on right before he left the job. But
Speaker 1: you know, when you think about prior periods of big
Speaker 1: public investment in tech, a key element was this sort
Speaker 1: of buyer of last resort, particularly the Defense department. And
Speaker 1: so you mentioned the importance of the customer and I
Speaker 1: get you know, of course, GM and some of these
Speaker 1: other car companies are thinking about geographic diversity, and it's
Speaker 1: understandable after the last few years. But you know, legacy nodes,
Speaker 1: legacy tech like it does seem like it's a very
Speaker 1: boom and bust cycle industry and there's not always going
Speaker 1: to be a chip shortage, presumably, are you worried about
Speaker 1: you know, okay, right now there is a lot of
Speaker 1: demand and a lot of investment, but that in a
Speaker 1: few years, while you hope to have this sort of
Speaker 1: self sustaining industry, that some of these fabs will not
Speaker 1: have an end buyer because there is no sort of
Speaker 1: like sustained government buyer of last resort. And how do
Speaker 1: you sort of think about that risk of commodification the
Speaker 1: bus cycle a few years down the road, I would
Speaker 1: answer that question yes and no. I mean yes, of
Speaker 1: course we focus a lot and will focus a lot
Speaker 1: at the fundamental analysis of each of these applications on
Speaker 1: the overall supply demand and long term projections for those
Speaker 1: specific products of those specific nodes. And we're also going
Speaker 1: to be very focused and the funding opportunity lays us
Speaker 1: out on specific evidence of custom demand over time. And
Speaker 1: you've seen in this industry many customers who are willing
Speaker 1: to make forward commitments three or forward commitments, etc. So
Speaker 1: we're really looking for that because we're very mindful that
Speaker 1: the supply and demand dynamics and these sort of micro
Speaker 1: parts of this industry are really critical. All that being said,
Speaker 1: and I know we're right now in a situation where
Speaker 1: we've seen a very rapid fashion sort of the bus
Speaker 1: side of your boom and bust as the economy shifts.
Speaker 1: But when you look over long periods of time in
Speaker 1: this industry, there are massive secular trends that are tailwinds
Speaker 1: for this industry. It will always be somewhat cyclical, that's
Speaker 1: the nature of it, but even if you go back decades,
Speaker 1: you can see within those cycles the chart is up
Speaker 1: and to the right. And I think those fundamental drivers
Speaker 1: which I mentioned a couple before, like EV but also
Speaker 1: AI and cloud five G and Internet of Things, like
Speaker 1: all of those aspects are driving fundamental mid to high
Speaker 1: single digit growth in this company content in this industry secularly,
Speaker 1: which are really important. And so our job is to
Speaker 1: take advantage of that to make sure more of that
Speaker 1: capacity gets built in this country, and to make sure
Speaker 1: we're also doing our job by taxpayers and making sure
Speaker 1: that we are really mindful of the way supply and
Speaker 1: demand dynamics evolve over time and agree result of all that,
Speaker 1: and we just add one other dynamic, Joe, which is
Speaker 1: that we will be a part of the capital stack,
Speaker 1: right as the federal government and there's an investment tax credit,
Speaker 1: and you know there's going to be state and local incentives, right,
Speaker 1: but private investment is going to be driving this right
Speaker 1: And so fundamentally, when it comes to the kind of
Speaker 1: demand dynamics of any particular fab or any particular award,
Speaker 1: we're going to do our due diligence, as Todd said,
Speaker 1: we think that's like cord or our job. But we're
Speaker 1: going to be investing in a sense alongside private capital
Speaker 1: who will also have a measure of confidence that, yes,
Speaker 1: there will be ups and downs, as there always are
Speaker 1: in this industry, but that the overall demand profile is
Speaker 1: going to lead to healthy and self sustaining dynamics. On
Speaker 1: the topic of private investment, it does feel like the
Speaker 1: semiconductor industry is in some respects in a weird place
Speaker 1: right now, because there is a lot of concern about
Speaker 1: demand potentially slowing down, about a potential glut of supply,
Speaker 1: and yet there is also simultaneously this recognition that long term,
Speaker 1: it feels like people are just going to want more
Speaker 1: and more chips. So I'm curious what you're hearing from
Speaker 1: applicants right now in terms of their appetite for investment.
Speaker 1: What are they telling you and what are their major
Speaker 1: concerns at this point in time. But we've heard from
Speaker 1: companies is broadly what we've already talked about, which is
Speaker 1: long term, this industry is very clearly driven by some
Speaker 1: really strong secular drivers. There is no reason in the
Speaker 1: current sort of economic shift to doubt that, and so
Speaker 1: most companies are looking forward with their capital investment and saying,
Speaker 1: you know, over a X year, five, ten year period,
Speaker 1: we still expect to spend the same amount of money
Speaker 1: that we anticipated before. That might take different shapes. We
Speaker 1: might invest at all less next year, particularly in certain
Speaker 1: parts of the industry that are much more cyclical, like memory,
Speaker 1: But broadly speaking, they don't see any changes to their
Speaker 1: overall capital investment over time. I want to ask you
Speaker 1: a question about stock by back. Very controversial in almost
Speaker 1: any area, and people are always fighting about them. And
Speaker 1: the reason I'm curious about them is I've seen some
Speaker 1: comments from the White House or from the administration about
Speaker 1: you know, making sure the money doesn't go towards stock buybacks.
Speaker 1: And I kind of get that on some level, But
Speaker 1: on the other hand, like, if there's going to be
Speaker 1: a self sustaining, sort of self propagating industry in the
Speaker 1: United States that this initial investment of fifty two billion
Speaker 1: dollars is going to sustain, then presumably it's going to
Speaker 1: be because shareholders are going to want to see returns,
Speaker 1: and obviously all these companies are for profit companies, and
Speaker 1: shareholders are going to want to see overtime stock go up.
Speaker 1: And so I'm sort of curious, like how you think
Speaker 1: maybe buybacks specifically or more broadly about the sort of tension.
Speaker 1: It's like, Okay, you don't want like this money to
Speaker 1: just go straight in the hands of shareholders. But on
Speaker 1: the other hand, there's not going to be an industry
Speaker 1: that booms in the United States unless people see that
Speaker 1: they're making a lot of money at it, because ultimately
Speaker 1: that's why people would invest in anything. And so I'm curious,
Speaker 1: like how you think about like the shareholder return element
Speaker 1: of making sure that the CHIPSAC does its job to
Speaker 1: level set to start we want this industry to be
Speaker 1: hugely successful, right. We want the economic returns from these
Speaker 1: investments to propel additional investment going forward. That is hugely
Speaker 1: critical to our long term success. So I fully agree
Speaker 1: with you there. There's a provision in the law that
Speaker 1: says the money we give companies can't be used for
Speaker 1: stock buybacks. That's kind of self evident because they're supposed
Speaker 1: to use the money to build fabs, so there's not
Speaker 1: much of a trade off there. We have also said
Speaker 1: that we will favor applications that want to make long
Speaker 1: term investments in R and D and manufacturing capasciting production
Speaker 1: here in the United States, which we believe is absolutely
Speaker 1: critical to meeting those economic and national security objectives as well. Yeah,
Speaker 1: I think that's an important point when you there is
Speaker 1: no restriction on stock buybacks in our funding opportunity. The
Speaker 1: only comment about stock buybacks is in relationship to what
Speaker 1: Mike just said, and basically we're saying that what we
Speaker 1: really want to see is long term companies commit to
Speaker 1: continue to invest in this in this country. Both capital
Speaker 1: are indeed dollars for people, for facilities, for process improvements, etc.
Speaker 1: And one way to show that is to demonstrate your
Speaker 1: commitment to those dollars, but also to limit or otherwise
Speaker 1: you restrict the your buybacks or dividend programs to show
Speaker 1: that you're doing that. That is not a restriction or requirement.
Speaker 1: It is just an example of how to demonstrate that
Speaker 1: over time, your plan is to continue to invest in
Speaker 1: this country and in this industry. So this is a
Speaker 1: related question. But if the goal of this program is
Speaker 1: to build up a more resilient domestic semiconductor industry so
Speaker 1: that it creates lots of good jobs and also ensures
Speaker 1: that the US isn't vulnerable to supply chain disruptions in
Speaker 1: the future, does that mean that companies who take this
Speaker 1: money and by the way, I stole this question off
Speaker 1: of our discord that we're running the all thoughts discord,
Speaker 1: so people who are interested should definitely check that out.
Speaker 1: But does that mean that companies who take this money,
Speaker 1: these subsidies to build fabs, do they have specific obligations
Speaker 1: to prioritize US customers. Well, I think there are a
Speaker 1: few elements to that. Number One, some of that pressure,
Speaker 1: as we indicated earlier, is coming from the other direction, right,
Speaker 1: which is to say it's US customers who are saying
Speaker 1: we want additional supply chain resili and driving interests in
Speaker 1: geographic diversification and then specifically investment in the United States,
Speaker 1: and in particular the fact that we have such a
Speaker 1: thriving fabless semiconductor company ecosystem here. So these are these
Speaker 1: are the semiconductor companies who don't manufacture the chips, but
Speaker 1: they then design them and work with the foundry to
Speaker 1: produce them. The fact that we have so many of
Speaker 1: those leaders here means that there's all there are a
Speaker 1: lot of synergies to be gained by investing in the
Speaker 1: United States, doing joint research and development and that kind
Speaker 1: of thing. So there's a lot of there's a push
Speaker 1: coming from that direction, which again we find to be
Speaker 1: hugely constructive. And then in terms of serving kind of
Speaker 1: our economic and national security interests, I think you know,
Speaker 1: one thing we have said in the NOFO is that
Speaker 1: we will really encourage companies to submit projects that are
Speaker 1: going to support our defense industrial base, right and you know,
Speaker 1: producing chips that will end up supporting in a very
Speaker 1: direct way our national security is obviously a hugely important
Speaker 1: part of this program and something we're going to be
Speaker 1: looking to do. Looking to do at scale. I have
Speaker 1: one last quick question, but on that point, and I
Speaker 1: hear this conversation more than the context of the Inflation
Speaker 1: Reduction Act, what have you encountered so far about some
Speaker 1: of the reaction of our trading partners, particularly Europe. You know,
Speaker 1: chips is a really global industry, and we know like
Speaker 1: how any given you know, wafer or product like crosses
Speaker 1: a million, you know, thirty boarders before the time it
Speaker 1: enters a US consumers hands. Have we seen some of
Speaker 1: our trading partners like want to invest in their own
Speaker 1: Like what is the reaction elsewhere? And do any countries
Speaker 1: feel defensive about Okay, well, if the US is doing this,
Speaker 1: trying to bring industry here, do we have to do
Speaker 1: this And will there be sort of this sort of
Speaker 1: like deglobalization or reversal or every country trying to recreate
Speaker 1: what you're doing for themselves. Yeah, it's really it's a
Speaker 1: really important question. I'm glad you raised it. One way
Speaker 1: to think of our goal. What we're trying to do
Speaker 1: here is contribute to global supply chain resilience, right and
Speaker 1: working with partners and allies to develop a more resilient
Speaker 1: global supply chain as you said, the semiconductor supply chain
Speaker 1: is already massive in scale, very complicated, and very global.
Speaker 1: That's not going to change, nor should it. Right. There
Speaker 1: are tremendous efficiencies that are gained as a result of that,
Speaker 1: and so so in no way is our goal to
Speaker 1: build a self sufficient semiconductor ecosystem. And if we have
Speaker 1: allies and partners that are also investing in various parts
Speaker 1: of the supply chain and increasing capacity, I think that's
Speaker 1: that's good for all of us. Right. The important thing
Speaker 1: is that we don't let kind of unconstructive competitive dynamics
Speaker 1: take hold, right, Like we don't want a race to
Speaker 1: the bottom. We want to have healthy dialogue and to
Speaker 1: the extent we can a coordinated global approach with partners
Speaker 1: and allies. One of the I mentioned at the outset
Speaker 1: our Office of Strategy, Technology and Policy under Morgan Dwyer.
Speaker 1: One of the offices within that office for the Chips
Speaker 1: program is an Office of International Engagement. Right, so we
Speaker 1: actually just had a team who was out in Korea, Taiwan,
Speaker 1: Japan having these meetings directly with our international counterparts sector.
Speaker 1: Ramondo has been raising these issues directly with foreign leaders.
Speaker 1: It's a really important part of the agenda for our
Speaker 1: Trade and Technology Council. We a europe so we're really
Speaker 1: really active in this international dialogue. I think you're right
Speaker 1: that there's a risk of these kind of unconstructive dynamics,
Speaker 1: but there's also a huge opportunity for us to work
Speaker 1: with partners and allies in ways that are usually beneficial.
Speaker 1: Mike Schmidt and Todd Fisher, thank you so much. There's
Speaker 1: a million more things we could talk about, but let's
Speaker 1: do them in a year from now. Come back on
Speaker 1: the show. We'll do a check in. Sounds great, let's know,
Speaker 1: will you that much? Thank you? That was great. I
Speaker 1: really appreciate your time. Yeah, thank you. That was really interesting. Tracy.
Speaker 1: I gotta say, like, this seems like it's gonna be
Speaker 1: really hard, seriously, like really hard. It feels like there
Speaker 1: are a lot of different considerations, like not necessarily even stakeholders,
Speaker 1: like official stakeholders, but a lot of different things you
Speaker 1: have to be considerate. Yeah. Of what I will say though, is,
Speaker 1: you know, I read that editorial and some of the
Speaker 1: criticisms that were in it, and I think one of
Speaker 1: the lines in it was that checks was never going
Speaker 1: to be enough. But Frankly, I'm always kind of, you know,
Speaker 1: surprised when when we do manage to write, Yeah, of
Speaker 1: this size and I think, you know, fifty billion in
Speaker 1: total going into this area clearly a sizeable amount, and
Speaker 1: clearly there are some big questions over exactly how it's
Speaker 1: being dispersed, but that is still a huge sum. Yeah,
Speaker 1: you know. Like so my takeaway is I thought that
Speaker 1: the two of them, Mike and Tad, liked they have
Speaker 1: clearly really thought about these things, including say, like, you know,
Speaker 1: there's a lot of flak about the childcare component, and
Speaker 1: I kind of suspect that's not going to be ultimately,
Speaker 1: like that's not going to make or break this problem.
Speaker 1: Like that's like a pretty minor thing. And I think
Speaker 1: they've like all of these things that people bring up,
Speaker 1: local permitting, etc. Like they've clearly thought about them. On
Speaker 1: the other hand, like that's really tough to overcome, and
Speaker 1: these are going to be like real challenges. So while
Speaker 1: I my takeaway is that all of these concerns that
Speaker 1: people have are like Mike and Todd and others within
Speaker 1: the administration and the Commerce are like taking them very seriously.
Speaker 1: The question is whether like taking them very seriously, is
Speaker 1: enough to sort of overcome some of this inertia that
Speaker 1: we've seen from the long term decline of domestic manufacturing. Yeah,
Speaker 1: that to me is the bigger issue. And I'm glad
Speaker 1: you asked that question about sort of managing through the
Speaker 1: cycles and the whole buyer of last resort idea, because
Speaker 1: because that's that's the point at which, you know, if
Speaker 1: you keep flinging money at an industry that can't sort
Speaker 1: of stand on its own or has significant pro cyclicality issues, like,
Speaker 1: that's when it becomes really problematic, and we're not going
Speaker 1: to have like supply chain problems in cars forever. Right.
Speaker 1: I take the point about how there are serious tailwins,
Speaker 1: particularly with related evs and so forth, But still at
Speaker 1: some point you would expect some sort of like I
Speaker 1: don't know, maybe like maybe maybe I'm wrong, Maybe the
Speaker 1: tailwins from like auto is just so great because of
Speaker 1: the great transition that that isn't a concern. And again,
Speaker 1: you know, they point out it's not like they're not
Speaker 1: taking these things into account when they're looking at an applicant,
Speaker 1: But it does seem like still this very big difference
Speaker 1: between sort of past periods of successful domestic US industrial
Speaker 1: policy verse Now, like, how much is that going to
Speaker 1: sustain the industry going for years for years? Yeah, you're
Speaker 1: kind of thinking fundamental questions about how capitalism and private
Speaker 1: investment is supposed to work, plus the future of technology.
Speaker 1: I think Mike and I think Mike and Todd can figure.
Speaker 1: You think they can fundamental issues of capital All right,
Speaker 1: on that happy note, shall we leave it there? Let's
Speaker 1: leave it there? Okay, this has been another episode of
Speaker 1: the All Thoughts podcast. I'm Tracy Alloway. You can follow
Speaker 1: me on Twitter at Tracy Alloway, and I'm Joe wisent'al.
Speaker 1: You can follow me on Twitter at the Stalwart, follow
Speaker 1: our producers Carmen Rodriguez at Carmen Armin and Dash Bennett
Speaker 1: at dashbot. And check out all of our podcasts here
Speaker 1: at Bloomberg under the handle at podcasts, and for more
Speaker 1: Oblouts ten go to Bloomberg dot com slash odd lots,
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Speaker 1: Thanks for listening.