The trend toward the localization of chip manufacturing was further confirmed Tuesday when Taiwan Semiconductor Manufacturing Co. (TSMC) announced it would increase its investment in Arizona to US$40 billion.
The world’s largest contract chipmaker had already committed in 2020 to investing US$12 billion in an Arizona fab using the advanced 5-nanometer process, to begin operations in 2024.
But on Tuesday, prior to a tool-in ceremony for that foundry, TSMC said it will upgrade the plant’s technology to the 4nm process and build a second foundry that will use the even more advanced 3nm process, with production scheduled to begin in 2026.
While the ceremony and news of the US$40 billion investment was greeted with great fanfare, hailed as important steps forward in diversifying the risk of having over 60 percent of the world’s chip foundry capacity in Taiwan, a fundamental question remains.
Will TSMC’s investment in capacity outside Taiwan, and especially in the United States, and the general move to localize production in key markets around the world actually work?
TSMC founder Morris Chang has expressed skepticism over the Arizona facility’s prospects, insisting on Nov. 20 at a press conference after the APEC Leaders Summit that costs there will be 55 percent higher than in Taiwan.
According to the Financial Times, he also told U.S. House Speaker Nancy Pelosi when she visited Taiwan in early August that Washington’s move to rebuild the U.S. semiconductor industry was “doomed to fail.”
Liu Pei-chen (???), a researcher at the Taiwan Industry Economics Database under the Taiwan Institute of Economic Research (TIER), is a skeptic on the merits of localization.
The trend, she said, has been driven by the U.S. and big European economies feeling the need to lure semiconductor manufacturers to their markets after seeing a global chip shortage caused by trade tensions between Washington and Beijing and the COVID-19 pandemic.
According to estimates, Taiwan accounts for more than 90 percent of high-end chip production in the world, leading U.S. Secretary of State Antony Blinken to warn in an interview in late September that if Taiwan were attacked by China, the global economy could face devastation.
Liu said TSMC’s investment in the U.S. is an inevitable short-term localization trend at the urging of the U.S. to diversify risk.
It goes against the concept of globalization, which espouses spreading trade and technology globally to improve competitiveness, Liu said.
She believed it was too early to say whether the strategy to localize production can be sustained over the longer term.
“It remains to be seen whether the price of end products will increase due to rising costs in the future, and whether consumers can accept that,” she said.
Joanne Chiao (??), a senior semiconductor analyst at advisory firm TrendForce Corp., agreed that IC producers that invest in the U.S. will face a challenge in setting prices because of the higher costs.
She believed, however, that Washington’s industrial policy, which includes subsidies for semiconductor producers that invest in the U.S., would be important in helping offset the lower margins they face.
In June, Taiwan-based GlobalWafers Inc., the world’s third largest silicon wafer producer, announced it would spend US$5 billion to build a silicon wafer plant in Sherman, Texas, but the project only went ahead after the U.S. Congress passed the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act.
The act, signed into law by U.S. President Joe Biden in August, authorized US$52 billion in subsidies to back semiconductor production in the United States and an additional commitment of US$100 billion over five years for research and development, part of which went to fund GlobalWafers’ Texas project.
One potential drawback with the subsidies, according to Liu, is how they are distributed.
She said there was the potential for them to be allocated unevenly across different sectors or between large, medium and small companies within an industry, which could affect the drive toward more localized production.
Regardless of the size of TSMC’s investment in Arizona, Chiao felt that TSMC would remain rooted in Taiwan and continue to use it as its key R&D and production hub because of Taiwan’s comprehensive semiconductor supply chain and the talent it has developed.
In addition, Chiao said, Taiwan’s semiconductor industry will still have an advantage in high-end chip development globally with TSMC’s development of the more sophisticated 2nm process, which is expected to begin mass production in Hsinchu in 2025.
Echoing Chiao, a source from a vendor in Taiwan that supplies TSMC with production testing equipment said it would be hard to replicate overseas the chipmaker’s decades-long efforts in Taiwan to build a supply chain in the U.S.
The source said TSMC, which operates around the clock, is very demanding of its suppliers, requiring them to solve any problems quickly, meaning that many of its foreign suppliers have had to establish presences in Taiwan to provide prompt service.
The business model in Taiwan’s semiconductor sector that combines a strong supply chain and hard-working, experienced R&D engineers will continue to be a competitive advantage and will not be affected by TSMC’s investment in the U.S., the source believed.
At Tuesday’s tool-in ceremony, TSMC CEO C.C. Wei (???), said the company’s investment in Arizona showed its determination to build a semiconductor ecosystem in the U.S. market.
Whether that comes to pass could ultimately decide whether the drive for localization works.
Source: Focus Taiwan News Channel