December 9, 2024 /SemiMedia/ — Microchip Technology has suspended its application for a $162 million subsidy under the CHIPS Act, becoming the first known company to exit the subsidy program.

The semiconductor manufacturer had originally been set to receive funding to support its facilities in Oregon and Colorado. However, the company has faced challenges, including two shutdowns at its Oregon facility and plans to close a factory in Arizona, affecting about 500 employees.

Microchip CEO Steve Sanghi stated at a UBS conference, “The company has now suspended negotiations with the chip office.” This decision is a blow to the Biden administration, which is eager to allocate funding under the CHIPS Act before President Donald Trump potentially returns to the White House.

The U.S. Department of Commerce, which is responsible for implementing the CHIPS Act, has already reached preliminary agreements with over 20 companies. Six companies, including Intel and TSMC, have signed final agreements, accounting for nearly 50% of the program's direct funds. A Commerce Department spokesperson mentioned that discussions with Microchip about its long-term plans are ongoing, but it is unclear whether the funds reserved for Microchip will be reallocated.

This decision highlights the cyclical nature of the semiconductor industry. The boom and bust cycles create challenges for policymakers dealing with investments and subsidies that take years to yield results.

The pause in Microchip’s application reflects the issue of excess capacity in the semiconductor market. CEO Sanghi noted, "The grant application may have been made nearly a year ago, when everyone thought factory capacity was never enough, but now we are facing overcapacity."

Shortly after announcing the suspension of its application, Microchip also declared a two-week shutdown at its Oregon facility due to inventory buildup.