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Why the world's biggest chipmaker is investing in the US

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  • Taiwan-based TSMC, the world’s largest chip maker, announced a $40 billion investment in Arizona last week.
  • That’s despite TSMC’s founder previously calling chip production in the US an “expensive exercise in futility”.
  • The investment can help achieve geographic diversity and bolster 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, the company’s leadership has been skeptical of making chips in the United States.

Last Tuesday, TSMC announced it would open a second factory in Arizona, increasing the company’s investment in the state from $12 billion to $40 billion. TSMC founder Morris Chang, however, argued that the investment is not prudent for TSMC or the US.

In April, Chang told The Brookings Institution that the US effort to increase domestic chip production would be “a pointless and costly exercise in futility”, citing “a lack of industrial talent” in the US, as well as his view that ” making chips in the US is 50% more expensive than in Taiwan.”

The US has taken steps to increase domestic chip production because it relies on TSMC’s factories in Taiwan to make products including 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 trillions of dollars in economic losses. And many experts say it’s only a matter of time before a break-in happens.

However, experts are skeptical that the Arizona plants will significantly reduce US reliance on Taiwan when both are completed in 2026, and Chang’s comments suggest the investment could face even more basic challenges.

It may be in TSMC’s best interest to invest in Arizona despite business challenges

Despite the commercial hurdles, there are a few reasons why many at TSMC decided not only to build the first factory in Arizona, but to add a second one as well.

First, the cost of producing chips in the US may not be “50% more expensive”.

“It’s about 15 to 20% more expensive,” Dylan Patel, chief analyst at semiconductor research and consulting firm SemiAnalysis, told Insider. “The US will probably subsidize that penalty, so the cost differential won’t really be that 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 increase production of semiconductor chips in the US.

And even though production is more expensive, Patel says TSMC customers will be “happy to pay a little more” to ensure supply chain diversity, something many companies are focused on given the supply chain challenges of the last few years. years old.

That includes Apple, TSMC’s biggest customer, which accounted for 26% of its revenues last year. Apple CEO Tim Cook has already said the company will be factories’ biggest customer when they go online.

“TSMC’s leadership sees the benefit of having some geographic diversity in its operations,” Martijn Rasser, a former CIA officer who is now a security and technology specialist at the Center for a New American Security, told Insider, “particularly when it is heavily courted by the governments of the world’s leading economies.”

As Rasser alludes to, winning favor with the US government may be another factor at play.

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 so “at the insistence of the US government.”

And TSMC may have good reason to secure good relations with the US.

According to Stratechery’s Ben Thompson, if the investment in Arizona “is the price of bolstering US support for Taiwan” in the event of a Chinese invasion, “this is the best possible insurance policy the company could buy for its operations that really matter, that are inextricably linked to Taiwan.”