With $1.4 billion investment, Texas hopes to sprint to the front of the microchip manufacturing race

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Leaders in the semiconductor industry and their Texas allies were alarmed by supply chain disruptions to the sector during the pandemic. Now the state is seeking to turn the lessons learned in the past three years into an opportunity.

Texas is pumping $1.4 billion into microchip research and manufacturing initiatives in an effort to attract new investments, secure lucrative federal grants and create thousands of high-paying jobs over the next decade.

On Thursday, Gov. Greg Abbott approved the Texas CHIPS Act, which will create the Texas Semiconductor Innovation Fund, a pot of money that will subsidize companies that manufacture chips in Texas and provide matching funds to universities and other state entities that invest in chip design or manufacturing projects.

Lawmakers this year appropriated $698.3 million for the new fund and an additional $666.4 million for the creation of advanced research and development centers at the University of Texas at Austin and Texas A&M University.

The investment illustrates the state’s commitment to the national race to capture billions of dollars in federal funds for the industry.

Last August, President Joe Biden signed the federal CHIPS and Science Act, allocating $52 billion to spur semiconductor manufacturing in the country. The law seeks to encourage private investment in the sector by offering subsidies for companies that build new or expand manufacturing facilities and by helping pay for new research and development projects.

States have a role to play in the federal government’s strategy, especially in the training and development of the workforce needed, according to industry experts. And Texas stands out on the national stage because it already has one of the most robust ecosystems in the semiconductor industry.

The federal CHIPS Act seeks to encourage the reshoring of semiconductor manufacturing, which means bringing chip factories back to the country. The U.S. depends heavily on chip imports, especially from Taiwan and South Korea. And the possibility of China invading Taiwan — a territory that has declared its independence and has its own government, but which Beijing still considers part of China — has raised alarms about its impact on the supply of semiconductors.

Reliance on chip imports is risky, as was evident during the pandemic. Disruptions in global supply chains led to microchip shortages, which in turn caused shockwaves across the U.S. economy. Semiconductors are increasingly present in everyday life, not only in phones or laptops. They have become key components in everything from cars and ATMs to washing machines.

The national security system and the intelligence community also depend heavily on semiconductors, said William Inboden, executive director of the Clements Center for National Security at the University of Texas at Austin.

“In the 19th century, the key ingredient of military power was gunpowder. In the 20th century, it was petroleum, and now it is semiconductors,” Inboden said.

Inboden said he is generally skeptical of the government intervening in the economy but added that he supported the federal CHIPS law and the Texas economic package because of the importance of the microchip industry to national security. Inboden also said that a Chinese invasion of Taiwan could cause a “catastrophic depression” in the U.S. and that the country should take preventive measures.

The federal CHIPS Act could create 100,000 new high-paying jobs in the U.S. by the end of the decade, industry experts estimate. Where investments and jobs take root depends largely on the policies of each state.

Semiconductor companies have already promised $215 billion in investments and the creation of 40,000 jobs across the country in response to the federal CHIPS Act, according to the Semiconductor Industry Association. Sixty billion of these investments will land in Texas, where six projects that will create 8,000 jobs in the sector have already been announced. Texas is the second state with the most planned projects, after Arizona.

Two of the Texas projects will create new semiconductor fabs, as microchip fabrication facilities are known. Samsung Electronics will build one in Taylor, representing a $17.3 billion investment that will create 2,000 jobs; and Texas Instruments will build the other in Sherman, a $30 billion project that will hire 3,000 workers between now and 2035. Another three are expansions of existing semiconductor factories: Texas Instruments in Richardson, NXP in Austin and X-FAB in Lubbock. The last project will build a Global Wafers facility in Sherman dedicated to silicon wafer manufacturing.

Microchip companies currently have 54 facilities in the state. With about 45,000 workers, Texas has the second-largest workforce in the industry, only behind California, according to the Semiconductor Industry Association. The state is aiming to reach the top position by 2030.

Industry experts said Texas’ $1.4 billion CHIPS Act is one of the most significant financial packages in the country, and one that meets the U.S. Department of Commerce’s expectations for states’ role in this sector.

Texas public coffers will fund two research and manufacturing centers at the state’s flagship universities, which will have two goals: to put Texas at the forefront of advancing technologies and to develop the necessary workforce for the industry. Finding highly skilled workers is one of the biggest challenges to bringing chip manufacturing back to the U.S.

UT-Austin will receive $440 million to build fabs, which will be part of the Texas Institute for Electronics, a public-private partnership launched in 2022 that plans to become a nonprofit, independent organization this year. TIE focuses on the manufacture of the shells that contain microchips, a process known as packaging.

Packaging used to be considered a low-value part of the supply chain, but that is changing, according to S.V. Sreenivasan, director of TIE.

In recent decades, chips have become smaller and increased in capacity at an accelerated rate, but the pace of improvement is slowing down, Sreenivasan said. TIE aims to develop advanced packaging systems, which includes putting different types of technologies on the same chip. U.S. companies dominate the microchip design stages but manufacture only 12% of the circuits and make 3% of the packaging, Sreenivasan noted. That puts the country in a vulnerable position if the transnational supply chain is disrupted, he said.

Texas A&M will receive $200 million to build fabs for quantum and artificial intelligence chip fabrication and about $26.4 million for the Center for Microdevices and Systems, which will work to develop the next generation of chips, according to Yossef Elabd, vice chancellor for research at Texas A&M.

“We are focused on the new chemistry, the new materials, the new processes and the next version of the chip,” Elabd said.

The facilities at both universities do not aim to manufacture chips for commercialization; instead, they will focus on piloting new products that meet market standards and training the future technicians, engineers and leaders of the industry. Semiconductor companies are giving feedback to UT-Austin and A&M about what kind of facilities they need to build and what they should teach students to be prepared for working in this business.

Elabd said Texas is in a good position to attract new investment and federal funds.

“Most semiconductor companies are already in Texas, a lot of funding is in Texas, we are a very business-friendly state and Texas A&M is the No. 1 school in the country for engineering production. It is the best place for chip production growth,” he said. “The $1.4 billion investment is a huge message to the entire community that Texas wants to lead the way.”

Disclosure: Texas A&M University, Texas Instruments and University of Texas at Austin have been financial supporters of The Texas Tribune, a nonprofit, nonpartisan news organization that is funded in part by donations from members, foundations and corporate sponsors. Financial supporters play no role in the Tribune's journalism. Find a complete list of them here.

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