New TSMC factory rises out of Arizona desert

March 10, 2022 06:00
Photo: Reuters

On a 445-hectare site on the northern outskirts of Phoenix, Arizona, dozens of construction cranes and lorries are working night and day to build the largest factory of Taiwan Semiconductor Manufacturing Company (TSMC) in the United States.

Work is due to be completed by the end of 2023, with production to start in 2024. With an investment of US$12 billion, the plant will make 20,000 wafers a month using five-nanometre technology. In its first 20 years, the factory aims to earn US$38.2 billion in revenue.

One of the largest foreign investments in the history of the state of Arizona, it will generate thousands of jobs directly and indirectly. The chips will be used in a wide range of products, from cars, computers and tablets to Artificial Intelligence and T-35 fighter jets.

The new facility is a milestone in many respects. It will address the global shortage of chips, reduce the dependence of the U.S. on imported chips and diversify the company’s production away from Taiwan.

To make this huge investment was no easy decision for TSMC. After opening a small fab in the U.S. in the 1990s, it resisted pressure to build a second one in the country. Production costs were too high and it did not have the cluster of suppliers it needed, as it does in Taiwan.

But it finally changed its mind after promises of financial and policy support from the U.S. government, at the federal and state level. In 2020, U.S. customers accounted for 62 per cent of its net revenue.

It also needs to strengthen its position against its closest rival, Samsung, and Intel, which announced last year it would produce made-to-order chips.

But recreating a Taiwan factory in the Arizona desert is full of challenges. The first is to build a skilled workforce. It has hired 250 American engineers and has sent more than 100 of them to Taiwan for training for 12-18 months. It has to translate the long and complex Standard Operating Procedures (SOP) from Chinese into English. To hire a fresh American engineering graduate requires an annual salary of US$60,000.

In the second half of this year, the first batch of Taiwan engineers will go to the Arizona site to begin preparation.

The arrival of the TSMC plant has pushed land prices in the area up three to four times. “Our original capital expenditure estimate over three years is increasingly looking insufficient,” said TMSC chairman Mark Liu.

Another challenge is to ensure adequate supply of parts and components. Taiwan suppliers have been setting up production facilities in sites near the Phoenix plant, such as in the Mack Innovation Park and suburban cities.

The new plant is part of TSMC’s strategy to diversify away from its home base. It is discussing construction of a factory in Germany. For Europe, as for the U.S., increase of chip production is an economic priority. TSMC is also building a plant in Japan, with Japanese partners.

Some see the plant as an insurance against a Chinese invasion of Taiwan.

Optimists call TSMC a “Silicon Shield”, making the island too valuable for Beijing to attack. Liu said that no war would break out in this area because such a conflict would hurt the interest of every country.

One factor behind TSMC’s decision to invest in Phoenix is the global chip shortage. The Covid-19 pandemic has caused soaring demand for work-from-home technology, such as personal computers, tablets, games consoles, televisions and webcams, as well as dishwashers, baby monitors and LED light fixtures. It has also badly affected the automobile industry.

The plant is also part of the U.S. government’s attempt to regain its lead in the industry. This is what the White House said in a statement on January 21 this year:

“The United States used to lead the world in global semiconductor manufacturing. But in recent decades, the U.S. lost its edge - our share of global semiconductor production has fallen from 37 per cent to just 12 per cent over the last 30 years.”

Since the beginning of 2021, the semiconductor industry has announced nearly US$80 billion in new investments in the United States through 2025, according to the Semiconductor Industry Association.

“Last June, the U.S. Senate passed the U.S. Innovation and Competition Act. The Biden administration is working with Congress to finalise this legislation, that including full funding for the CHIPS for America Act which will provide US$52 billion to catalyse more private-sector investment,” it said.

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A Hong Kong-based writer, teacher and speaker.