by In December 2022, Taiwan Semiconductor Manufacturing Company, the leading maker of the world’s most advanced chips, said it planned to spend $40 billion in Arizona on its first major U.S. center for semiconductor production.
The much-hyped project on the outskirts of Phoenix, with two new factories, including one with more advanced technology, became a symbol of President Biden’s quest to spur greater domestic production of chips, the bits of silicon that power everything. type of devices to perform calculations and store data.
Then last summer, TSMC delayed initial manufacturing at its first Arizona factory until 2025 from this year, saying local workers lacked experience installing some sophisticated equipment. Last month, the company said the second plant would not produce chips until 2027 or 2028, instead of 2026, citing uncertainty over technology options and federal funding.
Progress on the Arizona site depends in part on “how many incentives the U.S. government can provide,” Mark Liu, president of TSMC, said in a call to investors.
TSMC is just one of several chipmakers hitting roadblocks in their U.S. expansion plans. Intel, Microchip Technology and others have also adjusted their production schedules, as a drop in sales of many types of chips puts pressure on companies to manage their spending on new infrastructure. The new chip factories are enormously complex, involving thousands of construction workers, long construction timelines and billions of dollars in machinery.
The delays come as the Biden administration begins awarding the first major grants from a $39 billion fund aimed at strengthening the U.S. semiconductor industry and reducing the country’s dependence on technology made in East Asia. On Monday, the administration said it would provide $1.5 billion in grants to chipmaker GlobalFoundries to upgrade and expand facilities in New York and Vermont that make chips for automakers and the defense industry.
But the problems companies like TSMC are facing with their projects could undermine this fanfare, raising questions about the prospects for success of President Biden’s industrial policy program. The investments are expected to play a major role in Biden’s re-election campaign over the coming months.
“Nothing has failed yet,” said Emily Kilcrease, senior fellow and director of the energy, economics and security program at the Center for a New American Security, a Washington think tank. “But we will have to see some progress and those factories actually come online in the next few years for the program to be considered a success.”
The Commerce Department is responsible for distributing federal money from the CHIPS Act of 2022 to stimulate domestic chip production. In addition to the grant to GlobalFoundries, the department has so far awarded two small production grants. It is expected to award much larger prizes, in the billions of dollars, to chipmakers such as TSMC, Intel, Samsung and Micron in the coming weeks and months.
The government is immersed in complex negotiations with these major chip manufacturers over the amount and timing of awards. Companies are also still waiting for guidance from the Treasury Department on which investments will qualify for a new tax credit aimed at advanced manufacturing, which was expected in late 2023.
Any delay in the process could hurt the United States in its race to reduce global dependence on chip factories in Taiwan, South Korea and China, analysts said. Rival countries are offering their own incentives to woo chipmakers. TSMC, for example, plans to increase production in Japan and Germany, in addition to the United States.
The longer the U.S. government waits to distribute the benefits, “the more other geographies will capture these investments and the more cutting-edge investments will be made in East Asia,” said Jimmy Goodrich, senior adviser for technology analysis at RAND. Corporation. “So the clock is ticking.”
A Commerce Department official disputed suggestions that it had been slow in delivering incentives. He said the department was taking time to protect taxpayer interests and pressure companies to do more to shore up the domestic chip supply chain.
A White House official said the changes to the chip companies’ schedule were minor adjustments that were common in complex projects such as new production sites. He added that forecasts suggested there would be overwhelming demand for these chips when facilities began manufacturing them.
A Treasury Department spokeswoman said officials had provided clarity on tax credits to companies planning investments and were working to issue additional guidance as quickly as possible.
The CHIPS Act authorized grants and other incentives to boost chip production in the United States, as well as tax credits for investments in factories and manufacturing equipment. More than 600 companies and organizations had submitted statements of interest in the grants, the Commerce Department said, as it estimates private investment pledges so far in $235 billion.
But most of the expansion plans were set when chips were in short supply several years ago, after a pandemic-fueled explosion in consumer spending on electronics. That demand dried up, leaving chipmakers stuck with large inventories of unsold components and little immediate need for new factories.
“Companies are rethinking how, what and when investments will be made,” said Thomas Sonderman, CEO of SkyWater Technology, a Minnesota chipmaker that has won grants from the Department of Defense and is seeking CHIPS Act funding.
One chip maker that is feeling the pressure is Microchip, an Arizona company. Two years ago, Microchip was inundated with orders. It applied for CHIPS Act funding to boost production and will receive $162 million. However, as sales have fallen, it recently announced two separate two-week factory closures.
Microchip still plans to upgrade its factories in Oregon and Colorado that will receive CHIPS Act grants, said Ganesh Moorthy, its chief executive. But ordering machines to increase production capacity will have to wait until business conditions improve.
“We’ve paused expansion,” Moorthy said.
Intel, which is expanding its production, has also adjusted purchases of expensive factory tools. The company recently said it did not expect to begin manufacturing in Ohio, where it will spend $20 billion on two new factories, in 2025 as it originally hoped. The change was previously reported by The Wall Street Journal.
Still, Intel said neither construction at that site nor expansion plans in the United States and three other countries had slowed.
“The strategy doesn’t change from quarter to quarter,” said Keyvan Esfarjani, executive vice president who oversees Intel’s manufacturing operations. “We’re staying the course.”
Some chipmakers, such as Texas Instruments and Micron Technology, are moving forward with expanding chip production for competitive reasons. New factories can help make higher quality chips, in greater quantities and at lower prices.
Micron is moving forward with construction of a $15 billion factory in its hometown of Boise, Idaho, and plans an even larger manufacturing complex near Syracuse, New York, despite a slowdown in the market for its chips. memory, which store data on devices such as smartphones and computers. .
Scott Gatzemeier, a Micron vice president overseeing the expansion, said construction projects that took several years should be based on future demand for chips rather than current conditions. Renting huge cranes and other equipment and hiring construction workers, he added, are big expenses that could have to be repeated if a project is stopped.
“Once you start, you don’t want to stop,” he said.
Other chipmakers are unwilling to start construction without government money. SkyWater’s Sonderman, for example, said his company’s plans for a $1.8 billion facility in Indiana depend on securing funding through a portion of the CHIPS Act intended for research.
At TSMC’s Arizona site, unforeseen problems have piled up over the past year.
Last summer, construction unions in the state raised issues about workplace safety and opposed TSMC bringing in workers from Taiwan to help install sophisticated equipment at the first factory. Delays in installing the machines prompted an announcement in July about delayed production.
In December, TSMC and the Arizona Building Trades Council agreed to ground rules at the site regarding safety, workplace training, staffing and other issues. In an emailed statement, Liu, who recently announced plans to retire, seemed hopeful that labor tensions were over.
He acknowledged “challenges” in building the first factory in Phoenix, but said TSMC remained “the fastest player” among its peers in completing such projects. While he told analysts in January that the company would delay the start of production at the second factory, also known as a factory, workers’ skills are not likely to be among the reasons.
“We believe the construction of our second factory will be much easier,” Liu said. “Arizona workers learn things quickly.”
