- Taiwan-based TSMC, the world’s largest chipmaker, last week announced a $40 billion investment in Arizona.
- This is despite the TSMC founder previously calling chip production in the United States “an expensive exercise in terms of utility.”
- The investment could help achieve geographic diversity and build 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 of making chips in the United States.
Last Tuesday, TSMC announced the opening of a second factory in Arizona, increasing the company’s investment in the state from $12 billion to $40 billion. However, TSMC founder Morris Chang argued that the investment was not prudent for TSMC or the United States.
In April, Chang told the Brookings Institution that US efforts to increase domestic chip production would be “a futile and costly exercise,” citing “a lack of manufacturing talent” in the United States, as well as its opinion that “manufacturing chips in the United States are 50% more expensive than in Taiwan.”
The United States has taken steps to increase domestic chip production, as it depends on TSMC’s Taiwanese factories to manufacture products such as cars, PCs, iPhones and washing machines. In the event that China – which claims the island as its own – invades the island and chip production stops, there could be billions of dollars in economic losses. And many experts say it’s only a matter of time before an invasion occurs.
However, experts are skeptical that the Arizona factories will significantly reduce US dependence on Taiwan when both are completed in 2026, and Chang’s comments suggest the investment could face challenges. even more fundamental.
It may be in TSMC’s interest to invest in Arizona, despite business challenges
Despite the business hurdles, there are several reasons why TSMC decided not only to build the first factory in Arizona, but to add a second.
First, the cost of producing chips in the United States may not end up being “50% more expensive”.
“It’s more like 15-20% more expensive,” Dylan Patel, chief analyst at semiconductor research and advisory firm SemiAnalysis, told Insider. “The United States will likely subsidize this penalty, so the incremental cost won’t actually 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 production of semiconductor chips in the United States.
And even if production is more expensive, Patel says TSMC customers will be “happy to pay a little more” to ensure supply chain diversity, which is what many companies are focusing on given the challenges of the supply chain in recent years.
That includes Apple, TSMC’s biggest customer which accounted for 26% of its revenue last year. Apple CEO Tim Cook has previously said the company will be the factories’ biggest customer once they come online.
“TSMC management sees the benefit of having some geographic diversity in its operations,” Martijn Rasser, a former CIA officer who is now a security and technology expert at the Center for a New American, told Insider. Security, “particularly when heavily courted . . . by the governments of major global conflicts.”
As Rasser alludes to, currying favor with the US government could be another factor at play.
Chang told Brookings in April. While he said it was not his decision to build the first factory in Arizona, Chang said he did so “at the request of the US government.”
And TSMC may have good reason to make sure it’s on good terms with the United States.
According to Ben Thompson of Stratechery, if the investment in Arizona “is the price to pay to strengthen American support for Taiwan” in the event of a Chinese invasion, “it is the best possible insurance policy that the company can buy. for its operations that really matter, which are intrinsically linked to Taiwan.
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