January 27, 2023

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TSMC triples investment in Arizona chips to $40 billion

Taiwan Semiconductor Manufacturing Company will more than triple its investment in Arizona State to $40 billion as the world’s largest contract chipmaker diversifies its manufacturing facilities amid geopolitical tensions and pressure from customers.

TSMC is investing $12 billion to build a manufacturing facility, or “fab,” in Arizona designed to make chips with notional 5-nanometer circuit widths — the so-called N5 generation, which will by then have fallen behind the most advanced type fab opens in 2024.

However, at an event Tuesday to mark the installation of the first chip tooling at its Phoenix factory, the company announced plans for a second factory that will produce more advanced 3nm or N3 chips from 2026.

TSMC also said it intends to manufacture N4 chips, a slightly more advanced stage, in the factory originally slated for the N5 version.

US President Joe Biden and Apple CEO Tim Cook hailed the expansion, one of the largest foreign direct investments in US history, as a turning point in the country’s ability to produce advanced chips domestically.

But industry experts said even with a second factory, TSMC would not ship chips for new iPhone models locally when the factories finally open. They added that the investments could offer only minimal supply chain security, a stark reminder of the risks posed if China attacks Taiwan — where TSMC is headquartered and continuing most of its expansion.

Cook called TSMC’s investment “an incredibly significant moment” that would help create “American high-tech jobs – the jobs of the future.”

Apple relies on TSMC as the sole maker of chips used in iPhones, and since switching from Intel in 2020, the Silicon Valley conglomerate has used its TSMC-developed chips in its laptops and desktop computers.

“This is an opportunity for the United States to usher in a new era in advanced manufacturing,” Cook said.

Biden said the TSMC investment is a “game changer” that would help America rebuild its capacity to manufacture advanced chips domestically.

“The United States is better positioned than any other nation to lead the global economy for years to come. . . We see it here at home and investments like what we’re talking about today,” he said after touring the site for the new factory.

TSMC’s move follows the passage of Biden’s Chips and Science Act this summer, which would provide $52 billion in subsidies for US-based chipmakers to counter China’s massive investment in its own chip sector.

TSMC has been looking to expand its international footprint, with a new Japanese factory planned for 2024.

However, Patrick Chen, head of research at CLSA in Taiwan, said: “When they ramp up fully [up production in] Arizona, the portion of US-made chips that they could offer customers would be maybe 15 percent of the total.”

Even if TSMC built a monthly capacity of 120,000 silicon wafers from which chips are cut in Arizona, that would be comparable to four such “mega-fabs” the company has in Taiwan.

“This will not isolate customers [from supply chain risk] in case of a full disruption of Taiwan,” said another chip industry expert, who asked not to be named. The person said a larger TSMC factory in the US would allow its customers to prepare to have chips made there to their designs, reducing “recovery time” should Taiwan-based capacity be lost. Moving chip production to another factory can take many months.

Two industry leaders said some of TSMC’s capacity in the US would be used for sensitive products such as components for the country’s defense industry supply chain.

A person close to the company said each TSMC factory in the US is a technological generation behind the most advanced production in Taiwan.

Industry leaders and analysts said trying to build cutting-edge capabilities outside of Taiwan would throw TSMC’s operating model into disarray.

“It wouldn’t make economic sense,” Chen said. “The latest technology comes out of their R&D center in Hsinchu and is transferred to risk production and finally to mass production. replicate that [in the US] would increase costs significantly[s]. You would have no incentive to do so. So who would foot the bill?”

U.S. plants that are now planning to produce a generation of technology behind the most advanced “allow them to make older iPad models there, or maybe the Apple Watch, but certainly not the latest cycle iPhones,” said Phelix Lee, an analyst at Morningstar.

Apple’s next-generation iPhone will begin production in the second half of next year and continue into 2024. However, TSMC’s N3 chips, which require these products, will not be available in the United States until 2026, by which time the chipmaker is expected to move in N2 in Taiwan.