Taiwan Semiconductor Manufacturing Company, the world’s largest maker of advanced computer chips, is upgrading and expanding a new factory in Arizona that promises to help America move toward a more self-sufficient technological future.
But to some at the company, the $40 billion project is something else: a bad business decision.
Internal doubts at the Taiwanese chipmaker are growing over its American factory, according to interviews with 11 TSMC employees, who declined to be named because they were not authorized to speak publicly. Many of the workers said the project could distract from the research and development approach that had long helped TSMC outperform rivals. Some added that they were hesitant to move to the United States due to potential cultural conflicts.
Their concerns underscore TSMC’s delicate position. As the largest maker of chips that power everything from phones to cars to missiles, the company is strategically important with highly coveted know-how. But locked in a deepening battle 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 kinds of tensions.
The expansion of its factory on the northern outskirts of Phoenix is aimed at bringing advanced microchip production closer to the United States and away from any potential confrontation with China. However, the effort has stoked internal apprehension, with high costs and administrative challenges showing just how difficult it is to transplant one of the most complicated manufacturing processes known to man to the other side of the world.
The pressure for the Arizona factory to succeed is immense. Failure would spell a setback for US efforts to cultivate advanced chip manufacturing that moved mainly to Asia decades ago. And TSMC would have spent billions on a plant that didn’t produce enough viable chips to make it worth the effort.
“TSMC’s investment in the US from a business perspective doesn’t make any sense,” said Kirk Yang, president of private equity firm Kirkland Capital and a former technology analyst, citing high costs. He added that TSMC might have been forced to set up a factory in the United States due to political considerations, but “so far, the Phoenix project has brought very little benefit to TSMC or Taiwan.”
The Arizona project is TSMC’s first major concession to growing global concerns in recent years about the geopolitics of chip production, fueled in part by fears about China’s hostile stance toward Taiwan and chip shortages.
The chip giant, which has long had almost all of its factories in Taiwan, is now building a facility in Japan as well. European lawmakers have launched plans to attract a TSMC factory, and the company is in the final stages of making a decision on that plant, two people with knowledge of the matter said.
Nina Kao, a spokeswoman for TSMC, did not directly address internal concerns about the Arizona investment. But in an email, she said the decision on the US factory location was based on several factors, including customer demand, market opportunity and the ability to tap into global talent.
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Ms. Kao added that TSMC was strengthening its training to integrate foreign talent into its corporate culture. The company will “actively listen and provide changes where needed,” she said.
TSMC announced the Arizona factory in May 2020, initially pledging $12 billion for it. In December, the company increased that amount to $40 billion, with plans to upgrade the factory with the most advanced, though not the most advanced, chip-making technology. The plant is expected to start producing microchips by 2024, and the company said it would add a second factory to the site later.
The project is challenging. In an earnings call last month, TSMC said construction in the US could be at least four times the cost in Taiwan, driven by labor costs, permits, regulatory compliance and inflation. Wendell Huang, TSMC’s chief financial officer, said the US investment could hurt TSMC’s profitability this year.
“TSMC recognizes that there is a cost gap between factories in Taiwan and those abroad,” Ms. Kao said, using the short form of a manufacturing plant or factory. She added that the company was still anticipating strong gross margins in the long term.
TSMC also needs nearby suppliers to provide critical raw materials, equipment and parts to the Arizona plant. However, some vendors trying to join there said they were experiencing labor challenges and high costs.
Calvin Su, president of Chang Chun Arizona, a chemical supplier that invested in its own $300 million factory in Casa Grande, Arizona, about an hour’s drive from Phoenix, said the cost to build his factory was 10 times higher than the cost in Taiwan. The costs were driven by a lack of familiarity with US building regulations and permits, as well as an insufficient supply of production materials, he said.
Michael Yang, president of CTCI Corporation, an engineering and construction contractor for the Taiwanese chip giant, said the cost to build the Arizona factory was “far in excess” of his client’s expectations. Adding to rising inflation, the chipmaker is competing with Intel, which is also expanding in Arizona, for skilled labor and construction equipment, he said.
“When we reported our quote at the beginning, the customer responded, ‘Are you crazy?’ But that’s the way it is,” Mr. Yang said.
Some TSMC engineers said they were concerned about how the Arizona factory would blend American and Taiwanese employees. In Taiwan, engineers work long hours and weekend shifts, joking that they “sell liver” to work for the chipmaker, they said. Such sacrifices may be less attractive to employees in the United States, they said.
Wayne Chiu, an engineer who left TSMC last year, said he had thought about joining the company’s overseas expansion drive but lost interest after realizing he would likely have to fill the needs of U.S. recruiting. Joined.
“The hardest thing about wafer making is not the technology,” he said. “The most difficult thing is personnel management. The Americans are the worst at this, because the Americans are the hardest to handle.”
Three TSMC employees who trained US engineers said it was difficult to standardize practices among them. While the Taiwanese workers remain unquestioning what they are told to do, the American employees challenged the managers, questioning whether there could be better methods, they said.
Some Americans struggled when given multiple tasks, sometimes turning down a new assignment instead of working harder to complete everything, said a TSMC engineer in Arizona. Taiwanese workers believe those who work in Phoenix will take on greater responsibilities than their American counterparts, eight employees said.
TSMC’s first US investment more than two decades ago has also served as a cautionary tale.
In the late 1990s, Morris Chang, the company’s founder, launched an ambitious overseas expansion plan, creating a chip manufacturing subsidiary, WaferTech, in Washington state. Although he promised to build several factories there, Chang stopped at one after “a series of unpleasant surprises,” including high costs and a shortage of skilled labor, he said in a podcast with the Brookings Institution last year.
Mr. Chang has questioned the US effort to reshape the global semiconductor supply chain, saying in a public forum in 2021 that the advantages in Taiwan that underlie TSMC’s success could not be replicated in the United States.
On the Brookings Institution podcast, he also argued that the $52 billion in US government subsidies allocated by the CHIPS Act, a federal funding package to boost domestic production of advanced chips, would not be enough to boost the industry. . He called it a “costly exercise in futility.”
But at TSMC’s announcement of the Phoenix factory expansion in December, Mr. Chang appeared to have recovered. This time, he said, the company is “much more prepared.”
In an email to The New York Times, Mr. Chang said he stood by his comments on last year’s podcast and at the December event in Arizona. He declined to comment further.
