In December 2022, Taiwan Semiconductor Manufacturing Company, a key maker of the world’s most cutting-edge chips, said it planned to spend $40 billion in Arizona on its first major U.S. semiconductor manufacturing hub.
The much-discussed project outside Phoenix — featuring two new factories, including one with more advanced technology — has become a symbol of President Biden’s push to boost domestic production of chips, the bits of silicon that help all kinds of devices do calculations and store data. .
Then last summer, TSMC pushed back initial production at its first plant in Arizona to 2025 from this year, saying local workers lacked the expertise to install some sophisticated equipment. Last month, the company said the second factory would not produce chips until 2027 or 2028, rather than 2026, citing uncertainty over technology options and federal funding.
Progress at the Arizona site depends in part on “how much incentive the U.S. government can provide,” Mark Liu, president of TSMC, said on an investor call.
TSMC is just one of several chipmakers facing obstacles with their U.S. expansion plans. Intel, Microchip Technology and others also adjusted their production schedules as falling sales in many types of chips pressure companies to manage spending on new infrastructure. The new chip factories are extremely complex, involving thousands of construction workers, long construction schedules and billions of dollars worth of machinery.
The delays come as the Biden administration begins handing out the first major awards from a $39 billion pot of money aimed at building the U.S. semiconductor industry and reducing the country’s reliance on technology made in East Asia. On Monday, the administration said it would award $1.5 billion in grants to chipmaker GlobalFoundries to upgrade and expand facilities in New York and Vermont that make chips for the auto and defense industries.
However, issues facing companies like TSMC with their projects could undermine that fanfare, raising questions about the prospects for success of President Biden’s industrial policy agenda. Investments are expected to feature heavily in Mr. Biden’s re-election campaign in the coming months.
“Nothing has failed yet,” said Emily Kilcrease, senior fellow and director of the energy, economy and security program at the Center for a New American Security, a Washington think tank. “But we’ll have to see some progress and these factories actually come online in the next few years for the program to be considered a success.”
The Commerce Department is responsible for distributing federal money from the CHIPS Act of 2022 to boost domestic chip production. In addition to the grant to GlobalFoundries, the department has so far issued two small manufacturing grants. It is expected to award much larger billion-dollar awards to chipmakers such as TSMC, Intel, Samsung and Micron in the coming weeks and months.
The government has been locked in complex negotiations with these major chipmakers over the amount and timing of the awards. Companies are also awaiting guidance from the Treasury on which investments will qualify for a new tax credit targeting advanced manufacturing, expected before the end of 2023.
Any delays in the process could hurt the United States as it struggles to reduce global reliance on chip factories in Taiwan, South Korea and China, analysts said. Rival countries offer their own incentives to chipmakers. TSMC, for example, plans to add production in Japan and Germany as well as the United States.
The longer the U.S. government waits to distribute the benefits, “the more other geographies will siphon off that investment, and more of the cutting-edge investment will be in East Asia,” said Jimmy Goodrich, senior adviser for technology analysis at RAND. Company. “So the clock is ticking.”
A Commerce Department official disputed suggestions that it had delayed handing out incentives. He said the ministry is taking time to protect the interests of taxpayers and push companies to do more to strengthen the domestic chip supply chain.
A White House official said the changes to the chip companies’ schedule were minor adjustments common to complex projects such as new manufacturing facilities. He added that forecasts suggest there will be overwhelming demand for these brands when facilities begin manufacturing them.
A finance ministry spokeswoman said officials there had provided clarity on tax credits for companies planning to invest and were working to issue additional guidance as soon as possible.
The CHIPS Act authorized grants and other incentives to boost U.S. chip production, plus tax credits for investment in factories and manufacturing equipment. More than 600 companies and organizations had submitted expressions of interest in the grants, the Commerce Department said, and estimated private investment commitments so far totaled $235 billion.
But most expansion plans were put in place when chips were scarce several years ago, following a pandemic-fueled boom in consumer electronics spending. That demand has dried up, leaving chipmakers stuck with large inventories of unsold components and little immediate need for new factories.
“Companies are rethinking how and what and when to invest,” said Thomas Sonderman, the chief executive of SkyWater Technology, a Minnesota chip maker that has won Defense Department grants and is targeting CHIPS Act funding.
One chipmaker feeling the pinch is Microchip, an Arizona company. Two years ago, Microchip was flooded with orders. It has applied for CHIPS Act funding to stimulate manufacturing and is set to receive $162 million. But as sales have fallen, it recently announced two separate two-week factory shutdowns.
Microchip still plans to upgrade factories in Oregon and Colorado that are slated to receive CHIPS Act grants, said Ganesh Moorthy, its chief executive. But ordering machines to increase production capacity will have to wait until business conditions improve.
“We have stopped expansion,” Mr Moorthy said.
Intel, which is expanding production, has also adjusted purchases of expensive factory tools. The company recently said it did not expect to start production in Ohio, where it is spending $20 billion on two new plants, in 2025 as originally expected. The change was reported earlier by the Wall Street Journal.
However, Intel said that neither construction at that site, nor expansion plans in the United States and three other countries, had slowed.
“The strategy doesn’t change from quarter to quarter,” said Keyvan Esfarjani, the executive vice president who oversees Intel’s manufacturing operations. “We’re staying the course.”
Some chipmakers, such as Texas Instruments and Micron Technology, are expanding chip production for competitive reasons. New factories can help produce higher-quality chips, more of them, and cheaper.
Micron is pushing ahead with construction of a $15 billion plant in its hometown of Boise, Idaho, and plans an even bigger manufacturing complex near Syracuse, New York, despite a slump in the market for its memory chips, which store data in devices such as smartphones and computers.
Scott Gatzemeier, a Micron vice president overseeing the expansion, said manufacturing projects that have taken several years should be based on future chip demand, not current conditions. Renting huge cranes and other equipment and securing construction workers, he added, are big expenses that may have to be repeated if a project stalls.
“Once you start, you don’t want to stop,” he said.
Other chip makers are reluctant to start manufacturing without government money. SkyWater’s Mr. Sonderman, for example, said his company’s plans for a $1.8 billion facility in Indiana depended on obtaining funds through a section of the CHIPS Act aimed at research.
At TSMC’s Arizona site, unforeseen problems have piled up over the past year.
Last summer, construction unions in the state raised workplace safety issues and objected to TSMC bringing in workers from Taiwan to help install sophisticated equipment at the first plant. Delays in installing machinery led to an announcement in July of a production delay.
In December, TSMC and the Arizona Building and Construction Trades Council agreed to ground rules on the job site for safety, job training, job site staffing and other issues. In an emailed statement, Mr. Liu, who recently announced plans to retire, sounded optimistic that worker tensions were over.
He acknowledged the “challenges” in building the first Phoenix plant, but said TSMC was still “the fastest player” among its peers in completing such projects. While he told analysts in January that the company would delay the start of production at the second factory, also known as a fab, worker skills are not likely to be among the reasons.
“We believe that the construction of our second factory will be much smoother,” said Mr. Liu. “Arizona workers learn things fast.”
