Where to go with semiconductor manufacturing in the U.S.

As we heard at the start of summer, Taiwan Semiconductor Manufacturing Co. (TSMC) opted to send several hundred additional workers from Taiwan to Arizona to speed up the construction of its first chip plant in the U.S. in more than two decades. Wrought with delays, the plant, which was initially slated to open in 2023, will not see the light of day until 2025.

What’s driving the delay?

While outside experts can’t expect full line of sight into the internal issues contributing to the delay, three broad developments rank as highly probable contributors:

1. Economic environment. TSMC forecast a 10% drop in sales this year because of slower demand for semiconductors. The company cautioned that they expect a milder bump when Apple launches new iPhones ahead of the holiday than in previous years. In addition, while TSMC has diversified and become the largest manufacturer of artificial intelligence (AI) chips, it has not been enough to counteract the slow recovery of the global economy.

In fact, according to Reuters, after reporting a 23% fall in second-quarter profit, TSMC chairman Mark Liu said, “The short-term frenzy about the AI demand definitely cannot extrapolate for the long term. Neither can we predict the near future—meaning next year—how the sudden demand will continue or flatten out."

2. Carve-out considerations. As shared in a Wall Street Journal report, the company feels that the U.S. government is imposing “unacceptable” conditions on the two TSMC Arizona plants it is building in two ways:

• Tax credits: TSMC is said to have been offered tax credits worth U.S. $7-$8 billion but may be looking for the U.S. government to double its incentives to around $15 billion.
• Sharing returns: The CHIPS Act has a provision that requires chip makers receiving more than $150 million in direct funding have to share a portion of their investment returns if those returns exceed projections; reports indicate that TSMC wants those those terms waived.

The company has gone on record on the expense of bringing manufacturing to the U.S., with TSMC founder Morris Chang noting that it may cost at least 50% more to make chips in Arizona as compared with Taiwan.

3. Increasing trade tension between the U.S. and China. U.S. Commerce Secretary Gina Raimondo visited China at the beginning of September to attempt to smooth relations, but according to the South China Morning Post, Chinese Ministry of Foreign Affairs spokesman Wang Wenbin expressed considerable concerns, stating, “What the U.S. is doing is not competition but enforcing its zero-sum cold war mindset.”

These ongoing stressors impact major players like TSMC: As Reuters reported, “As the biggest maker of advanced chips, TSMC must navigate an uncertain industry outlook and a U.S.-China chip spat that could make it vulnerable.” 

So, what’s the industry to do?

The reality is that the landscape remains turbulent amidst a wealth of opportunity. And while major tech players from Nvidia Corp. to Apple rely on TSMC’s semiconductor chips, how this dependence will shift in the next few months and into 2024 remains to be seen. Couple that with the ongoing plant issues in Arizona, and how TSMC will respond to mounting pressures will be paramount to production and supply chain support.

No matter the outcome, semiconductor chip manufacturing and corresponding geo-political and economic pressures will be a key topic at Optica’s 2024 Executive Forum, taking place 25 March 2024 in San Diego. Watch for event updates, but in the meantime, reach out to me at [email protected] to share your thoughts on what’s next for semiconductor manufacturing.