Drone maker Skydio highlights how the CHIPS Act benefits more than just the chip industry

Drone makers and made-in-the-U.S. tech companies are expecting tailwinds from the new CHIPS Act as they try to reduce their reliance on foreign-made semiconductors.

The legislation, which provides government funding for semiconductor companies to manufacture chips domestically, hopes to ensure the U.S. maintains its edge in advanced computing and technology. The CHIPS Act promises to distribute $50 billion for semiconductor manufacturing and research, which businesses are now able to apply for through the Commerce Department.

Proponents say boosting U.S. chipmaking will wean companies away from fragile supply chains, trade disputes, and even foreign government policy.

“It’s untenable to be dependent on technology that’s beholden to Chinese government policy,” Adam Bry, co-founder and CEO of Skydio, told Yahoo Finance Live (video above). Bry noted that Skydio, which designs and assembles drones in the U.S., relies on suppliers like Nvidia (NVDA) and Qualcomm (QCOM) for chips.

“Both of those are directly impacted and benefiting from the CHIPS Act,” he added.

U.S. military personnel operating Skydio drones, which rely on semiconductors. (Photo: Skydio)

How chip supply chains affect ‘U.S. underdog’ companies

Drone manufacturing was hit hard by supply chain disruptions caused by the COVID-19 pandemic.

Skydio was unable to sell its “Beacon GPS” remote control in 2020, according to reports from industry publication DRONELIFE, as the disruptions highlighted U.S. dependence on foreign chip suppliers for a wide range of products.

“The best semiconductors in the world right now are made in Taiwan, very close to China, supply chain on the other side of an ocean,” Senator Mark Kelly (D-AZ), an early proponent of the CHIPS legislation, said in an interview with Yahoo Finance. “We rely on these chips for pretty much everything — anything that has an on-off switch, but more importantly than that, sophisticated weapons and weapons systems.”

While the CHIPS Act is ultimately a protectionist policy similar to those enacted by Asian countries to help boost homegrown businesses, experts say the security and geopolitical concerns outweigh the impact it will have on free trade.

“Building drones in the U.S. for the customers that we’re serving is critical for data security, cybersecurity, and national security,” Bry said. “It’s kind of come on-trend, but it’s something we’ve actually been doing for a very long time.”

The CHIPS Act is just one of several policy initiatives put in place by the U.S. government aimed at hobbling foreign semiconductor manufacturing, particularly in China. For instance, the U.S., Japan, and the Netherlands recently agreed to comply with export restrictions of chipmaking tools to China, Reuters reported.

These policies have benefitted Skydio, which makes drones designed for military use and supplies units to the U.S. Army and other parts of the Department of Defense.

For instance, Skydio’s biggest competitor, Shenzhen-based drone manufacturer DJI, is currently sanctioned by the Treasury Department over its ties to China’s military and is unable to sell its products to local, state, and federal governments in the U.S.

“We have the great joy of being the U.S. underdog, which doesn’t always happen,” Bry explained. “We’re the leading U.S. company, but we’re still small relative to DJI.”

Skydio has been carving out other advantages against players like DJI, the CEO added. The drone maker is focused on enhancing self-flying and autonomous capabilities – all of which rely on semiconductors.

“The market as it’s defined today is predominantly manually flown,” Bry said. “We think the future is AI, autonomy, drones become basic infrastructure, and that’s what we’re most focused on.”

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Mike Juang