Challenges TSMC’s Phoenix plant faces

Mark O'Neill July 27, 2023 09:36

After a record year in 2022, Taiwan Semiconductor Manufacturing Company (TSMC) is looking to a less successful 2023. It expects revenue this year to fall by 10 per cent year-on-year and its giant plant in Phoenix, Arizona to start production in 2025, a year later than planned.

The Phoenix chip fabrication facility, or fab, involves a total investment of US$40 billion. More than 12,000 workers are on the site every day in a race to complete construction. President Joe Biden has visited the site in person, to show the government’s eagerness to produce semi-conductor chips in the United States.

But, in a briefing last week, TSMC chairman Mark Liu said that the start of mass production of N4 (4-nanometer) process technology there would be pushed back to 2025.

“We are entering a critical phase of handling the most advanced equipment,” Liu said. “We are encountering challenges because of a shortage of skilled workers. Costs are higher than in Taiwan. We are sending technical staff from Taiwan to help with development.”

In a statement to an Arizona newspaper, the company said that it was building what will be the most advanced semiconductors manufacturing technology in the U.S. “In this critical phase, we require skilled expertise for specific TSMC Arizona construction activities and are temporarily bringing select specialised talent with strong experience. They will only be in Arizona for a limited timeframe and will not impact the workers onsite.”

Within the company, there are doubts about the suitability of the Americans who will work at the plant. The work ethic of TSMC involves 24-hour commitment, with working late nights and at weekends. Like Samsung, TSMC has spent years developing a cadre of highly skilled staff for their plants at home. This cannot be duplicated easily abroad.

In addition to the Phoenix facility, TSMC is building a plant in Japan and considering one in Germany.

At the briefing last week, TSMC announced consolidated revenue of NT$480.84 billion, net income of NT$181.80 billion, and diluted earnings per share of NT$7.01 (US$1.14 per ADR unit) for the second quarter ended June 30, 2023. Year-over-year, second quarter revenue decreased 10.0 per cent, while net income and diluted EPS both decreased 23.3 per cent. Compared to first quarter 2023, second quarter results represented a 5.5 per cent decrease in revenue and a 12.2 per cent decrease in net income.

Advanced technologies, defined as 7-nanometer and more advanced technologies, accounted for 53 per cent of total wafer revenue.

“Our second quarter business was impacted by the overall global economic conditions, which dampened the end market demand, and led to customers’ ongoing inventory adjustment,” said Wendell Huang, VP and Chief Financial Officer of TSMC.

For all of 2023, it expects revenue to fall by 10 per cent. “Three months ago, we were probably more optimistic, but now we are not,” said CEO C.C. Wei. “Although we have very good AI end-market demand, it is not enough to offset that weakness.” This demand comes from Nvidia and AI services like ChatGPT.

The company has emphasised that, despite its overseas expansion, its most important plants and most advanced technologies rest in Taiwan. It cannot rebuild abroad its work ethic and network of support companies.

Wang Mei-hua, Taiwan Minister of Economy, said that the island occupied an extremely important place in the global production of semi-conductors, especially the most sophisticated ones. “We make those of three-nanometers and are researching those of two-nanometres. Taiwan also makes servers, printed circuits and other key items.”

She said that, if Taiwan were unable to supply the global market, the world economy would be paralysed. “U.S. Secretary of State Antony Blinken has said that the economic consequences for the world would be disastrous, notably for China. They would be more spectacular than those provoked by the war in Ukraine.”

A Chinese attack on or blockade of Taiwan would lead to such a cut-off of supply.

Wang said that, in 2022, exports to China, including Hong Kong, accounted for 42 per cent of Taiwan’s exports. In the first five months of this year, the figure was 35 per cent, including semi-conductors, to be used in iPhones for sale in the United States.

She said that, despite the risks of war, American, European and Japanese firms who make components for semi-conductors continued to invest in Taiwan because it had the most advanced R & D.

Last year, investment in this sector rose 80 per cent over 2021, she said. “We are the only ones to offer this level of innovation.”

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Mark O'Neill

A Hong Kong-based writer, teacher and speaker.