Taiwanese chipmaker ramping production to end chip shortage

Because the world grapples with an ongoing chip shortage, a quiet big amongst chipmakers has dedicated to investing $100 billion over three years to ramp up manufacturing.

Taiwan Semiconductor Manufacturing Company will not be a family identify, however with a market worth of over $550 billion, it is one of many world’s 10 most precious corporations. Now, it is leveraging its appreciable sources to deliver the world’s most superior chip manufacturing again to U.S. soil.

CNBC acquired an unique tour of the $12 billion fabrication plant, or fab, exterior Phoenix, Arizona, the place TSMC will begin making 5-nanometer chips in 2024. The corporate says it’ll produce 20,000 wafers every month.

“These are elements which can be going for use in numerous completely different locations: CPUs, GPUs, IPUs, and many others. They’re going to be utilized in smartphones,” Rick Cassidy advised CNBC. Cassidy is TSMC’s chief technique officer and the president and CEO of TSMC’s challenge in Arizona.

TSMC makes key parts for every little thing from cellphones to F-35 fighter jets to NASA’s Perseverance Rover mission to Mars. Earlier this month, it introduced plans for a brand new manufacturing unit in Japan, the place it’ll produce chips with older applied sciences, for issues like family gadgets and sure automobile parts. TSMC can also be Apple‘s unique supplier of probably the most superior chips inside each iPhone presently available on the market and most Mac computer systems.

“However they continue to be type of within the background, when it comes to finish markets. So Apple will get all of the accolades when a brand new cellphone comes out,” stated Joanne Itow, managing director of producing at Semico Analysis.

“We’re low-key. We let our merchandise communicate for themselves. Their success brings all of the enterprise that we may ever hope for,” Cassidy stated.

The U.S. was the birthplace of superior silicon, however for many years now, it has been shedding market share to Asia, the place 79% of the world’s chip manufacturing occurred in 2020, in line with business affiliation SEMI. It calculated the U.S. was accountable for 12% of worldwide chip manufacturing final 12 months, down from 37% in 1990. 

TSMC’s $12 billion 5-nanometer chip fabrication plant is six months into being inbuilt northern Phoenix, Arizona, on September 28, 2021.


TSMC alone was accountable for 24% of the world’s semiconductor output in 2020, up from 21% in 2019, in line with the corporate. With regards to probably the most superior chips used within the newest iPhones, supercomputers and automotive AI, TSMC is accountable for 92% of manufacturing whereas Samsung is accountable for the opposite 8%, in line with analysis group Capital Economics.

“It is become almost a monopoly at the forefront, and all of these manufacturing operations, for probably the most half, are out of Taiwan, Hsinchu. That turns into a matter of nationwide significance for the US, however not solely the US, however the Western world,” stated Christopher Rolland, Susquehanna’s senior semiconductor analyst.

Together with leading edge 3- and 5-nanometer chips, TSMC additionally makes bigger chips for merchandise similar to electrical toothbrushes and coffeemakers. Vehicles usually use less-advanced 28- to 40-nanometer chips. All kinds of chips have been impacted by the scarcity. Carmakers including GM and Toyota have paused production at some vegetation. And Apple is likely to slash its 2021 production targets for the iPhone 13, with orders for some fashions delayed by greater than a month.

World’s first pure-play foundry

When Morris Chang first proposed the concept for TSMC within the Eighties, traders had been skeptical. Born in China and educated at Harvard, MIT and Stanford, Chang moved to Taiwan after 25 years at Texas Instruments. There, the federal government requested him to create a Taiwanese semiconductor firm that will turn into a world chief. His thought: Focus solely on manufacturing — what’s now often known as a pure-play foundry.

“If you’re simply centered on one factor, you do one factor rather well,” stated Cassidy, who joined TSMC 23 years in the past after what he describes as a captivating hourslong assembly with Chang.

Chang wager large on a necessity that did not exist but. When he based TSMC in 1987, giants similar to Intel and Texas Devices took satisfaction in designing and making their very own chips. A legendary saying within the business again then was “Actual males have fabs.”

“When Morris went out to get funding, he went to many named corporations that you understand, they usually advised them, ‘Morris, your thought will not get off the bottom. If you happen to get it off the bottom, it will possibly’t scale.'”

However as chips acquired extra advanced, manufacturing them turned an infinite endeavor. Analysts say constructing a fab right this moment takes no less than two years and $10 billion. It is turn into practically unimaginable for even the largest chip corporations — Intel, Nvidia, Broadcom, Qualcomm, AMD — to do all of it and sustain with probably the most superior tech. Intel, for instance, nonetheless designs and makes its personal chips, but it surely’s fallen behind Samsung and TSMC lately and now depends on TSMC to make a few of its chips. 

“If you happen to had been a wise designer, you did not have to have billions of {dollars} and a fab behind you for the primary time with the emergence of TSM,” Rolland stated.

Now, every main step of chipmaking is commonly dealt with by a separate firm. Some, similar to Arm and MIPS, concentrate on IP and structure, offering the core constructing blocks to design chips. Then there’s digital design automation corporations similar to Cadence and Synopsys that write the software program used to design chips. Just one firm, ASML, makes the $180 million excessive ultraviolet mild machines required to etch designs into probably the most superior chips. Then there are the wildly profitable fabless corporations designing the chips, similar to Apple, Qualcomm, Nvidia and plenty of extra.

A rendering of ASML’s excessive ultraviolet mild machine etching designs into probably the most superior chips


As these fabless corporations took off, TSMC discovered itself on a flywheel making an increasing number of of the world’s chips.

“This has allowed [TSMC] to not solely catch up, however for my part, surpass Intel, to turn into the world’s best manufacturing expertise on the planet,” Rolland stated, “one of many prime 10 most precious corporations when it comes to market cap within the globe.”

TSMC was first listed on the Taiwan Inventory Change in 1994, and in 1997 it turned the primary Taiwan-based firm listed on the New York Inventory Change. By the 2000s, it had caught up with the 20 or so different corporations making probably the most superior chips on the time. As the tech kept advancing, an increasing number of corporations fell behind. Right this moment, solely two producers stay that may take advantage of superior, 5-nanometer chips: TSMC and Samsung.

In 2013, Apple began counting on TSMC to make its A-series chips for the iPhone because it moved away from reliance on Samsung, a direct competitor in cell phones. Right this moment, there is a TSMC chip inside each iPhone available on the market. And Apple has moved away from Intel too, now counting on TSMC to make the chips inside most Macs.

In 2018, at age 86, Chang retired as chairman of TSMC. His radical pure-play foundry thought continues to repay. With the opening of a brand new fab in Taiwan subsequent 12 months, TSMC is in a race with Samsung to make the world’s first 3-nanometer chips — with Intel planning to get there by 2025.

Bringing 5-nanometer to the U.S.

Proper now, no fab within the U.S. could make 5-nanometer chips. However TSMC is altering that.

“If you would like extra capability, it’s important to construct extra fabs. And that is one of many causes that we’re shifting to the U.S.,” Cassidy stated. “Our clients need us within the U.S. The U.S. authorities needs us right here.”

TSMC Technical Director Tony Chen took CNBC on a tour of the location the place a four-story 2.3-million-square-foot fab is being erected. Chen has led 17 different fab building tasks in his 23 years with TSMC. 

“This challenge is designed as a 5-nanometer fab. Truly, it is a copy from the fab we’ve got in Taiwan,” Chen stated. 

Close by, one of many world’s largest cranes was being lifted to its full peak of 200 ft. The two,300-ton crane was dropped at the location on 153 semitrucks. Web site supervisor Jim White stated contractors have moved practically 4 million cubic yards of grime and have used greater than 260 million gallons of water since building started in April.

Constructing a fab and making chips takes an unbelievable quantity of water, not an considerable useful resource in the course of the desert. Arizona’s greatest water supply is groundwater, however deep wells at big farms are using water up faster than it’s naturally replenished. Chen stated TSMC wants round 4.7 million gallons of water every day to help manufacturing. 

TSMC isn’t any stranger to water shortages. Taiwan is facing its worst drought in 56 years, one thing that TSMC stated has not impacted manufacturing. In Arizona, TSMC stated, an on-site water remedy middle will recycle as much as 90% of water used on the fab.

“After which finally, that water shall be reinjected into the aquifer in partnership with town of Phoenix after reverse osmosis and different expertise options are supplied,” stated Chris Camacho, president and CEO of the Higher Phoenix Financial Council. He helped negotiate the deal that introduced the challenge to Arizona.

One other problem is that the majority 5-nanometer specialists are based mostly in Asia. To resolve this, TSMC’s tutorial relations supervisor, Roxanna Vega, stated the corporate is bringing over a few of its prime consultants from Taiwan.

“They’re seen as subject material consultants on what they do in our fabs over there,” Vega stated. “It will be a brief project … two, possibly three years.”

TSMC stated it is already despatched greater than 250 new U.S. hires to Taiwan for 12 to 18 months to stand up to hurry.

“The chance to coach in our 5-nanometer gigafab in Taiwan is to sort of give them that perception of how immense and the way cutting-edge the instruments, equipment and every little thing goes to be right here in Arizona,” Vega stated.

Diversification is a key purpose for TSMC to deliver superior manufacturing to the U.S.

“Taiwan is just not excellent with regards to analog semiconductor design, and by shifting to the US you’d be capable of faucet right into a a lot bigger variety of analog designers,” Rolland stated.

TSMC employees stroll down a hallway in a chipmaking fab in Taiwan


Most of TSMC’s 12 fabs are in Taiwan and China, leaving the world susceptible to potential slowdowns from pure disasters, together with the present drought there, or the geopolitical tensions of the area. Some consultants, nonetheless, check with TSMC as Taiwan’s “silicon protect” in its fraught relationship with China.

The media paints a very bleak picture of this situation,” Rolland stated, “however I am truly rather more optimistic — partly due to this concept [of] the semiconductor protect, due to this mutually helpful relationship between the mainland and Taiwan itself. China as of proper now wants them for his or her modern manufacturing.”

The U.S. additionally relies upon closely on the chips popping out of Taiwan — a key purpose the federal government labored laborious to persuade TSMC to deliver its tech right here.

“Arizona has quite a lot of applications, together with the Qualified Facility tax credit and the Quality Jobs tax credit, that is actually an incentive to assist decrease the price of operations,” Camacho stated. “Along with that, town of Phoenix put collectively a $200 million infrastructure package deal that helps TSMC entry water and extra infrastructure wanted.”

The Biden administration has proposed $52 billion in subsidies for chip corporations similar to TSMC to fabricate on U.S. soil.

Industry reports estimate a $50 billion funding from the U.S. authorities would allow the development of 19 fabs within the U.S. over the subsequent 10 years, successfully doubling home chip manufacturing functionality.

Because the scarcity continues, comparable investments are occurring around the globe. Business affiliation SEMI tasks 72 new fabs or main expansions will come on-line by 2024 — 10 of them positioned in North and South America.

“I heard extra bulletins of investments within the final two, three years than in my whole life,” stated SEMI President and CEO Ajit Manocha. “And based mostly on that we really feel that by finish of subsequent 12 months, we should always begin seeing some aid on the chip scarcity.”

Till then, as demand continues to soar, TSMC is elevating chip costs as a lot as 20%, in line with a report by The Wall Road Journal. The associated fee may trickle all the way down to shoppers within the worth of electronics. TSMC can also be continuing to ramp up production capacity, together with within the U.S., the place the 1,100-acre Arizona website definitely has room for a second part.

Watch the video to see the unique tour of TSMC’s Arizona website and contained in the chip big’s large fabs in Taiwan.

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