Author Luo Qingsheng (Editor and Ph.D., Taiwan International Strategic Society)
The day before the U.S. Department of Commerce announced a new round of blockade order against Huawei, TSMC announced that it would build an advanced wafer factory in the United States. US Secretary of State Mike Pompeo described it as a "historic investment case". Commerce Secretary Wilbur Ross also issued a statement praising him. Assistant Secretary of Commerce, Ian Steff, in charge of global markets, directly stated: "Thanks to TSMC for its cooperation with our SelectUSA program." Later, Japanese media reported that TSMC had rejected Huawei's new orders, and the orders would not be affected. Therefore, there is a saying in the political arena that TSMC has joined the "American Team" of chip manufacturing and is turning to the United States in the competition for technology between China and the United States.
But the market view is not the case. TSMC is an international enterprise with shareholders from all over the world, pursuing sustainable operations and bearing specific social responsibilities. This social responsibility is to respond to the overall human security needs, not the national security of a particular country. The operating team is responsible to shareholders, not to the US government. The corporate interests of TSMC's pursuit of profits and avoid risks are not consistent with the interests of the Trump administration in the United States.
Therefore, if the lockdown measures to isolate the COVID-19 epidemic point out that the risks of relying on a single supply chain need to be diversified, and it is inferred that international companies will withdraw from mainland China; then under the same logic, relying on a single market also has high risks and the market must be diversified. In this way, how can international companies put all their eggs in the same basket? It is a wishful imagination of politicians that TSMC will give up the Chinese market for the sake of the US market.
is in business, and the so-called "TSMC chooses sides in the competition between China and the United States" is a fake issue. All international companies will avoid the risks of a single market. Even if they are forced to adjust due to political intervention, they will depend on the exchange conditions.
The context of TSMC setting up a factory in the United States
As early as mid-year, rumors of the United States putting pressure on TSMC to set up a factory in the United States were rampant. At the end of October, TSMC confirmed the matter, but said that it was still being evaluated, and the key lies in the cost, so it has not yet been decided.
TSMC's hesitation is justified. The request to TSMC to set up a factory in the United States was based on its security needs; TSMC foundry F-35 fighter jets and other military chips designed by the American semiconductor company Xilinx, which were produced in Taiwan and exported to the United States. These military chips are the electronic brains of high-tech weapon systems and key components. As the Sino-US trade war intensifies, in order to keep confidentiality and worry about severing supply in extraordinary times, the US military hopes to produce completely in the United States. However, this business accounts for very little revenue, accounting for only about one thousandth of the proportion, and does not have mass production conditions. After China and the United States signed the "Economic and Trade Agreement" in January this year, the atmosphere of confrontation between the two sides eased, and the relevant rumors tended to ease.
However, due to the COVID-19 pandemic in February, the global industrial chain experienced a crisis of chain breakage. In April, the epidemic in the United States worsened and became the country with the largest number of confirmed cases and deaths in the world. Trump's camp had to adopt a "blaming China" strategy to boost the election situation at the end of the year, and U.S.-China relations took a sharp decline. TSMC's political pressure has also increased greatly, and setting up factories in the United States has become an option. The Taiwanese industry therefore joked that the factory was a "public relations factory" or even a "expense factory"; that is, the public relations expenses that must be paid to maintain performance growth must be included in the "expense" item on the balance sheet and cannot be listed as "assets". Why
? Because relying solely on US military orders cannot support a 12-inch wafer factory, and where do other orders come from? On the surface, the North American market accounts for 60% of TSMC's revenue and 20% of the Chinese mainland market; but in actual operations, major American customers such as Apple and Qualcomm shipped TSMC's OEM products to mainland China for assembly, rather than shipped back to the United States. TSMC set up factories in the United States not to be close to market production, but to stay away from it.
from the perspective of production. In addition to the increase in labor costs in setting up factories in the United States, another problem is the supply chain. Semiconductors are a huge and complex industry. Although TSMC specializes in wafer foundry, setting up a new factory still requires supply chain cooperation such as front-end materials and back-end packaging and testing.However, TSMC's third parties did not expect to set up factories in the United States; Sun and Moonlight, the global leader in packaging and testing, only stated that it would take cost as the biggest consideration after media inquiry. Although Arizona, where the selected factory is located, has a ready-made semiconductor supply chain, Intel has four factories here, and Amkor, the second largest packaging and testing company, is also located here, but its degree of perfection is far less than that of Taiwan. American analysts from Bloomberg Industry Research therefore estimate that the production cost in the United States is more than twice that of similar factories in Taiwan.
Therefore, compared with mainland China, there is enough market and complete supply chain, TSMC Nanjing factory makes profits in less than one year of mass production, and Arizona factory still needs a lot of cooperation to make a profit. Although it is expected that the U.S. federal and state governments will provide tax relief and a considerable degree of subsidy, without making money, these are only meaningful to reduce expenses.
According to TSMC's plan, the monthly production capacity is scheduled to be 20,000 5-nanometer wafers. The investment case that plans to start construction in 2021 and start mass production in 2024 will have a capital expenditure of US$12 billion. The schedule is scheduled to be amortized in 9 years, with an average annual average of US$1.3 billion. Although less than 10% of TSMC's average annual capital expenditure is still a considerable burden. It is worth noting that TSMC does not seem to be intending to adjust its original capital expenditure plan for this additional burden. The TSMC board of directors held a few days before announcing its trip to the United States decided to issue NT$60 billion in corporate bonds to "support the funding needs for capacity expansion and pollution prevention and control related expenditures." The original investment and factory establishment plan has not changed.
Balance of setting up factories in the United States considering the balance of
TSMC's main investment plan is in Taiwan, where capital expenditures of about US$15 billion a year are invested. The more advanced 3-nanometer process is located in Tainan, and is scheduled to be trial production in 2021 and officially mass production in the second half of 2022. The production of 5 nanometers will also continue to be invested, with a monthly production capacity of 80,000 pieces at the end of this year, and it may increase further next year.
TSMC founder Zhang Zhongmou pointed out last year that TSMC is a very important part of the IT supply chain. "When the world is not quiet, TSMC is a must-fight place for geostrategists." Therefore, setting up a factory in the United States does not mean that TSMC has chosen the United States in the Sino-US competition, but because of the "world is not quiet" and it has to be balanced.
TSMC set up a factory in Nanjing as early as 2016, and its monthly production capacity will also expand to 20,000 pieces in the second half of this year. Although the 12-nanometer and 16-nanometer processes are not as advanced as 5-nanometers, this is purely a latecomer advantage in setting up factories in the United States. When the Arizona plant mass-produces 5 nanometers in 2024, it not only lags behind the new Tainan factory 3 nanometers, but it is not ruled out that the equipment in the Nanjing factory has also been updated to a 5-nanometer process in response to the competition of mainland Chinese wafer fabs such as SMIC, which may have developed a 5-nanometer process by then. From the perspective of geopolitical competition, TSMC went to the United States to set up factories in a strategic balance.
According to earlier reports, although the U.S. Department of Commerce seems to have restricted TSMC's shipments to Huawei, the New York Times quoted two people who "listened to the situation notification" on May 15, pointing out that while the United States reached a deal with TSMC, it may relax restrictions on the use of US technology in overseas manufacturing products, that is, it agrees that TSMC continues to manufacture chips for Huawei. A person familiar with the matter also pointed out that the Trump administration is also preparing to extend temporary licenses to allow U.S. companies to continue doing business with Huawei. This part was confirmed in a later announcement by the Ministry of Commerce.
The New York Times report should be groundless. Does this mean the U.S. government has changed its mind temporarily? Or should we first express our tough attitude towards China to boost the election situation, and finally agree to TSMC's shipment of Huawei? The announcement of the Ministry of Commerce only requires foreign companies using US software technology and chip manufacturing equipment to obtain a license when shipping Huawei, and does not state that it is absolutely impossible or ok.
is business-oriented, and TSMC's US factory setting up a new factory still needs to return to the level of business operations to clarify. If a company cannot make a profit, all "political correctness" is meaningless. Or more explicitly, political correctness is to serve the business for profit, not the other way around. Huawei contributed TSMC's performance of NT$152.876 billion last year, about US$5.1 billion, accounting for 14% of its revenue.Without this revenue, an average annual capital expenditure of US$1.3 billion is added to the US, and the financial statements will be ugly. Isn’t the risk of “choosing the United States” so high? That's right, American companies may increase orders to fill the manufacturing gap, but don't forget that there is another competitor who is eyeing it.
html Recently, South Korea's Samsung announced that it will start construction of a 5-nanometer wafer factory, and is expected to be mass-produced in the second half of 2021. Although the market recognizes that TSMC's technology exceeds Samsung's, it is nourished by a huge market, and the possibility of Samsung overtaking TSMC will not be ruled out. Mainland China is currently vigorously promoting the "new infrastructure" of AI, 5G, big data, Internet..., and has a huge demand for semiconductors. The possibility of the semiconductor market in mainland China exceeding the North American market in the future is very high. If so, will TSMC single-superize the North American market and give up mainland China and choose the side in the Sino-US technology competition? Then let's continue watching.
