Taiwan’s TSMC to build Arizona chip plant as U.S.-China tech rivalry escalates

REUTERS - Taiwan Semiconductor Manufacturing Co Ltd, the biggest contract chipmaker, said it plans to build a US$ 12 billion factory in Arizona in an apparent win for the Trump administration’s efforts to wrestle global tech supply chains back from China.

The plan, which will create over 1,600 jobs, comes as U.S. President Donald Trump steps up criticism of Chinese trade practices and Beijing’s handling of the novel coronavirus ahead of the Nov. 3 U.S. presidential election.

Trump has long pledged to bring manufacturing back from overseas and now a steep economic slump brought on by the coronavirus is driving a government-wide push to end U.S. production and supply chain dependency on China.

U.S. Secretary of Commerce Wilbur Ross touted the deal as “another indication that President Trump’s policy agenda has led to a renaissance in American manufacturing.”

TSMC is a major supplier to U.S. tech giants such as Apple Inc (AAPL.O) and Qualcomm Inc, as well as Chinese firms like Huawei Technologies, which Washington has put on a trade blacklist.

“This project is of critical, strategic importance to a vibrant and competitive U.S. semiconductor ecosystem that enables leading U.S. companies to fabricate their cutting-edge semiconductor products within the United States,” TSMC said.

While huge in terms of foreign investment in the United States, the plan is small by TSMC’s standards. For 2020, TSMC’s capex plan is US$ 15-16 billion.

The Taiwanese chipmaker said the plan was to build the plant over nine years.

“The budget... suggests the eventual scale won’t be big,” Bernstein analysts said in a note, adding revenue contribution from the plant will stay at around 3-4 percent.

“The scale and technology is similar to what TSMC did in China, suggesting a balance between the US & China.”
A U.S. Commerce Department official said TSMC’s decision to locate the plant in the United States generated “good will” at the department, the drafter of a law that would, if implemented, severely restrict TSMC chip sales to Huawei.

Credit Suisse analysts said proposed restrictions could threaten TSMC’s 14 percent of sales from Huawei, escalate U.S.-China tensions and delay the rollout of the next-generation 5G mobile network.

“While it is hard to be certain, we believe that TSMC announcing a U.S. Fab could remove the threat of further Huawei restrictions in the very near-term at least,” JP Morgan analysts said in a note.

Shares of TSMC, the world’s most valuable semiconductor company with a market capitalisation of about US$ 255 billion, exceeding Intel Corp’s (INTC.O), closed up 1.7 percent yesterday, outperforming a 0.3% gain in the main Taiwan stock market .TWII.

The plant, the biggest foreign investment by TSMC, will produce the most sophisticated 5 nanometer chips, which can be used in high-end defense and communications devices.

TSMC manufactures the bulk of its chips in Taiwan and has older chip facilities in China and Washington state.