TSMC's factory construction project in the United States encountered obstacles: construction and labor encountered "water and soil dissatisfaction"

Nearly a year has passed since TSMC's equipment move-in ceremony held in December last year when it set up a factory in the United States, but now, this plan is far from as smooth as imagined.

On October 5, local time, the Financial Times released a long report pointing out that TSMC is currently experiencing "cultural dissatisfaction" in construction and labor, resulting in the obstruction of its project in Arizona. Today, these daunting challenges threaten the semiconductor giant's project timeline and even its ambitions.

TSMC has been trying to cope with local construction and labor practices in the United States, but Dylan Patel, an analyst in the U.S. chip industry, admitted that "TSMC does not fully understand this culture." What's more troubling is that TSMC will encounter different challenges in each new location, and for TSMC, which has already built a factory in Japan and is preparing to build a factory in Germany, the difficulties encountered in the United States have only just begun.

TSMC's factory in Phoenix, Arizona, USA

The Financial Times did not mince words at the beginning of the article that TSMC controls the world's most advanced chip production technology and controls up to 90% of the market share of the world's most advanced custom chips. However, for the semiconductor giant, its two $40 billion fabs in Phoenix, Arizona, USA, have brought "culture shock" to the company itself, making the company and its employees "walk on thin ice".

In September, TSMC Chairman Liu Deyin said that the Arizona project was TSMC's first attempt to build a large factory overseas, and "it is certainly a learning process."

So far, TSMC has only produced state-of-the-art chips at large factories on the island, meaning local R&D personnel are immediately involved to solve any problems, suppliers are closely clustered, and service providers who have been involved in the construction of the company's fabs for decades are also responding to every "contingency" of the company. This mode of operation makes TSMC's profitability higher than most other companies.

However, now it seems that TSMC has a lot of "trouble" to build factories in the United States.

TSMC has reportedly started the second phase of work in Arizona and has secured enough land expansion for another four phases, but the news has not been made public and confirmed. However, several TSMC supplier executives said they did not believe TSMC would complete all six phases of construction.

In fact, the first stage of building a factory is full of challenges. The Financial Times said that TSMC has caused a lot of friction in the way of project contracting, resulting in delays, and the United States and Taiwan are obviously different from each other.

Recently, TSMC has struggled to find enough skilled workers to install critical advanced machines. In June this year, TSMC sent 500 additional experts from Taiwan to the United States to assist in this stage of the work, and some industry experts said that the United States does lack expertise in extreme ultraviolet (EUV) lithography machines, and that the United States has not installed EUV in factories other than Intel's technology development center in Oregon.

Far more than that, some industry executives and analysts believe the real challenge for TSMC will be how to run its new U.S. plant as efficiently as its factory in Taiwan.

Especially when it comes to labor, industry experts warn that TSMC's flexibility given to Taiwanese fab workers will be difficult to replicate through U.S. labor. Technologists in Taiwan typically have completed four years of engineering college training, but engineering graduates in the United States have higher-paying job opportunities. TSMC's two factories in Arizona, which plan to employ 4,500 people, have reportedly hired more than 2,200 people, but almost half of them come from Taiwan.

On December 6, 2022, in Arizona, USA, US President Joe Biden visited TSMC's Arizona plant and delivered a speech. Image from IC Photo

As part of so-called "Bidenomics," the Biden administration has been trying to bring jobs back to the United States by handing out billions of dollars in subsidies and tax breaks, especially in high-tech manufacturing industries like semiconductors.

In 2020, TSMC promised to invest $12 billion to build a factory in Phoenix, Arizona, USA, with the goal of producing high-end semiconductors in the United States by the end of 2024. Since then, TSMC has "stepped up", announcing that it will more than triple its planned investment of $12 billion to $40 billion, and its two factories in Phoenix are planned to invest in the production of 4nm and 3nm chips in 2024 and 2026, respectively. According to reports, this is not only TSMC's largest investment project outside Taiwan, but also one of the largest foreign direct investments in US history.

However, on July 20 this year, TSMC Chairman Liu Deyin said at the second-quarter earnings conference that sales may fall by 10% this year, and the planned Arizona plant will not be able to achieve the goal of starting mass production next year. Liu also said that due to the shortage of local skilled workers in the United States, the company may have to temporarily transfer experienced technicians from Taiwan, which will delay the start of mass production at the first factory until 2025.

Previously, TSMC had announced the construction of factories in the United States and Japan, and since then, there has been news that TSMC has decided to build a factory in Dresden, Germany. The Financial Times quoted analysts as pointing out that TSMC will encounter different challenges in each different new location.

For example, building a factory in Japan looks smoother than building a factory in the United States, and it has previously been revealed that TSMC is increasingly optimistic about establishing a production base in Japan, especially because of the similar local work culture and the feeling that Japanese workers are more willing to work overtime.

Analysts say that because fabs in Japan and Germany will use more mature technology than their U.S. counterparts, the construction process and initial production should pose fewer challenges. "But I suspect that Germany will have a harder time on labor issues." Peter Hanbury, a semiconductor expert at Bain, thinks so.

The Financial Times also previously reported that for TSMC to set up a factory in Dresden, Germany, the local industry is worried that labor will face a shortage, and the local anti-immigrant voice is not conducive to attracting foreign talents.

In Saxony, where Dresden is located, Martin Dulig, director of the state's economic department, said: "Our investment will create 5,000 to 8,000 additional jobs, but Germany faces a serious skills shortage and an ageing population. The working-age population will shrink by 200,000 over the next 10 years. And TSMC Chairman Liu Deyin also said earlier that "there is indeed some gap in the supply of (German) talents."

This article is an exclusive manuscript of the Observer Network and may not be reproduced without authorization.