- Taiwan-based TSMC, the world’s largest chipmaker, announced a $40 billion investment in Arizona last week.
- That’s despite TSMC’s founder previously calling US chip manufacturing an “expensive exercise in futility.”
- Investments can help gain geographic diversity and support US support.
Last week, Taiwan Semiconductor Manufacturing, the world’s largest chipmaker, announced it would make the largest foreign direct investment in US history. But in the past, company management was skeptical about making chips in the US.
Last Tuesday, TSMC announced it would open a second plant in Arizona, increasing the company’s investment in the state from $12 billion to $40 billion. TSMC founder Maurice Chang, however, argues that the investment is a no-brainer for TSMC and the US.
In April, Chang told The Brookings Institution that a U.S. push to increase domestic chip production would be a “wasteful, expensive exercise in futility,” citing a “lack of manufacturing talent” in the U.S., as well as his opinion that “chip manufacturing in the U.S. It is 50% more expensive than in Taiwan.”
The US has taken steps to increase domestic chip production as it depends on TSMC’s factories in Taiwan to make cars, PCs, iPhones and washing machines. Should China, which claims the island as its own, invade the island and stop chip production, there could be trillions of dollars in economic losses. And many experts say the invasion is just a matter of time.
However, experts are skeptical that the Arizona plants will significantly reduce U.S. dependence on Taiwan when both are completed in 2026, and Chang’s comments suggest the investment could face more fundamental challenges.
It may be in TSMC’s best interest to invest in Arizona despite the business challenges
Despite the business hurdles, there are several reasons TSMC has decided not only to build the first plant in Arizona, but also to add a second one.
First, the cost of manufacturing chips in the US can’t be “50% more expensive” after all.
“It’s more like 15 to 20% more expensive,” Dylan Patel, principal analyst at semiconductor research and advisory firm SemiAnalysis, told Insider. “The US will likely subsidize that penalty, so the cost difference won’t really be much.”
The factories will be partially subsidized by the US government through the CHIPS and Science Act, a package passed in August that provided $52 billion to boost US semiconductor chip production.
And even if manufacturing is more expensive, Patel says TSMC’s customers “will be happy to pay a little more” to provide supply chain diversity, something many companies have focused on given the supply chain challenges of the past few years.
This includes Apple, TSMC’s biggest customer, which accounted for 26% of its revenue last year. Apple CEO Tim Cook has already said the company will become the factories’ biggest customer once they come online.
“TSMC management sees a benefit in having some geographic diversity in its operations,” former CIA officer Martin Russer, who is now a security and technology expert at the Center for a New American Security, told Insider, “especially when it’s critical.” is in love by the governments of the world’s leading economies.”
As Rasser suggests, currying favor with the US government may play another factor.
Chang told Brookings as much in April. While he said it wasn’t his decision to build the first plant in Arizona, Chang said he did it “at the urging of the US government.”
And TSMC may have good reason to ensure it has a good relationship with the US.
According to Stratechery’s Ben Thompson, if Arizona’s investment is “the price of US support for Taiwan in the event of a Chinese invasion,” “it’s the best possible insurance policy a company can buy for its real-world operations; they are fundamentally tied to Taiwan.”