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 geopolitical tensions put pressure on the world’s largest contract chipmaker to increase diversification of its manufacturing facilities.

TSMC is currently investing $12 billion to build a manufacturing facility, or “fab,” in Arizona originally designed to manufacture chips with notional 5-nanometer circuit widths — an N5 generation that will be behind the most advanced when the fab will open in 2024.

However, at an event Tuesday to mark the installation of the first chip tooling at its Phoenix plant, the company will announce plans for a second factory that will produce more advanced 3nm or N3 chips beginning in 2026, officials and White House people said in the Near TSMC.

TSMC will also say that it intends to manufacture N4 chips, a slightly more advanced level, in the factory originally slated for N5.

Speaking at the event, US President Joe Biden is expected to trumpet the additional investments as a sign America can once again lead in manufacturing and as a confirmation of his economic plan to boost domestic chip production and secure supply chains.

However, industry experts said the larger TSMC footprint would still not be able to accommodate cutting-edge products like new iPhone models when the factories finally opened. They added that the investments could offer only minimal supply chain security, a stark reminder of the immense risks that would arise if China were to attack Taiwan — where TSMC is headquartered and continuing most of its expansion.

Biden’s Chips and Science Act was passed in the summer, providing $52 billion in subsidies for US-based chipmakers and countering China’s massive investment in its own chip sector.

White House National Economic Council director Brian Deese said the US was making a “marked departure from the economic philosophy that has governed much of the past 40 years” in which the US government cut taxes and regulation and largely ” got out of the way”. .

“What you are seeing now is a dedicated industrial strategy that is laying the groundwork for private investment. . . on a historical scale,” he added.

Biden will be joined by several chief executives, including Apple’s Tim Cook, who will be a customer of the Arizona factories.

But Patrick Chen, head of research at CLSA in Taiwan, said, “If they fully ramp up Arizona, the proportion of US-made chips 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 already 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 plan and prepare to manufacture chips to their designs there, 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 Americas would be used for sensitive products such as components for the US defense industry supply chain.

“TSMC’s US presence will continue to follow the N minus 1 principle,” said a person close to the company, noting that each US fab would be a technological generation behind the most advanced production in Taiwan.

Industry executives and analysts said trying to build the most advanced capabilities outside of Taiwan would turn TSMC’s operating model on its head.

“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. You would have no incentive to do so. So who would foot the bill?”

U.S. plants that plan to produce a generation of technology behind the most advanced, as planned, “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 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 already be moving to N2 in Taiwan.

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