Image credit: Micron Technology
Micron 232 L Nand Wafer Black

Micron Pledges to Invest $40 Billion in U.S. Memory Fabs

Aug. 10, 2022
The memory chip giant said that it plans to start mass-producing chips at its new U.S. fabs after 2025.

Micron Technology said that it plans to invest $40 billion in its U.S. manufacturing operations through the end of the decade now that there is government money on the table.

The memory chip maker said it would partly fund the expansion with anticipated grants and credits made possible by the recently passed CHIPS and Science Act, which aims to hone America's technological edge and restore its crown in chip manufacturing.

President Biden signed the bipartisan bill on Tuesday. It will provide about $52 billion in subsidies and research grants to companies that invest in new U.S. chip factories and limit their expansion plans in China.

Micron CEO Sanjay Mehrotra said the plan to invest $40 billion in its U.S. fabs between now and 2030 will make "the U.S. home to the most advanced memory manufacturing and R&D in the world."

Today, only one out of every 50 memory chips are made in the U.S.; all of that is produced by Micron. But the company pledged to build enough capacity so that one out of every 10 memory chips will be U.S.-made by the end of the decade.

Micron is one of the world's largest manufacturers of DRAM and 3D NAND flash memory chips along with rivals Samsung and SK Hynx, and it sees strong demand for years to come despite a recent dip in demand.

Micron's most advanced research and development (R&D) site is located in Boise, Idaho, where it also headquartered. But production of its most advanced chips occurs outside the U.S.—in Southeast Asia, Japan, and Taiwan.

The company said it intends to manufacture chips from its new U.S. fabs at some point after 2025.

Government Aid

The announcement fits in with U.S. goals to reduce its dependence on imports by reshoring more chip fabs. The U.S. is also hoping to shore up the supply chain to fight against future chip shortages like the one the world is currently grappling with.

Micron said that bringing more advanced memory chip-making will ensure U.S. national security and supply chain resilience as demand for memory grows in areas such as autos and the data center, driven 5G and AI.

The CHIPS Act will allocate about $52.7 billion in subsidies for firms building additional semiconductor fabs in the U.S. Of that total, about $39 billion is reserved for financial incentives for U.S. fab expansions, with $2 billion of the total being used to build out additional capacity for legacy chips used in areas like automotive, industrial, and defense. About $13.2 billion is also available for R&D and workforce development programs.

The White House contends the legislation will "unlock hundreds of billions more" in private spending that will boost U.S. competitiveness with China, which is also pursuing self-sufficiency when it comes to chips.

The prospect of federal subsidies has spurred record levels of U.S. investment by the world's top chip firms. In recent years, Intel, Samsung, TI, and TSMC have announced new fabs with a total price tag of $99 billion.

In early 2022, Intel said it intends to invest at least $20 billion in a sprawling manufacturing site in Ohio—the first phase of a spending plan that could grow to $100 billion over a decade with government assistance.

The U.S. is the global leader in the chip design realm, accounting for more than 45% of overall sales of semiconductors. U.S companies also dominate the markets for software tools used to design chips and the high-end machinery to mass-produce them. But the nation only accounts for a fraction of global production.

The U.S. is responsible for about 12% of the world's chip production. At the same time, Taiwan, South Korea, China, and other regions in Asia account for about 75% of the total—including most of the top-tier chips.

As the U.S. share of global semiconductor production has slipped from 37% in 1990, political leaders and chip giants alike have sought to reinvigorate a sector that has become a linchpin of the U.S. economy, supplying core building blocks to everything from cars to smartphones to military systems.

A Critical "First Step"

The move will give Micron's operations more geographic diversity at a time when geopolitical instability and supply chain constraints are forcing companies to reevaluate where they build new fabs.

The U.S. investments in the pipeline will ultimately create up to 40,000 American jobs, including around 5,000 technical and operational roles at Micron. The company said the expansion would enrich the area surrounding the new fabs by bolstering education, workforce training, transportation, and other services.

Micron and its most prominent rivals, Samsung and SK Hynix of South Korea, dominate the global memory chip business. However, they are also facing new competition from rivals based in China, including YMTC.

The expansion is the first part of the company's previous commitment to put $150 billion into its research and development and manufacturing sites by 2030, which was held up pending approval of the CHIPS Act.

Mehrotra, who attended the signing ceremony at the White House, said funding from the CHIPS Act is "an important first step toward strengthening and retaining American technology leadership for decades to come."

The bill also creates a 25% tax credit for companies engaged in U.S. chip manufacturing to ease the burden of buying chip-maker tools that can cost tens of millions of dollars each. The credits will be worth $24 billion. Micron is ordering EUV lithography tools to upgrade its memory chip fabs. The company plans to start mass-producing advanced memory chips with the systems, which can cost more than $100 million each, by 2024.

On top of that are tens of billions of dollars to fund fundamental scientific research to spur innovation and development of other U.S. technology that could also give a boost to U.S. chip makers down the road.

Not the Best Timing

For Micron, the plan is to implement the investment plan in several phases, with production set to launch after 2025. From there, Micron's strategy to increase "overall supply in line with industry demand trends." 

"The manufacturing investments we are planning are necessary to meet long-term market demand," he explained. "Soon, the U.S. will once again be home to the world's most advanced memory manufacturing."

The announcement starkly contrasts the grim short-term prospects for the memory-chip market. Micron has warned of a seriously weakening market for both DRAM and NAND, signaling that the chip boom is cooling.

CFO Mark Murphy said at an investor's conference on Tuesday the demand slowdown is not only striking laptops and smartphones, where Micron, Intel, and other companies have previously warned of weakness.

He said that "inventory adjustments" are also taking place in the data center, industrial, and automotive sectors as companies attempt to get through inventory that they hoarded during the pandemic. 

Given the uncertainty enveloping the U.S. economy, "companies are now being more cautious about the inventory levels they hold," Murphy said, adding that challenges will persist for the next two quarters. "In conditions like this, we've chosen to build up our inventories even more as the pricing in the market isn't reflecting fair value for our products." 

As a result, Micron said it will curtail its capital expenditures on its fabs in 2023 to reduce its production output—even as it touts long-term plans to bring advanced memory chip-making to the U.S.

"It's very difficult to stop capex in the very short term, and we have some very critical technology programs you need to invest in," said Murphy. But he said that the company is trying to rein in its spending as demand erodes. "We are in the process of avoiding, reducing, and delaying [capital expenditures]. We are pushing things out; we're canceling." 

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