Why TSMC’s US Fab Is Strategic
Early in 2020, TSMC announced that they would build a $12 billion Fab in Arizona. In December, TSMC purchased the land it will be built on for $89 million.
I admit that I am still in the camp that believes broad manufacturing coming back to the US is a pipe-dream. However, I do see some specialized manufacturing in the US is feasible, and TSMC’s Fab project is a good example. While the actual push to build this Fab in Arizona is ripe with political overtones, it may turn out to be one of the better strategic moves for the US as it deals with multiple threats from China in the future.
The biggest threat I see on the horizon is China’s desire to nationalize Taiwan and bring it back under Chinese control. As I have written here in the past, I have spoken to top execs in Taiwan, and they are on high alert over the potential of China making a concentrated move to secure Taiwan and make sure it is part of China again.
This Dispute between China and Taiwan has been going on for decades ever since Taiwan broke away from China’s political stranglehold in 1949-1950. Under Taiwan’s leadership, Taiwan has developed a strong economy and is the home of the top tech manufacturers like Foxconn, Quanta, Compal, and TSMC, among others. In 1977, the US fundamentally agreed to back Taiwan and help them keep China at bay.
But given China’s recent moves in Hong Kong, Taiwan’s political and business leaders are deeply concerned that China will make some type of move towards trying to bring Taiwan back under Chinese rule as early as 2021.
One of the Taiwanese business leader’s concerns is if China is successful in nationalizing Taiwan, they could exert more control of their businesses. And it seems that one of the bigger prizes that could come out of the Chinese rule of Taiwan would be to get control of TSMC., or at the very least try and legislate who TSMC could make products for in the future.
One Taiwanese tech contact I spoke with at the end of last year told me that China’s national strategy to have products made in China and used especially in Chinese goods could be one other objective besides the political goal to unite Taiwan under the Chinese flag. This contact speculated that China could dictate where chips can be used and make Chinese products the priority.
This has huge ramifications for many US companies who use TSMC to make their processors. AMD, Apple, Samsung, and many others rely on TSMC for their chips. That is why putting a TSMC Fab on US soil is not only good for the US but a strategic one. It could be critical for keeping the flow of custom processors to US and European companies and keep TSMC’s growth moving forward.
I realize that the building of this Arizona Fab will only start sometime in 2021 and could take up to three years to build. In the meantime, the stakes in the US-China relationship are very high. Taiwan and its ties to the global tech supply chain are critical for the success of our tech industry. Allowing China to control this global supply chain through Taiwan could pose huge problems for tech companies in the future.
Taiwan and its ties to the global tech supply are critical for the success of our tech industry. Allowing China to control this global supply chain through Taiwan could pose tech companies’ problems in the future. There is another important point we need to consider a new Fab being constructed now.
The demand for processors for all industries is growing exponentially, and we are already seeing shortages impacting the Auto industry.
Engadget noted this week that ” Ford and Nissan are scaling back production in response to semiconductor shortages. Ford is idling an SUV factory in Kentucky this week, moving up downtime previously scheduled for later in 2021. Nissan, meanwhile, is reducing output at one of its plants in Japan.
Other carmakers may face trouble as well. Volkswagen said in December that it was altering production in China, Europe, and North America due to the shortage. Given the increased demand for semiconductors, it is good that another new fab is being constructed to help meet this growing need.
And it is even better, as well as strategic, that it is being built in the US.
This global hot spot will be one of the biggest issues to follow in 2021.