TSMC says efforts to rebuild US semiconductor industry are doomed to fail

[Hydrogen]

Apple supplier TSMC believes that US efforts to rebuild chip manufacturing at home are doomed to fail, as it finds itself caught between China and the United States in a tech cold war.
Morris Chang founded TSMC in 1987 when Taiwan recruited him from the US to help build an electronics industry. The contract manufacturer rose to become the top chipmaker in the world, commanding 20% of global wafer fabrication and 92% of advanced chip capacity.

US share in global chip manufacturing shrunk from 37% in 1990 to 12% in 2020, but the country wants to regain its dominance. In particular, US Department of Defense is worried that the country's dependence on Taiwan could put chip supplies for the defense industry at risk.

In response, President Biden signed the CHIPS Act into law on August 9, 2022. It provides over $52 billion to help US companies build new semiconductor facilities, fund research, and expand existing manufacturing.

Taiwan isn't happy about the move because it sees its semiconductor dominance as a "silicon shield." The government believes that if China were to attack the country, the US would come to its aid to prevent China from seizing the industry.

When US House Speaker Nancy Pelosi visited Taiwan in August, she met with Morris Chang and Mark Liu, chair of TSMC. Chang told Pelosi that Washington's efforts to rebuild its chip manufacturing were doomed to fail, according to Taiwan's Financial Times.

But the United States may not have much choice. Analysts at investment bank Credit Suisse have estimated that if the world loses access to Taiwan's chip plants, it will disrupt the production for everything from computers to cars.

Apple would be impacted too, as it relies heavily on TSMC for chip production. While it has expanded some of its manufacturing to other countries such as Vietnam and India, those moves do not diversify Apple's chip supply at all.

Still, TSMC remains a major supplier for Apple and other companies, and its future between the US and China is uncertain.

"The monopoly in semiconductor production creates instability," said Brad Martin, director of the National Security Supply Chain Institute at the Rand Corporation. "If the US is faced with a need to make a decision between protecting its economy and defending Taiwan, that starts to become a very stark decision."

TSMC has made some efforts to help the US by planning a semiconductor facility in Arizona, the first such chip facility it will develop outside of its home country. TSMC expects it will reach its production start in early 2024.


https://appleinsider.com/articles/22/10/24/tsmc-says-efforts-to-rebuild-us-semiconductor-industry-are-doomed-to-fail

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I would be interested to know how public opinion views this content.

It seems that semiconductor supply chains needed for US manufacturing will be further throttled due to conflict between china and the united states.

When supply chain disruptions first arose in 2020, Elon Musk considered buying a semiconductor foundry to produce tesla semiconductors in house. Unfortunately the high price tag of a semiconductor foundry, small margins, and long start up period discouraged Elon from taking this route. And he opted to buy twitter instead.

Semiconductor mass production appears to be an extremely difficult industry to tackle from an engineering and business perspective. Is it fair to say a future forecast for semiconductor shortages is likely. Or will production ramp up on a global scale to meet demand, in a way that will make all of these discussions moot within 5 years.

[jackg]

If the US produces a lot more of their semiconductors than Taiwan then I think that'll put them more of a difficult position with China than they have now (the US might not need to come to their aid as much, they might do like is being done with Ukraine now rather than it being considered an attack on them directly).

I'd envisage chipmaking becoming either like steel production or many other industries financed by governments (transportation, energy, water). If it's playing an integral role in keeping a government/country secure and functioning it should be easy to source production internally if necessary. Italy is in the top ten of countries that can produce planes and that's directly to support their military efforts (this may be outdated, I was looking at the stats in March).

When wars happen, countries generally strive towards socialism - militaries are "socialist" (heavily funded and controlled by the government), ownership of infrastructure becomes more and more important too there are examples of this from the past like kindertransport).

[Kakmakr]

My question is this....

~ Will Silicon valley be able to catch up with the technological advances that was made by China over all these years?
~ Can they manufacture these chips at the same cost that China are doing, because China are almost 100% mechanized?
~ What hardware patents are there on the existing technology, that are owned by China ...and will they allow the US to infringe on that.

This is going to be a long process, with a lot of political struggles to implement this. China will not take this sitting down.. they will sabotage all efforts to get this off the ground, because they want to retain that leverage and monopoly that they have over chip manufacturing. 

[NotATether]

~ Will Silicon valley be able to catch up with the technological advances that was made by China over all these years?

No because entrepreneurs are too busy doing "hot" stuff like blitzscaling a Something-as-a-service business at 200mph only to crash into a tree.

~ Can they manufacture these chips at the same cost that China are doing, because China are almost 100% mechanized?

I don't think so, because of minimum wage concerns.

~ What hardware patents are there on the existing technology, that are owned by China ...and will they allow the US to infringe on that.

That will be the biggest problem for the US. No I don't think they will infringe on Chinese patents and then be allowed to continue operating in China, so its more of an aerial battle for silicon innovation.

[Gyfts]

My question is this....

~ Will Silicon valley be able to catch up with the technological advances that was made by China over all these years?
~ Can they manufacture these chips at the same cost that China are doing, because China are almost 100% mechanized?
~ What hardware patents are there on the existing technology, that are owned by China ...and will they allow the US to infringe on that.

This is going to be a long process, with a lot of political struggles to implement this. China will not take this sitting down.. they will sabotage all efforts to get this off the ground, because they want to retain that leverage and monopoly that they have over chip manufacturing. 

The chinese chips are terrible compared to TSMC chips. If there was patent infringement, it's not like it matters. There is no global patent police that has jurisdiction.

It takes years and billions of dollars to build these factories. The U.S. tech sector could eventually catch up if they're inclined to do so, with impending Chinese invasion of Taiwan awaiting. TSMC obviously doesn't want the U.S. to become independent on their chip production because it would lessen the reliance U.S. companies have on them. If the U.S. does not have a reliance on Taiwan, there is no incentive for the U.S. to protect them from invasion.

[hatshepsut93]

I think the US might still defend Taiwan even if they will succeed in creating their own semiconductor industry - after all, US is a superpower and it's not  going to cede this status without a fight, especially since US military is clearly more capable than any military in the world by far.

And TSMC sounds like they are not happy about the prospects of losing their monopoly rather than being worried about getting invaded by China because the US will lose a reason to get involved.

[Hispo]

Interesting, to this day I had considered the backing of USA to Taiwan to be almost completely unconditional, I thought it was about keeping the Chinese CCP away from the island inhabited by a free people, I had no considered the fact of the Taiwanese chip production playing a part in this backing, but it makes sense. 

I assume that USA has realized how strategic and important the production of chips is for their national security, they would not want to risk its production by leaving it on hands of a single foreign country, Taiwan or others.

The way I see it, the chip production (and the hardware production) in Asia has been long preferred by giants within the industry like Apple, I thought it was only because the cheap labor force. I wonder how competitive would the American chips will be in retail price and I hope USA does not abandon the people of Taiwan if they succeed to rebuild the national chip industry.

[stompix]

The reason for him saying that is right in the article:

Taiwan isn't happy about the move because it sees its semiconductor dominance as a "silicon shield." The government believes that if China were to attack the country, the US would come to its aid to prevent China from seizing the industry.

TSMC and Taiwan (which at this point cna be considered one entity already) are scared that if their influence in the world would decrease so would the help in case an invasion from China happens. But this is only a speech, in reality money counts:

Taiwan's TSMC progressing well with Arizona chip plant, governor says

Besides, what can they say, that they will lose the top spot and that their business is doomed?
Have you ever seen a CEO saying that the competition will bankrupt his company in the next years?

When supply chain disruptions first arose in 2020, Elon Musk considered buying a semiconductor foundry to produce tesla semiconductors in house. Unfortunately the high price tag of a semiconductor foundry, small margins, and long start up period discouraged Elon from taking this route. And he opted to buy twitter instead.

The foundry price was 18 billions, he spent 44 billions on twitter, do you actually think that money was the problem, besides, if there was a shortage of chips, how was that possible in the context of these small margins you claim?

[davis196]

I can't believe that the Americans were dumb enough to lose their advantage in chip manufacturing 30 years ago.
Taiwan now has the industrial capacity and the qualified workforce. If a small island like Taiwan was able achieve such economic miracle decades ago then the USA should be capable of rebuilding it's semiconductor industry. Saying that this is "doomed to fail" sounds way too pessimistic.
Perhaps the US chip manufacturers will have to outsource their production facilities in Mexico or Costa Rica, because of the cheap labor.
The main problem here is the US government. You can't just throw 52 billion dollars at the US companies and expect fast results.
There will be semiconductor shortages for sure and expects all electronics to become way more expensive in 2023.

[el kaka22]

It is of course expected TMSC would say that it’s doomed to fail because if USA achieves this then it would be their end. Why would USA need them if they can build their own chips? Which is what they are afraid and this is not just being afraid of business results, it also means that if USA and Europe could provide their own chips anytime they want, then in a case where China attacks Taiwan, why would anyone care?

If Taiwan is only one producing the chips then everyone would care about such a war because they want their chips, but if they all build their own chip factories then nobody would stop China from attacking Taiwan and that is why TMSC doesn't want that to happen.

[Smartprofit]

It is of course expected TMSC would say that it’s doomed to fail because if USA achieves this then it would be their end. Why would USA need them if they can build their own chips? Which is what they are afraid and this is not just being afraid of business results, it also means that if USA and Europe could provide their own chips anytime they want, then in a case where China attacks Taiwan, why would anyone care?

If Taiwan is only one producing the chips then everyone would care about such a war because they want their chips, but if they all build their own chip factories then nobody would stop China from attacking Taiwan and that is why TMSC doesn't want that to happen.

The US has the potential to become a leader in microelectronics. 

They know how to attract first-class engineers and other technical specialists to their country.  They can always offer them a highly competitive salary and an excellent benefits package.  They also have the opportunity to build the necessary plants and simulate the entire necessary technological process.  Microelectronics products are used for a variety of purposes (including military ones). 

Therefore, ensuring autonomy in such industries is a strategic task for a country like the United States.

[dothebeats]

If it's something for 'defense' then nothing is impossible for the US. They put a lot of effort when it comes to this aspect of their country more than anyone else in the world. They just have to get the right people to do the job for them and they're basically all set. It'll be a hard feat, yes, but if these guys are decades ahead of their competition when it comes to military technology, then it just means that they understand enough about electronics and the chips that they are using to be able to reverse-engineer it - and even manufacture it with the right tools.

For now TSMC can take the crown of being the major producer of lots of advanced chips in the world, but a country such as the US with a bigger economy, a lot of dependable engineers and technicians, and basically an infinite amount of resources to spend can catch up if it wanted to.

[2stout]

This statement of efforts to rebuild US semiconductor industry being doomed to fail sounds a bit self-serving because what would this mean for TSMC if in fact it is successful?  It's not in their best interest if efforts to rebuild US semiconductor industry are successful.

[avikz]

Not China, but Taiwan is the biggest producer of the  Semiconductor chips in the entire world. US simple can't complete with them due to some reasons,

1. High labor cost in US for skilled workers
2. The margin is not attractive enough considering the competition
3. Establishment of raw material procurement is extremely difficult as the companies supplying raw materials are already under contractual agreement for next 10 - 15 years

It can only succeed if any US company can start the production in a low cost country and get huge tax concession from the government for employment generation. It is not easy!

[DrBeer]

The United States has an officially voiced problem - the possible difficulties of providing industry, and the military-industrial complex, in the first place, with the necessary high-tech components. Difficulties - from insufficient volume, to interruptions in supply, up to a complete stop.
Given that the United States is still one of the most high-tech and richest countries, while already having experience in its own production of chips, building, or rather, restoring chip production, is only a matter of time. In this case, "two birds with one stone" will be killed. The second hare is pulling the "blanket" of chip production (simpler chips, for the automotive industry, household appliances, etc.) from China, in order to weaken China's position in the high-tech market. By the way, from China, American high-tech industries will also migrate to the United States or nearby countries.

[stompix]

Not China, but Taiwan is the biggest producer of the  Semiconductor chips in the entire world. US simple can't complete with them due to some reasons,

1. High labor cost in US for skilled workers
2. The margin is not attractive enough considering the competition
3. Establishment of raw material procurement is extremely difficult as the companies supplying raw materials are already under contractual agreement for next 10 - 15 years

1. If you think someone in this industry is working for 10$ a day you're deeply mistaken, they are highly paid and everyone gets offers from different companies, even Bitmain tried to bribe TSMC workers to come work for them and the whole poaching scandal nearly resulted in them being cut
2. If chips are in high demand if prices are skyrocketing how are the margins low?
3. 10-15 years? Let's be serious. Besides none of the materials in chops are that impossible to get as obviously, the US is still manufacturing chips, Europe is manufacturing chips, and there won't be any huge next-day change where Intel needs 1000 tons of hafnium per day starting tomorrow.

There will be semiconductor shortages for sure and expects all electronics to become way more expensive in 2023.

Or maybe not:

For Chip Makers, the Flip From Shortage to Glut Intensifies
https://www.wsj.com/articles/chip-makers-cut-costs-as-demand-slump-supplants-pandemics-chip-shortage-11667560050

[franky1]

its not just that wages in taiwan are half that of american (50% discount to import rather then create domestically)

but also if they time their contracts right they can get another 10%-20% discount via playing forex movements

along with this
if making domestically american companies then have to pay lots of different taxes and costs. where as importing something. they have more loopholes to tax dodge to get further discount

[NotFuzzyWarm]

My question is this....

~ Will Silicon valley be able to catch up with the technological advances that was made by China over all these years?
~ Can they manufacture these chips at the same cost that China are doing, because China are almost 100% mechanized?
~ What hardware patents are there on the existing technology, that are owned by China ...and will they allow the US to infringe on that.

For a start - we are talking about Taiwan - NOT China. Despite what China's Leaders say/think about the matter for the foreseeable future Taiwan is NOT part of China and will remain so. Someday that may change but won't be anytime soon.

China has ZERO advanced node chip making capabilities, their 'bleeding edge' is the 7nm node and even there it is problematic for them because China has never had access to the still by any standard fairly advanced lithography equipment needed to improve their yields. Smaller than 7nm is out of the question for them and with the chip technology embargo in-place even the 7nm node may no longer be possible for the (yes, 'the' as in their only one that was capable of 7nm) Chinese Foundry to use

~~ Silicon Valley does not have to 'catch up'. Why? Simple: Foundries like TSMC et al are not the ones who are designing the chips and the basic processes used to make them. Companies like Micron, Cisco, Broadcom, AMD, nVidia, etc design them. Recently even Intel has shifted production of some chips to TSMC.

Foundries are given the chip designs by their customers who work with the foundries to implement their designs into chips using whatever process node they want to use that the foundry can provide. Guess where most of the actual design work for leading/bleeding-edge chips is done - the US, Europe and Japan. Not Taiwan (and certainly not China).

~~ Manufacturing cost is a different story. All aspects of chip making is heavily automated as there is no other way to do it so that bit is out of the picture. Oh, and just *where* is the equipment made? All advanced process equipment is designed & made in, you guessed it - the US, Europe, and Japan. Now, yes Taiwan does have lower labor costs but that is their only advantage.

~~ Hardware Patents - again, most are held by US, European and Japanese owned companies with #1 on that list being the EUV lithography systems. Now Process Patents - that's a different story. Process Patents are a Foundry's highly optimized Secret Sauce but if need be there are always ways around that with the most obvious being Licensing. Barring that, just do things in a significantly different way. Ya know, like Intel, GF & Samsung have done with their Foundries. The whole point of TSMC opening a Foundry in the US is simply to have a long-term safe place to operate that is (mostly) free of major political unrest with zero chance of China causing problems.

[wiss19]

1. If you think someone in this industry is working for 10$ a day you're deeply mistaken, they are highly paid and everyone gets offers from different companies, even Bitmain tried to bribe TSMC workers to come work for them and the whole poaching scandal nearly resulted in them being cut
2. If chips are in high demand if prices are skyrocketing how are the margins low?
3. 10-15 years? Let's be serious. Besides none of the materials in chops are that impossible to get as obviously, the US is still manufacturing chips, Europe is manufacturing chips, and there won't be any huge next-day change where Intel needs 1000 tons of hafnium per day starting tomorrow.

I believe when he meant cheaper labour, he meant people who do not do the high end parts of it, but more like "carry this box here to there" type of people. But I agree, it was never something that will cost cheap, it is a high cost job and the results are not as profitable as any other business.

The margins are low because it's chips, and you can't just produce a billion of them in a day, meaning you are selling it in limited orders and even with high demand, there is a logical max price for it, you can't just charge 10k per chip right? So that means you can increase the price, but eventually it will be limited. However, I do agree with you that it can be done, it is not as difficult as they make it out to be, it is just another business.

[stompix]

I believe when he meant cheaper labour, he meant people who do not do the high end parts of it, but more like "carry this box here to there" type of people.

I have a hard time believing TSMC is letting a guy paid with 2$ an hour drive a manitou through their warehouse with 1 ton of chips hanging 5 meters in the air. 

The margins are low because it's chips, and you can't just produce a billion of them in a day, meaning you are selling it in limited orders and even with high demand, there is a logical max price for it, you can't just charge 10k per chip right? So that means you can increase the price, but eventually it will be limited. However, I do agree with you that it can be done, it is not as difficult as they make it out to be, it is just another business.

This is where you are mistaken, by the same logic Ferrari would have lower profit margins per car than Renault.
But let's stop speculation since TSMC is a publicly traded company so:

Taiwan Semiconductor Manufacturing Co., the biggest contract manufacturer of processor chips for smartphones and other products, said Thursday that its quarterly profit rose 79.7% over a year earlier to a record $8.8 billion amid surging demand.
Quarterly revenue rose 47.9% over a year ago to $19.2 billion, the company reported.

https://investor.tsmc.com/chinese/encrypt/files/encrypt_file/reports/2022-07/95e05d031e382c1beaf2b7f088e2dee32e13a0bc/2Q22EarningsRelease.pdf

Gross profit margin is expected to be between 57.5% and 59.5%;
Operating profit margin is expected to be between 47% and 49%.

Apple is at 25%, just an example, Amazon is at 4%.