Vindicating Biden policy, Taiwanese industry leader raises Arizona investment from $12 billion to $40 billion
By SCOTT FOSTER
DECEMBER 9, 2022
Phoenix celebrates TSMC's big investment. Photo: LocalToday
The “tool-in” ceremony celebrating the installation of the first equipment at TSMC’s factory in Arizona on December 6 marked the start of a new era of semiconductor manufacturing in the United States and for Taiwan Semiconductor Manufacturing Company.
Not only is the world’s largest and most technologically advanced semiconductor foundry – contract manufacturer – building its first major production base outside Taiwan; but it also has announced plans to build a second factory that will raise its investment in Arizona from $12 billion to $40 billion.
On top of that, while the first factory will use the company’s N4 process technology (producing chips even smaller than does its standard 5-nm process), recent hints from management that production would be at 3-nm node in the second factory have been confirmed.
Construction of the first factory began in 2021. Mass production is expected to start in 2024 at a rate of 20,000 300mm wafers per month.
Production at the second factory will reportedly be 30,000 wafers per month, with production expected to start by the end of 2026.
President Joe Biden, who has made rebuilding semiconductor production capacity in the US a signature policy of his presidency, flew to Arizona for the ceremony.
Apple CEO Tim Cook and Nvidia CEO Jensen Huang, whose companies will reportedly be the initial customers, were also in attendance, as was Lisa Su, CEO of AMD, which is also expected to be an early customer.
They were joined by senior representatives of equipment makers Applied Materials and Lam Research, materials specialist Entegris, electronic design automation provider Synopsis and IC design company Arm. The event was hosted by TSMC founder Morris Chang, Chairman Mark Liu and CEO C C Wei.
It was a second professional home-coming for Morris Chang, who had studied at Harvard, MIT and Stanford and worked at Texas Instruments for 25 years before moving to Taiwan to establish TSMC in 1987.
“When I started TSMC back in 1987,” Chang told the gathering, “I had a dream. Partly because of my background, my dream was to build fabs in the United States.”
But his first attempt at building a US fabrication facility, in 1996, turned into a “nightmare” due to cost, people and cultural problems. “It took us several years to untangle ourselves from my nightmare, and I decided that I needed to postpone the dream.”
So today, he said, the the new dream is “actually the old dream revived. Not only that, we did learn from our experience earlier and we are far more prepared now.”
Shortages of skilled personnel, resistance to long Taiwanese working hours, and an inadequate US supply chain are making things difficult but, as the equipment installation indicates, not impossible.
TSMC will receive subsidies and tax breaks from the federal government under the CHIPS Act and from the state of Arizona. That will make a dent in the cost of building the factories, but not come close to covering what TSMC calculates as 50% higher operating costs in the US compared with Taiwan.
However, American customers account for the majority of TSMC’s business and their dependence on production in Taiwan is too high considering China’s claim to the island.
That having been said, TSMC’s investment in Arizona will neither eliminate the dependence nor undermine TSMC’s technology and manufacturing base in Taiwan.
A man walks past a company logo at the headquarters of the world’s largest semiconductor maker TSMC in Hsinchu, Taiwan, on January 29, 2021. Photo: AFP / Sam Yeh
The first Arizona factory’s planned output of 20,000 300mm wafers per month (240,000 per year) is only 1.6% of TSMC’s total current output, which should exceed 15 million 300mm wafer equivalents in 2022, and less than 15% of its output at the 5-nm node, which was raised to 150,000 per month earlier this year. The word “equivalents” is used because TSMC also processes some 200mm and 150mm wafers.
The second factory should boost production in Arizona to 50,000 wafers per month (600,000 per year). Assuming TSMC’s total capacity grows by 5% per annum (after more than 8% growth this year), Arizona should account for about 3% of the company’s total output five years from now.
Over the next 10 to 15 years, TSMC reportedly plans to build six factories in Arizona. That would raise these percentages, but not in a linear fashion since the company continues to expand in Taiwan and may add capacity in Japan, Singapore and Europe.
In addition, TSMC and the Taiwanese government are committed to keeping their leading-edge technology at home. TSMC is introducing 3-nm process technology there now and plans to start production at 2nm in 2025 – a year before starting 3-nm production in Arizona.
For this reason, Apple’s leading-edge products – and those of Nvidia, other American IC design companies, and even Intel – will probably be made in Taiwan for years to come.
Nevertheless, TSMC will soon be making a significant contribution to semiconductor production in the United States, vindicating President Biden’s decision to push through the CHIPS Act. Along with Intel and Micron’s decisions to make large new investments in the US, this is reversing the Wall Street-driven exodus of capital-intensive semiconductor manufacturing.
This can be seen either as a capitulation to East Asian mercantilist industrial policy (if you can’t beat them, join them) or – after a 30-year indulgence in outsourcing and pandering to financial markets at the expense of jobs, manufacturing expertise and national security – as a return to the industrialization that made America great. Actually, it is both.
TSMC’s investments in the US should also light a fire under Intel, which is arguably two process technology generations behind and which will soon face intense competition in its home market as it develops its own foundry business. Foundry customers, of course, will benefit. Apple lobbied for subsidies for TSMC in Arizona while Intel argued that they should go to American companies instead.
As TSMC, Intel and Micron ramp up production in the US over the next several years, their suppliers will follow, rebuilding the entire supply chain. Semiconductor makers are already helping universities educate a larger workforce. As more jobs in the industry are created, more students should be interested in studying engineering. With time, the supply chain problems and shortages of skilled workers that make news today should fade away.
The US share of global semiconductor production has declined from 37% in 1990 to about 12% now. A partial recovery now seems likely, but probably by only a few percentage points – or maybe not at all – since Taiwan, South Korea, Japan, China and Europe all are also intent on expanding capacity.
But what matters is not that percentage, but the ability to produce semiconductors at home should a crisis arise overseas.
From that perspective, the United States should be in a much more secure position by the end of the decade and TSMC should have an enormous production base far away from China – if a crisis in the Taiwan Strait does not intervene.
Follow this writer on Twitter: @ScottFo83517667
The “tool-in” ceremony celebrating the installation of the first equipment at TSMC’s factory in Arizona on December 6 marked the start of a new era of semiconductor manufacturing in the United States and for Taiwan Semiconductor Manufacturing Company.
Not only is the world’s largest and most technologically advanced semiconductor foundry – contract manufacturer – building its first major production base outside Taiwan; but it also has announced plans to build a second factory that will raise its investment in Arizona from $12 billion to $40 billion.
On top of that, while the first factory will use the company’s N4 process technology (producing chips even smaller than does its standard 5-nm process), recent hints from management that production would be at 3-nm node in the second factory have been confirmed.
Construction of the first factory began in 2021. Mass production is expected to start in 2024 at a rate of 20,000 300mm wafers per month.
Production at the second factory will reportedly be 30,000 wafers per month, with production expected to start by the end of 2026.
President Joe Biden, who has made rebuilding semiconductor production capacity in the US a signature policy of his presidency, flew to Arizona for the ceremony.
Apple CEO Tim Cook and Nvidia CEO Jensen Huang, whose companies will reportedly be the initial customers, were also in attendance, as was Lisa Su, CEO of AMD, which is also expected to be an early customer.
They were joined by senior representatives of equipment makers Applied Materials and Lam Research, materials specialist Entegris, electronic design automation provider Synopsis and IC design company Arm. The event was hosted by TSMC founder Morris Chang, Chairman Mark Liu and CEO C C Wei.
It was a second professional home-coming for Morris Chang, who had studied at Harvard, MIT and Stanford and worked at Texas Instruments for 25 years before moving to Taiwan to establish TSMC in 1987.
“When I started TSMC back in 1987,” Chang told the gathering, “I had a dream. Partly because of my background, my dream was to build fabs in the United States.”
But his first attempt at building a US fabrication facility, in 1996, turned into a “nightmare” due to cost, people and cultural problems. “It took us several years to untangle ourselves from my nightmare, and I decided that I needed to postpone the dream.”
So today, he said, the the new dream is “actually the old dream revived. Not only that, we did learn from our experience earlier and we are far more prepared now.”
Shortages of skilled personnel, resistance to long Taiwanese working hours, and an inadequate US supply chain are making things difficult but, as the equipment installation indicates, not impossible.
TSMC will receive subsidies and tax breaks from the federal government under the CHIPS Act and from the state of Arizona. That will make a dent in the cost of building the factories, but not come close to covering what TSMC calculates as 50% higher operating costs in the US compared with Taiwan.
However, American customers account for the majority of TSMC’s business and their dependence on production in Taiwan is too high considering China’s claim to the island.
That having been said, TSMC’s investment in Arizona will neither eliminate the dependence nor undermine TSMC’s technology and manufacturing base in Taiwan.
A man walks past a company logo at the headquarters of the world’s largest semiconductor maker TSMC in Hsinchu, Taiwan, on January 29, 2021. Photo: AFP / Sam YehThe first Arizona factory’s planned output of 20,000 300mm wafers per month (240,000 per year) is only 1.6% of TSMC’s total current output, which should exceed 15 million 300mm wafer equivalents in 2022, and less than 15% of its output at the 5-nm node, which was raised to 150,000 per month earlier this year. The word “equivalents” is used because TSMC also processes some 200mm and 150mm wafers.
The second factory should boost production in Arizona to 50,000 wafers per month (600,000 per year). Assuming TSMC’s total capacity grows by 5% per annum (after more than 8% growth this year), Arizona should account for about 3% of the company’s total output five years from now.
Over the next 10 to 15 years, TSMC reportedly plans to build six factories in Arizona. That would raise these percentages, but not in a linear fashion since the company continues to expand in Taiwan and may add capacity in Japan, Singapore and Europe.
In addition, TSMC and the Taiwanese government are committed to keeping their leading-edge technology at home. TSMC is introducing 3-nm process technology there now and plans to start production at 2nm in 2025 – a year before starting 3-nm production in Arizona.
For this reason, Apple’s leading-edge products – and those of Nvidia, other American IC design companies, and even Intel – will probably be made in Taiwan for years to come.
Nevertheless, TSMC will soon be making a significant contribution to semiconductor production in the United States, vindicating President Biden’s decision to push through the CHIPS Act. Along with Intel and Micron’s decisions to make large new investments in the US, this is reversing the Wall Street-driven exodus of capital-intensive semiconductor manufacturing.
This can be seen either as a capitulation to East Asian mercantilist industrial policy (if you can’t beat them, join them) or – after a 30-year indulgence in outsourcing and pandering to financial markets at the expense of jobs, manufacturing expertise and national security – as a return to the industrialization that made America great. Actually, it is both.
TSMC’s investments in the US should also light a fire under Intel, which is arguably two process technology generations behind and which will soon face intense competition in its home market as it develops its own foundry business. Foundry customers, of course, will benefit. Apple lobbied for subsidies for TSMC in Arizona while Intel argued that they should go to American companies instead.
As TSMC, Intel and Micron ramp up production in the US over the next several years, their suppliers will follow, rebuilding the entire supply chain. Semiconductor makers are already helping universities educate a larger workforce. As more jobs in the industry are created, more students should be interested in studying engineering. With time, the supply chain problems and shortages of skilled workers that make news today should fade away.
The US share of global semiconductor production has declined from 37% in 1990 to about 12% now. A partial recovery now seems likely, but probably by only a few percentage points – or maybe not at all – since Taiwan, South Korea, Japan, China and Europe all are also intent on expanding capacity.
But what matters is not that percentage, but the ability to produce semiconductors at home should a crisis arise overseas.
From that perspective, the United States should be in a much more secure position by the end of the decade and TSMC should have an enormous production base far away from China – if a crisis in the Taiwan Strait does not intervene.
Follow this writer on Twitter: @ScottFo83517667
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