TSMC's 270 billion factory in the United States questioned: "a bad business decision"

TSMC, the world's largest maker of advanced computer chips, is upgrading and expanding a new factory in Arizona, which promises to help the U.S. move toward a more self-reliant technological future.

But for some at the company, the $40 billion project is something else: a bad business decision.

According to interviews with 11 TSMC employees, the Taiwanese chipmaker's internal doubts about its U.S. factories are growing, who spoke on condition of anonymity because they were not authorized to speak publicly. Many employees said the project could distract from research and development priorities that have long helped TSMC beat rivals. Some added that they were hesitant to move to the U.S. because of a potential culture clash.

Their concerns underscore TSMC's thorny situation. As the largest chipmaker, powering everything from mobile phones to cars to missiles, the company is strategically important with coveted know-how. But caught up in the deepening struggle between the United States and China for technological leadership, TSMC has tried to hedge its bets — only to find that its actions are creating new tensions.

Its factory expansion in the northern suburbs of Phoenix is designed to bring advanced microchip production closer to the U.S. and away from any potential standoff with China. However, the effort raises internal concerns, and the high costs and management challenges show how difficult it is to transplant one of the most complex manufacturing processes known to man halfway around the world.

The pressure on the Arizona facility to succeed is immense. Failure would mean a setback to U.S. efforts to nurture advanced chip manufacturing, which moved largely to Asia decades ago. TSMC could spend billions of dollars building a factory that can't produce enough viable chips to make it worth the effort.

"From a business perspective, TSMC's investment in the U.S. makes no sense," Kirk Yang, a former technology analyst and chairman of private equity firm Kirkland Capital, said, citing high costs. He added that TSMC may have been forced to set up a factory in the United States for political reasons, but "so far, the Phoenix project has had very little benefit to TSMC or Taiwan." ”

The Arizona project is TSMC's first major concession to growing global concerns about the geopolitics of chip production in recent years. The chip giant, which has long had almost all of its factories in Taiwan, now also has factories in Japan. European policymakers have rolled out plans to attract TSMC to build a plant, and the company is in the final stages of making a decision on the plant, two people familiar with the matter said.

TSMC spokeswoman Nina Kao did not directly respond to internal concerns about Arizona investments. But in an email, she said the decision to locate the U.S. plant was based on a variety of factors, including customer demand, market opportunities and opportunities to tap global talent.

Nina Kao added that TSMC is stepping up training to integrate overseas talent into its corporate culture. She said the company will "actively listen and offer changes when needed."

TSMC announced a factory in Arizona in May 2020, initially committing to invest $12 billion in it. Last December, the company increased its investment to $40 billion and plans to upgrade its factory with more advanced — but not the most advanced — chip-making technology. The plant is expected to begin producing microchips in 2024, and the company said it will add a second factory at the site later.

The project was challenging. On an earnings call last month, TSMC said construction costs in the U.S. could be at least four times as high as Taiwan's, driven by labor costs, permits, compliance and inflation. TSMC CFO Wendell Huang said U.S. investments could hurt TSMC's profitability this year.

"TSMC recognizes that there is a cost gap between Taiwanese fabs and overseas fabs," said Nina Kao, who uses the abbreviation for manufacturing or factory. She added that the company still expects strong gross margins over the long term.

TSMC also needed nearby suppliers to supply the Arizona plant with raw materials, equipment and key components. However, some vendors trying to onboard there say they have encountered labor challenges and high costs.

Chang Chun Arizona, a chemical supplier that invested $300 million in its plant in Casa Grande, Arizona, about an hour's drive from Phoenix, said its president, Calvin Su, costs 10 times more to build than Taiwan. He said costs have risen due to unfamiliarity with U.S. regulations and building permits, as well as inadequate supplies of production materials.

Michael Yang, chairman of CTCI Corporation, the Taiwanese chip giant's engineering and construction contractor, said the cost of building the Arizona plant "far exceeded" his customers' expectations. In addition to rising inflation, he said, the chipmaker is competing with Intel, which is also expanding in Arizona, for skilled labor and construction equipment.

"When we first reported our offer, the customer replied: 'Are you crazy?' But that's the way it is," Mr. Yang said.

Some TSMC engineers said they were concerned about how the Arizona plant would integrate U.S. and Taiwanese employees. In Taiwan, they say, engineers work long hours, weekend shifts, and joke that they "burst livers" to work for chipmakers. Such sacrifices may be less attractive to U.S. employees, they say.

Wayne Chiu, an engineer who left TSMC last year, said he had considered joining the company's overseas expansion plans but lost interest after realizing he might have to fill vacancies for U.S. employees.

"The most difficult thing about wafer fabrication is not the technology," he said. "The hardest part is personnel management. The Americans do the worst in this because Americans are the most difficult to manage. ”（“The most difficult thing about wafer manufacturing is not technology,” he said. “The most difficult thing is personnel management. Americans are the worst at this, because Americans are the most difficult to manage.” ）

Three TSMC employees who trained U.S. engineers said practices among them were difficult to standardize. When Taiwanese workers unquestionably did what they were told, American employees challenged managers to question whether there was a better way, they said.

An engineer at TSMC in Arizona said some Americans don't perform well when assigned multiple tasks and sometimes refuse to accept new tasks instead of working harder to complete them all. Eight employees said Taiwanese workers believed those who worked in Phoenix would have greater responsibilities than their American colleagues.

TSMC's first U.S. investment more than two decades ago is also of cautionary significance.

In the late 1990s, founder Zhang Zhongmou pursued an ambitious overseas expansion plan and created a chip-manufacturing subsidiary, WaferTech, in Washington state. Speaking on a podcast at the Brookings Institution last year, Mr. Zhang said that despite promising to build multiple factories there, he had to stop after a "series of ugly surprises," including high costs and a shortage of skilled labor.

Questioning U.S. efforts to reshape the global semiconductor supply chain, Zhang said at a public forum in 2021 that the Taiwanese advantage behind TSMC's success cannot be replicated in the United States.

In the Brookings Institution podcast, he also argued that the $52 billion subsidy designated by the U.S. government under the CHIPS Act, a federally funded program designed to spur domestic advanced chip production, was not enough to kick-start the industry. He called it "a futile and expensive exercise."

But when TSMC announced the expansion of its Phoenix plant last December, Mr. Zhang seemed to have changed his mind. This time, he said, the company is "better prepared."

In an email to The New York Times, Mr. Zhang said he stood by what he made on last year's podcast and at an event in Arizona in December. He declined to comment further. （In an email to The New York Times, Mr. Chang said he stood by his remarks in last year’s podcast and at the December event in Arizona. He declined to comment further.）

In response, TSMC responded that there are many considerations when planning the location of the fab, including customer demand, market opportunities, cost-effectiveness and operational efficiency, and the Arizona fab plan is also a good opportunity for TSMC to recruit global talent.

With the expansion of its global business, TSMC actively strengthens internal training to promote global talent inclusion and cherish the value that TSMC brings to TSMC with its diverse perspectives and backgrounds.

TSMC said that when setting up each fab, the local area will have different characteristics and atmosphere, including Taiwan, TSMC helps new employees smoothly integrate into the company's corporate culture, and projects to Taiwan for training or overseas assignments are ongoing. It is understood that TSMC has more than 600 foreign employees who have come to Taiwan for training and returned to the United States, and employees have applied for assignments enthusiastically.

TSMC emphasized that it is committed to creating an open, diverse and inclusive working environment, and arranges many cross-cultural communication and cooperation training and management courses for employees at home and abroad. TSMC also has a variety of communication channels to facilitate employees to share any ideas or concerns about the work environment, and TSMC values employees' opinions and brings about change.

TSMC pointed out that understanding the cost difference between domestic and foreign fabs is also in planning considerations, and predicting long-term gross profit margins of 53% or higher.

Source: Compiled from NYtimes, etc