“64% of Americans are living paycheck to paycheck” ¹ and “up to 15 million people could lose Medicaid coverage after the pandemic public health emergency ends” ^{2 3}, likely to create additional health and economic hardships. While the political establishment is trying to avoid a default on U.S. sovereign debt ⁴, silicon valley high tech corporations such as Synopsys (SNPS) announce “excellent results in the second quarter [of 2023] exceeding all guidance targets while reaching another quarterly revenue record”; going on to predict that “revenue of $1.395 billion (1 billion is a thousand million) was above the high end of [the] guidance range” ⁵, announcing a “raise [of] the full year revenue guidance range to between $5.79 billion and $5.83 billion.” ⁵

Given the current economic distress, it is paradoxical that stellar profits, accompanied by an excellent outlook for the rest of the financial year, are being announced. The situation becomes even more perplexing after recognising that “demand is weaker for semiconductors overall with consumer markets most impacted.” ⁵ In other words, profits are through the roof despite a decline in demand.

The attempt to explain this paradox by pointing out that Synopsys “customers (e.g. Intel ⁶, Micron ⁷, Texas Instruments ⁸, etc.) continue to prioritize R&D for new chip design” ⁵, does not answer the crucial question how they (i.e. Synopsys costumers) finance this level of investment. It also does not mention who will buy the new products given that there is an oversupply, and certain segments of the market (e.g. smartphone market) are saturated ⁹.

Naturally, there is an explanation who finances these lavish investments by high-tech corporations, namely the U.S. taxpayer in the form of U.S. government subsidies ¹⁰ driven by security and defence concerns. “The Pentagon will have secure access to leading-edge semiconductors manufactured at facilities receiving funding from the $53 billion Chips Act,” Commerce Secretary Gina Raimondo said, ensuring the industry can supply the military with the advanced chips it needs for modern weapons systems. ¹¹

According to the White House the Chips Act will “bolster U.S. leadership in semiconductors, […] providing $52.7 billion for American semiconductor research, development, manufacturing, and workforce development. This includes $39 billion in manufacturing incentives, including $2 billion for the legacy chips used in automobiles and defense systems, $13.2 billion in R&D and workforce development,and $500 million to provide for international information communications technology security and semiconductor supply chain activities. It also provides a 25 percent investment tax credit for capital expenses for manufacturing of semiconductors and related equipment.” ¹⁰ It is worthwhile to point out that key Synopsys customers are amongst the biggest beneficiaries of the Chips Act, explaining why they continue to prioritize and invest in R&D for new chip design.

Given Commerce Secretary Gina Raimondo’s comment quoted above ¹¹, one can not fail to note that “a major purpose of military production and procurement, along with R&D in government labs or publicly funded private industry (by the Department of Energy and other agencies, as well as the Pentagon) is to subsidize [high-tech] private corporations. The public is simply being deluded about how they’re paying for high technology.” ¹² This has been going on for a long time and has been pointed out and documented in print extensively by Noam Chomsky, howbeit diligently ignored by the main stream press.

The importance of security and defence concerns for the U.S. budget can not be overstated. There are countless examples, the most recent by the “Biden [administration] proposing $1 trillion in social spending cuts after announcing $375 million more for [the] war in Ukraine”. ¹³ In other words, spending on security and defence is sacrosanct (i.e. bipartisan), but there are no qualms when it comes to curtail spending on Medicaid, education, and other social programs.

While one can discontinue the profit analysis at this stage, it is worthwhile to further point out that most high-tech corporations are multinational conglomerates, Synopsys being a case in point. To compete with the U.S. Chips Act, Europe has announced the European Chips Act, a legislative proposal by the European Commission to encourage semiconductor production in the European Union, to “bolster competitiveness and resilience in semiconductor technologies and applications […]” ¹⁴ by mobilising more than € 43 billion. As a consequence, Germany’s largest chip manufacturer Infineon plans to add two plants in Dresden, for €5 billion and hoping for a subsidy of €1 billion. ¹⁵ It should come as no surprise that Infinion too is a Synopsys customer ¹⁶.

Having uncovered the basis of Synopsys' stupendous profits, one might wonder how this lavish tax paid subsidy (i.e. the Chips Act) of the high-tech industry has been received by main stream commentators. The pragmatic viewpoint is that “a one-time $50 billion economic incentive, divvied up into grants no bigger than $3 billion at a time, is not significant enough to motivate onshoring even in the short term […]” ¹⁷, suggesting both the scope and the stated approach of the Chips Act are insufficient. In other words, there ought to be an increase in subsidies and protectionism.

Some raise moral concerns about “congress [being] ready to hand over $52bn to a highly profitable global industry […] [whilst neglecting] the real question [that] is what conditions the United States (or any other nation that subsidizes chipmakers) should place on receipt of such subsidies” ¹⁸. To provide a running translation into English: it is Ok to subsidize profitable companies if the conditions for subsidies are stricter. Unfortunately no one really spells out what such conditions look like. If any such discussion takes place it is very well concealed from public view.

Note that virtually no one in the main stream rejects the subsidies on ideological grounds, calling attention to the paradox of exploiting the tax payer to subsidise highly profitable segments of the high-tech industry, leading to an even greater concentration of wealth and power.

“As in the past, the costs and risks of the coming phases of the [high-tech] economy were to be socialized, with eventual profits privatized …” ¹⁹, a basic principle of modern state capitalism and therefore inarguable (see “The Propaganda Model” for further details on why rejection of subsidies for profitable high-tech industry based on ideological grounds is excluded from the debate).

Updates

Intel to receive 11 Billion Subsidy to build plant in East Germany (June 24, 23')

Another instance ²⁰ how the European (mostly German) tax payer is asked to pitch in, to help troubled institutions such as Intel, is by subsidising it with 11 billion EUR to build a plant in East Germany to regain chip dominance. Note that this is in addition to the massive subsidies Intel received in 21' via the US Chips Act ¹⁸. Obviously, subsidizing Intel is more important than investing in education, health care, infrastructure, … but hey, it is hard to argue against such subsidies after reviewing Intel’s financial performance:

[Intel’s] revenue rose to $79bn ²¹ last year. Its chief executive, Pat Gelsinger, got a total compensation package of $179mp (which was 1,711 times larger than the average Intel employee).

Next time Synopsys stock is through the roof because our “customers continue to prioritize R&D for new chip design” (quoting Art de Geus) you at least know where they have their money from.

Personal Notes

This posting is solely based on public information and was triggered by a campaign nudging employees to watch the Synopsys quarterly earnings release, announcing remarkable profits whilst neglecting to provide a substantive analysis of the root causes.

Early critique of this analysis focused on the fact that Synopsys is by far to profit the least from the Chips Act, and I should therefore focus on other high-tech conglomerates. While that may or may not be true, I can not do much about other companies. I can however try to have an impact on the company I work for.

Additional Reading

David Noble

• America By Design; Science, Technology, and the Rise of Corporate Capitalism
• Forces of production : a social history of industrial automation