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Taiwan Semiconductor Manufacturing Company, better known as TSMC, announced its plans to triple investment in the United States to better serve Apple, NVIDIA, and AMD, among others. This investment will go towards building a second chip-fabrication facility in Arizona. This is an addition to the pre-existing chip fab, built with an investment of $12 billion.
The investments were made under the Chips and Science Act, which provided $52 billion for companies in the US to manufacture semiconductors. The Bill was passed during the semiconductor shortage and is sure to cause geopolitical ripples in Taiwan and China, which previously held dominance over the chip market. Taiwan, in particular, relies heavily on the chip manufacturing industry, as it is the backbone of their economy and talent pool.
The first factory, which will begin manufacturing in 2024, will produce 4-nanometer chips, which will be used in the forthcoming iPhones. The second factory will begin manufacturing in 2026, and will be one of the first plants outside Taiwan to make chips on the 3-nanometer scale. Both factories together will also employ a total of 4,500 people and by 2026, will have a manufacturing capability of 600,000 wafers annually.
This move will allow Apple, NVIDIA, and others to manufacture their chips completely locally, instead of importing them from China. This will not only allow these companies to stamp their chips as being Made in America, but also cut down on costs for these companies, creating a more competitive and diversified chip market.
NVIDIA CEO Jensen Huang stated, “Bringing TSMC investment to the United States is a masterstroke and a game changing development for the industry.”
Tim Cook, the CEO of Apple, said on the move, “It’s extraordinary what chip technology can achieve. And now, thanks to the hard work of so many people, these chips can be proudly stamped ‘Made in America.”
To understand the impact of this event, we must first understand why the United States is heavily incentivising companies to localise semiconductor manufacturing.
The great semiconductor shortage
In late 2020, the semiconductor industry began to experience supply shortages. Sparked by lockdown norms during the pandemic, the industry quickly found its many problems converging together to completely halt chip manufacturing. One of the biggest reasons for the shortage was, simply put, insufficient manufacturing capacity.
The demand for consumer goods fell due to the pandemic, but surged quicker than expected when economies began to recover. This led to companies putting pressure on chip manufacturers with larger orders and tighter deadlines.
In response to the growing demands of auto manufacturers, cryptocurrency miners and tech companies, the manufacturing capabilities of chip foundries like TSMC were stretched to the breaking point. Companies commonly found themselves on months-long waiting periods just to manufacture the raw chips they needed to integrate into their products.
Secondly, a spike in the price of cryptocurrencies created an incentive for miners to buy large volumes of GPUs. This further reduced the likelihood of finished products making it into the hands of actual consumers. Moreover, it is a strenuous and time-consuming process to switch semiconductor manufacturers, leaving chipmakers stuck with the manufacturers they picked.
China also cracked down extensively on manufacturing during the pandemic, shutting down factories and disrupting supply chains. These factors had a cascading effect on automobile and other industries that used chips extensively. This prompted US regulators to make moves towards manufacturing chips locally.
Additionally, the United States is also clamping down on American companies exporting advanced semiconductor technology to China. In a bid to localise manufacturing and become stronger geopolitically, America is looking at its top chipmakers, namely Apple, NVIDIA, and AMD to pick up the slack and add value to the supply chain.
What it means for American chipmakers
TSMC, the exclusive manufacturer for all Apple chips, is well-known for pushing the boundaries of what is possible in semiconductor manufacturing. Just 10 years ago, TSMC was manufacturing 28 nanometer chips. Today, it has shrunk the size of the transistors down to 3 nanometers, thus being able to pack more circuits into a smaller space.
Apple worked extensively with TSMC to create its A series of chips for iPhones, and then later to create M1 chips for use in their MacBook lineup. While it has heavily relied on imports from China to keep up their manufacturing, Apple is being hit hardest by the Chinese zero-Covid policy. They have already evaluated India as an alternative manufacturing location for their iPhones, and are slowly moving away from China.
Putting in one of the first orders for chips from TSMC’s Arizona fab is another slap in the face for China. Apple has created over 5 million jobs in the country, and had previously valued China as one of its premier markets. However, as relationships between US and China continue to fray, Apple is looking to move its manufacturing back home; a masterstroke supported by government subsidies and TSMC themselves.
In addition to TSMC’s manufacturing woes, NVIDIA faced problems of their own. Arguably, it was hit hardest by the semiconductor shortage, mainly due to cryptocurrency miners buying out its already-dwindling stock of GPUs in large numbers. This resulted in an erosion of its brand image, as dedicated customers of the brand couldn’t buy their new and updated GPUs.
After the semiconductor shortage, many chip manufacturers were left with a bitter taste in their mouth when it came to manufacturing in China. Coupled with regulatory moves and approval from the United States government, the companies now have enough incentive to move away from manufacturing in China.
Other chipmakers, like Intel and Samsung, have also expressed their plans to expand their semiconductor manufacturing capabilities in the United States.
Similar to the United States, India has also announced its intention to incentivize manufacturing of chips in the country. When taking a look at the market as a whole, it is clear that the onus of chipmaking power is moving away from China and Taiwan into other countries like the United States and even India.