Inside TSMC, the Taiwanese chipmaking big that is constructing a brand new plant in Phoenix

Because the world grapples with an ongoing chip shortage, a quiet big amongst chipmakers has dedicated to investing $100 billion over three years to ramp up manufacturing.

Taiwan Semiconductor Manufacturing Company might not be a family title, however with a market worth of over $550 billion, it is one of many world’s 10 most useful firms. Now, it is leveraging its appreciable assets to convey the world’s most superior chip manufacturing again to U.S. soil.

CNBC received an unique tour of the $12 billion fabrication plant, or fab, outdoors Phoenix, Arizona, the place TSMC will begin making 5-nanometer chips in 2024. The corporate says it is going to produce 20,000 wafers every month.

“These are components which might be going for use in a lot of completely different locations: CPUs, GPUs, IPUs, and many others. They will be utilized in smartphones,” Rick Cassidy instructed CNBC. Cassidy is TSMC’s chief technique officer and the president and CEO of TSMC’s venture in Arizona.

TSMC makes key parts for all the things from cellphones to F-35 fighter jets to NASA’s Perseverance Rover mission to Mars. Earlier this month, it introduced plans for a brand new manufacturing unit in Japan, the place it is going to produce chips with older applied sciences, for issues like family gadgets and sure automobile parts. TSMC can be Apple‘s unique supplier of probably the most superior chips inside each iPhone at the moment available on the market and most Mac computer systems.

“However they continue to be kind of within the background, when it comes to finish markets. So Apple will get all of the accolades when a brand new telephone comes out,” stated Joanne Itow, managing director of producing at Semico Analysis.

“We’re low-key. We let our merchandise communicate for themselves. Their success brings all of the enterprise that we may ever hope for,” Cassidy stated.

The U.S. was the birthplace of superior silicon, however for many years now, it has been shedding market share to Asia, the place 79% of the world’s chip manufacturing occurred in 2020, in keeping with trade affiliation SEMI. It calculated the U.S. was chargeable for 12% of worldwide chip manufacturing final 12 months, down from 37% in 1990. 

TSMC alone was chargeable for 24% of the world’s semiconductor output in 2020, up from 21% in 2019, in keeping with the corporate. On the subject of probably the most superior chips used within the newest iPhones, supercomputers and automotive AI, TSMC is chargeable for 92% of manufacturing whereas Samsung is chargeable for the opposite 8%, in keeping with analysis group Capital Economics.

“It is become almost a monopoly at the vanguard, and all of these manufacturing operations, for probably the most half, are out of Taiwan, Hsinchu. That turns into a matter of nationwide significance for the USA, however not solely the USA, however the Western world,” stated Christopher Rolland, Susquehanna’s senior semiconductor analyst.

Together with leading edge 3- and 5-nanometer chips, TSMC additionally makes bigger chips for merchandise reminiscent of electrical toothbrushes and coffeemakers. Vehicles usually use less-advanced 28- to 40-nanometer chips. All sorts of chips have been impacted by the scarcity. Carmakers including GM and Toyota have paused production at some vegetation. And Apple is likely to slash its 2021 production targets for the iPhone 13, with orders for some fashions delayed by greater than a month.

When Morris Chang first proposed the thought for TSMC within the Nineteen Eighties, traders have been skeptical. Born in China and educated at Harvard, MIT and Stanford, Chang moved to Taiwan after 25 years at Texas Instruments. There, the federal government requested him to create a Taiwanese semiconductor firm that will grow to be a world chief. His thought: Focus solely on manufacturing — what’s now generally known as a pure-play foundry.

“If you’re simply targeted on one factor, you do one factor rather well,” stated Cassidy, who joined TSMC 23 years in the past after what he describes as an enchanting hourslong assembly with Chang.

Chang wager huge on a necessity that did not exist but. When he based TSMC in 1987, giants reminiscent of Intel and Texas Devices took satisfaction in designing and making their very own chips. A legendary saying within the trade again then was “Actual males have fabs.”

“When Morris went out to get funding, he went to many named firms that you recognize, they usually instructed them, ‘Morris, your thought will not get off the bottom. If you happen to get it off the bottom, it will possibly’t scale.'”

However as chips received extra complicated, manufacturing them grew to become an unlimited enterprise. Analysts say constructing a fab at present takes a minimum of two years and $10 billion. It is grow to be practically inconceivable for even the most important chip firms — Intel, Nvidia, Broadcom, Qualcomm, AMD — to do all of it and sustain with probably the most superior tech. Intel, for instance, nonetheless designs and makes its personal chips, but it surely’s fallen behind Samsung and TSMC lately and now depends on TSMC to make a few of its chips. 

“If you happen to have been a wise designer, you did not have to have billions of {dollars} and a fab behind you for the primary time with the emergence of TSM,” Rolland stated.

Now, every main step of chipmaking is commonly dealt with by a separate firm. Some, reminiscent of Arm and MIPS, concentrate on IP and structure, offering the core constructing blocks to design chips. Then there’s digital design automation firms reminiscent of Cadence and Synopsys that write the software program used to design chips. Just one firm, ASML, makes the $180 million excessive ultraviolet mild machines required to etch designs into probably the most superior chips. Then there are the wildly profitable fabless firms designing the chips, reminiscent of Apple, Qualcomm, Nvidia and lots of extra.

As these fabless firms took off, TSMC discovered itself on a flywheel making increasingly more of the world’s chips.

“This has allowed [TSMC] to not solely catch up, however for my part, surpass Intel, to grow to be the world’s biggest manufacturing know-how on the planet,” Rolland stated, “one of many prime 10 most useful firms when it comes to market cap within the globe.”

TSMC was first listed on the Taiwan Inventory Alternate in 1994, and in 1997 it grew to become the primary Taiwan-based firm listed on the New York Inventory Alternate. By the 2000s, it had caught up with the 20 or so different firms making probably the most superior chips on the time. As the tech kept advancing, increasingly more firms fell behind. At this time, solely two producers stay that may take advantage of superior, 5-nanometer chips: TSMC and Samsung.

In 2013, Apple began counting on TSMC to make its A-series chips for the iPhone because it moved away from reliance on Samsung, a direct competitor in cell phones. At this time, there is a TSMC chip inside each iPhone available on the market. And Apple has moved away from Intel too, now counting on TSMC to make the chips inside most Macs.

In 2018, at age 86, Chang retired as chairman of TSMC. His radical pure-play foundry thought continues to repay. With the opening of a brand new fab in Taiwan subsequent 12 months, TSMC is in a race with Samsung to make the world’s first 3-nanometer chips — with Intel planning to get there by 2025.

Constructing a fab and making chips takes an unimaginable quantity of water, not an considerable useful resource in the midst of the desert. Arizona’s greatest water supply is groundwater, however deep wells at big farms are using water up faster than it’s naturally replenished. Chen stated TSMC wants round 4.7 million gallons of water every day to help manufacturing. 

TSMC is not any stranger to water shortages. Taiwan is facing its worst drought in 56 years, one thing that TSMC stated has not impacted manufacturing. In Arizona, TSMC stated, an on-site water remedy middle will recycle as much as 90% of water used on the fab.

“After which in the end, that water might be reinjected into the aquifer in partnership with the town of Phoenix after reverse osmosis and different know-how options are offered,” stated Chris Camacho, president and CEO of the Better Phoenix Financial Council. He helped negotiate the deal that introduced the venture to Arizona.

One other problem is that almost all 5-nanometer specialists are primarily based in Asia. To resolve this, TSMC’s tutorial relations supervisor, Roxanna Vega, stated the corporate is bringing over a few of its prime consultants from Taiwan.

“They’re seen as subject material consultants on what they do in our fabs over there,” Vega stated. “It’s going to be a short lived project … two, perhaps three years.”

TSMC stated it is already despatched greater than 250 new U.S. hires to Taiwan for 12 to 18 months to rise up to hurry.

“The chance to coach in our 5-nanometer gigafab in Taiwan is to sort of give them that perception of how immense and the way cutting-edge the instruments, equipment and all the things goes to be right here in Arizona,” Vega stated.

Diversification is a key cause for TSMC to convey superior manufacturing to the U.S.

“Taiwan shouldn’t be excellent with regards to analog semiconductor design, and by shifting to the USA you’d have the ability to faucet right into a a lot bigger variety of analog designers,” Rolland stated.

Most of TSMC’s 12 fabs are in Taiwan and China, leaving the world susceptible to potential slowdowns from pure disasters, together with the present drought there, or the geopolitical tensions of the area. Some consultants, nevertheless, check with TSMC as Taiwan’s “silicon defend” in its fraught relationship with China.

“The media paints a very bleak picture of this situation,” Rolland stated, “however I am really rather more optimistic — partially due to this concept [of] the semiconductor defend, due to this mutually useful relationship between the mainland and Taiwan itself. China as of proper now wants them for his or her modern manufacturing.”

The U.S. additionally relies upon closely on the chips popping out of Taiwan — a key cause the federal government labored exhausting to persuade TSMC to convey its tech right here.

“Arizona has numerous applications, together with the Qualified Facility tax credit and the Quality Jobs tax credit, that is actually an incentive to assist decrease the price of operations,” Camacho stated. “Along with that, the town of Phoenix put collectively a $200 million infrastructure bundle that helps TSMC entry water and extra infrastructure wanted.”

The Biden administration has proposed $52 billion in subsidies for chip firms reminiscent of TSMC to fabricate on U.S. soil.

Industry reports estimate a $50 billion funding from the U.S. authorities would allow the development of 19 fabs within the U.S. over the following 10 years, successfully doubling home chip manufacturing functionality.

Because the scarcity continues, comparable investments are occurring world wide. Trade affiliation SEMI tasks 72 new fabs or main expansions will come on-line by 2024 — 10 of them positioned in North and South America.

“I heard extra bulletins of investments within the final two, three years than in my complete life,” stated SEMI President and CEO Ajit Manocha. “And primarily based on that we really feel that by finish of subsequent 12 months, we must always begin seeing some reduction on the chip scarcity.”

Till then, as demand continues to soar, TSMC is elevating chip costs as a lot as 20%, in keeping with a report by The Wall Avenue Journal. The price may trickle right down to customers within the value of electronics. TSMC can be continuing to ramp up production capacity, together with within the U.S., the place the 1,100-acre Arizona web site actually has room for a second section.

Watch the video to see the unique tour of TSMC’s Arizona web site and contained in the chip big’s large fabs in Taiwan.