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Conventional wisdom holds that incentives by successive US administrations to bring chipmaking back to the country would eventually produce positive results. However, Applied Materials (AMAT), a key player in the semiconductor supply chain, now suggests these incentives will have only a minor impact.
Applied Materials is a major supplier of tools used for depositing thin films on silicon wafers. Around 80% of an iPhone’s components are processed using equipment from Applied Materials.
Applied Materials CFO, Brice Hell, made a startling claim during a recent conference call, stating that the incentives to encourage onshoring of semiconductor supply chains in the US would “matter only a little bit” and at most, “at the margin.”
“At the highest level, demand is driven by PCs, data centers, smartphones, and all that these incentives do is move production from Taiwan to the U.S. So the view was it mattered a little bit at the margin but not in total.”
Despite this skepticism, Applied Materials plans to invest $200 million in Arizona, building on its existing $400 million investment in the US to boost domestic manufacturing capacity.
The Trump administration has threatened steep tariffs on semiconductor companies that do not establish a significant manufacturing presence in the US. In a related move, the administration recently took an 8.9 billion stake in Intel by converting federal grants into equity investments.
To complicate Intel’s potential spin-off of its foundry division, the US government has negotiated a five-year warrant priced at $20 per share, allowing the government to purchase up to 5% of Intel common shares if the company sells more than 49% of its foundry business. Similar deals are reportedly being considered for other semiconductor companies.
Applied Materials CFO also noted a hit to market share in China due to an $400 million order backlog from companies on the US Department of Commerce’s Entity List.
In its recent fiscal Q3, Applied Materials reported a 8% year-over-year increase in net revenue to $7.3 billion.
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