TSMC dragged to the altar of US manufacturing
There are also one or two indicators that TSMC’s plan is potentially provisional; at least to the extent that all such announcements can be subject to change, or delay – or even cancellation.
On Thursday, the Department of Commerce praised TSMC’s decision to build a wafer fab in Arizona, although time differences could have made that contemporaneous with TSMC’s press release dated Friday, May 15. TSMC stated that it plans to spend $12 billion on a 5nm wafer fab in Arizona (see TSMC picks Arizona for 5nm wafer fab). And then on Friday the DoC specifically called out Huawei as being the reason for enhanced restrictions on supplying chips that are made with US software or manufacturing equipment – which applies to almost all digital chips and anything made in advanced process technologies (see US tightens restrictions on Huawei’s chip supply).
In the case of Huawei, the argument offered up by the United States’ Department of Commerce seems contrived. The Department of Commerce argues that it has had to enhance restrictions because, since being put on the “entity list” in May 2019, Huawei had been trying to undermine US export controls by using foundries to make its chips.
Huawei and its semiconductor subsidiary HiSilicon have always been fabless. So, the use of foundries has always been a fundamental part of its business model. TSMC which supplied a great deal of silicon to HiSilicon in 2019 – reportedly worth 14 percent of TSMC’s revenue (see HiSilicon breaks into top ten chip vendor ranking) – has always said it follows legislation and rules and clearly has felt it has been doing so up until now.
Be that as it may, there has been speculation for months that the US administration wants to thwart the progress of Huawei while it still can. And this has been against the protestations of national and international industry bodies.
Next: SIA comments
The Semiconductor Industry Association’s CEO John Neuffer commented on the development saying: “We are concerned this rule may create uncertainty and disruption for the global semiconductor supply chain, but it seems to be less damaging to the US semiconductor industry than the very broad approaches previously considered.”
Neuffer seems to be comparing some restriction that specifically mentions Huawei versus something more general but it feels like he is whistling in the dark. This will make for big changes in the whole of the semiconductor supply chain. Industry body SEMI, which also protested against enhanced restrictions (see Semiconductor industry pushes back against US export controls), has yet to comment.
But what of TSMC’s willingness to drop $12 billion on a US wafer fab, and those contra-indicators?
First, there is the short engagement period and the apparent haste of the wedding announcement.
Only a few weeks ago – April 20 – TSMC’s chairman Mark Liu stated: “We are now actively evaluating the US fab plan. But as I told the investors before, there is a cost gap, which is hard to accept at this point.” (see TSMC is planning a US wafer fab . . . again). At the time Liu seemed to indicate that the lack of leading-edge ecosystem in the US would greatly increase costs for TSMC compared with other locations.
It certainly makes sense that while Intel may be petitioning the US Department of Defense to help it create a wafer fab, TSMC is the one being petitioned by the Department of Commerce (see US talks to Intel, TSMC about building local foundry fabs). The reason it makes sense if that Intel manufacturing is underperforming while TSMC has established itself as the clear technology leader.
Next: Carrot and stick
It is probably by a mixture of carrot and stick that TSMC has been persuaded to say “yes” to the United States’ proposal. The carrot will be the subsidies that are de rigueur for the setting down of any wafer fab. The stick will be the threat that if TSMC does not come to the US, Apple might start buying a larger proportion of its silicon from another source. About 23 percent of TSMC’s revenue came from Apple in 2019, according to reports. The only company close to competing with TSMC in leading-edge digital silicon is South Korea’s Samsung.
Obviously, the US could easily print up an additional $4 billion or $5 billion if that’s what it takes to persuade a blushing TSMC to come and stand alongside it.
But it is also notable that TSMC has opted to set down what is now a relatively small wafer fab that is not quite at the leading edge. The Arizona fab is denoted as a 5nm unit that will ultimately have a manufacturing capacity of 20,000 wafer starts per month. That feels like almost a minimal viable size for a production fab at 5nm.
By the time the Arizona fab begins production in 2024, 5nm will seem a somewhat mature process compared with 3nm and potentially some form of Forksheet transistor silicon at 2nm. Of course, fabs get upgraded and migrated during the course of their lifetime but the 5nm label sends a signal. It is also notable that the cost is in the semiconductor manufacturing equipment so TSMC’s commitment is not a major one until some time after it has built the fab shell. Fab shells lying idle for years before being equipped or repurposed are a fact of life in the semiconductor industry that has always been a commercial rollercoaster ride of boom and bust.
To be fair TSMC has been one of the most sure-footed of semiconductor manufacturers and rarely has to pull back from a commitment. Again, it makes sense that the really big spending on Gigafab production fabs remains in Taiwan but it feels like TSMC is doing the minimum required to remain in US and Apple’s good graces.
The final indicator is the use of a conditional verb in the last sentence of TSMC’s press release. “The Arizona facility would be TSMC’s second manufacturing site in the United States.” It suggests the condition, “if it goes ahead.” The verb will is used elsewhere in the press release.
The bottom line is that successful semiconductor policy is mapped out over several years while US administrations are around for just four years at a time. So, there is no harm in TSMC planning for a $12 billion spend in the US for now, secure in the knowledge that such plans can be changed, delayed or cancelled if they no longer make sense under different circumstances.
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