Taiwan Semiconductor Manufacturing Co. (TSMC) is no Foxconn. Foxconn promised a big LCD fab in Wisconsin, but that ended up producing nothing but a photo opp for Terry Gou and Donald Trump.
“TSMC will deliver their promise.” That’s what I told my colleagues when we started to plot a game plan for EE Times’ editorial coverage of TSMC’s latest decision to build a 5nm fab in Arizona. Five hours later, reading stories filed by our colleagues from Taipei, I’m beginning to realize that we might be getting played by both TSMC and the U.S. government.
Judith Cheng, Chief Editor of EE Times & EDN Taiwan/Asia,pointed out in her story that TSMC, in announcing the company’s decision, cited TSMC’s “willingness” to set up a factory in the United States. Why not call it a “plan”?
It’s a subtle difference but it hints that negotiations between TSMC and the US and Arizona governments might be far from over. As our original news story by Taiwan correspondent Alan Patterson shows, TSMC didn’t disclose the terms of the agreement with Arizona and the United States.
Note, also, while the announcement says Arizona, it did not mention any specific city in Arizona. Why no names, if they are to begin building a fab in 2021?
TSMC Ariz Fab, a tangled web of politics and money…
Political calculus
Of course, there is a political calculus at play here.
The White House will trumpet this “deal” as a huge win for Trump. TSMC– under pressure from the Commerce Department – can also at least demonstrate its good faith and “willingness” to work with the U.S. government.
Throw in the 2020 United States Senate special election in Arizona and the web gets tangled. Representative Martha McSally, appointed by Arizona governor Doug Ducey to fill the seat of Sen. Jon Kyl, faces tough Democratic opposition from Mark Edward Kelly, an American astronaut, engineer and former U.S. Navy captain. Is Doucey trying to tip the scales for McSally?
Do the math
Most important, however, is how the math adds up.
How much more funding does TSMC need to open a 5nm fab in Arizona? Our colleague Cheng quoted a veteran TSMC analyst Andrew Lu.
Lu wrote in his Facebook post:
On a yearly basis, the investment in the U.S. fab should be easily affordable for the world’s largest foundry. TSMC typically spends about a quarter of its annual revenue on fab expansion.
The planned Arizona fab represents an annual investment of $1.3 billion, accounting for less than 10% of TSMC’s capital expenditures. Very likely, by the time TSMC enters production of 2nm in Taiwan, it can shift some of its old 5nm production equipment to the U.S., helping to keep capital expenditures even lower, he added.
TSMC’s planned Arizona fab will have a capacity of 20,000 semiconductor wafers per month in 2024 when it opens. That’s small potatoes for a company whose global capacity in 2020 is already scheduled to reach 13 million (300nm equivalent) wafers per year.
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Wargame
The Department of Defense has been genuinely concerned aboutPentagon’s increased dependence on chips made in Taiwan and the growing trade war between the United States and China. TSMC is critical in manufacturing commercial chips also used in planes, satellites, drones and wireless communications. In recent years, Pentagon officials and chip executives have wargamed a scenario in which China might force suppliers in Taiwan (TSMC) to limit or cut off semiconductor shipments.
Nonetheless, such Apocalyptic Pentagon worries probably wouldn’t be enough enticement to prompt TSMC to invest in the United States.
“If the agreement for instance just allows TSMC to keep its U.S. military chip business and or achieve low-cost production tied to promised subsides or other benefits offered by Arizona or the U.S. to TSMC to build a U.S. based facility, the benefit is minimal,” Wedbush Securities Senior Vice President Matt Bryson told EE Times correspondent Patterson.
At issue here is, then, comes back to where we started: how much the United States is willing to fund a TSMC fab in the United Sates?
A few weeks ago, I was tipped off by sources close to the government that the U.S. is about to toughen technology export sanctions against Huawei. Knowing that previous proposed restrictions on Huawei didn’t go anywhere largely because of Defense Department objections, I remained skeptical of such speculation. I drafted a blog then, but I never posted it.
What got me curious then was that my sources explained this perceived delay – DoD’s objection to the Commerce Dept.’s plan for more sanctions on Huawei – was “neutralized.”
Neutralized? Neutralized how?
Now I know what happened: TSMC showed its “willingness” to build a fab in the United States. That pacified DoD.
Although whatever new sanctions the US was to place on China aimed at Huawei, the company feeling the most collateral damage will be TSMC. According to IC Insights, Apple and HiSilicon together provided a hefty 37 percent of TSMC’s sales during 2019.
During TSMC’s Q1 results call in April, TSMC Chairman Mark Liu said: “We are now actively evaluating the U.S. fab plan.” He left plenty of room for TSMC to adjust its “long-term” plan. He spelled out problems with cost, supply chain and a shortage of highly educated workers – all basic to a leading-edge fab.
These potential problems laid out by TSMC a month ago still prevail. So, what gives?
Cutting Huawei off from TSMC might be Washington’s shortcut to winning a trade war. But from TSMC’s standpoint, if they can negotiate a deal that limits retribution from both Beijing and Washington, TSMC will definitely become a winner. The Arizona prospect allows TSMC to spread its risks to a reasonably advanced fab outside Taiwan, an island vulnerable to both earthquakes and geopolitics.
The post New TSMC Fab in US: a Tangled Web appeared first on EE Times Asia.
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