TSMC, along with its subsidiaries, employs 51,000 people globally. The Taiwanese company says it manufactures 10,000 different products for more than 480 customers.
TSMC said its Arizona facility would create 1,600 jobs and that it would spend $12 billion to build the facility over eight years starting in 2021. “This project is of critical, strategic importance to a vibrant and competitive U.S. semiconductor ecosystem that enables leading U.S. companies to fabricate their cutting-edge semiconductor products within the United States and benefit from the proximity of a world-class semiconductor foundry and ecosystem,” TSMC said in a press release announcing its intention.
Factors at play in an operations move
Downstream buyers
One important consideration that makes the move possible for TSMC is who will buy its products. The factory TSMC plans to build is for wafer fabrication, which is the first step for building semiconductors. Semiconductor companies like Intel and Qualcomm are located in Arizona or neighboring states, according to Sangho Chae, an assistant professor of Supply Chain Management at Tilburg University in The Netherlands.
“By locating a wafer facility close to those big buyers, TSMC is trying to serve its customers better,” Chae told Supply Chain Dive, adding the geographic proximity would allow for more collaboration on planning and more just-in-time manufacturing.
Buyer-supplier collaboration is currently possible at long distances thanks to modern-day technology, but it can be difficult to execute just-in-time practices when supplier and buyers are so far apart, Chae said.
The wafer manufacturing process can involve hundreds of unit operations and can have a cycle time of between 10 and 15 weeks, according to a 2017 paper of semiconductor supply chains published in the International Journal of Production Research.
If it hadn’t been for [COVID-19] that would not have happened.
“Layers of material with different electrical characteristics are built up on a raw wafer, usually of silicon but sometimes of another semiconductor material such as gallium arsenide or indium phosphide,” reads the paper describing the wafer fabrication process. The paper was written by Lars Mönch; a professor at the University of Hagen; Reha Uzsoy from North Carolina State University; and John Fowler from Arizona State University.
A 2016 report from the GPEC found that companies throughout the semiconductor supply chain in the region “indicate a strong preference for purchasing from other local companies.”
Being close to a talent pool and its customers were two reasons TSMC provided for the move to Arizona in a statement to Supply Chain Dive, saying it “not only enables us to better support our customers and partners, it also gives us more opportunities to attract outstanding global talent to the Company and the semiconductor industry. We also expect to expand our business in the United States.”
Labor
Access to this talent is important due to what TSMC is producing, Chae said.
“The semiconductor industry is capital intensive rather than being labor-intensive so labor cost is not a key factor in … location decisions,” Chae said.
The industry instead relies on highly skilled labor, which the Arizona university system and neighboring states could provide.
Rather than dealing with this uncertainty, TSMC and its U.S. buyers, they may have decided to locate the facility where they don’t have to worry about tariffs.
The “technological complexity of both products and processes requires skilled engineers, technicians, and scientists to design new products and processes and troubleshoot existing ones,” Mönch wrote in his paper. “The need to maintain this highly skilled workforce even during industry downturns imposes substantial fixed costs.”
Geopolitics
“You’ve got the tension between Taiwan, China and [the U.S.] about Taiwan’s independence and Hong Kong,” according to Harry Moser, the founder of the Reshoring Initiative. “All this stuff’s in that pot getting mixed up … so there’s probably some geopolitics there.”
The Trump administration’s ongoing trade war is likely another consideration for TSMC, according to Chae.
“So rather than dealing with this uncertainty, TSMC and its U.S. buyers, they may have decided to locate the facility where they don’t have to worry about tariffs,” Chae said.
Two of TSMC’s largest subsidiaries are based in China: Nanjing and Shanghai, according to the company’s 2019 annual report.
TSMC is not the only technology company considering a move to the U.S. The Trump administration is talking with TSMC and Intel about moving operations to the U.S. to improve the security of electronics supply chains, according to The Wall Street Journal.
Seaborne import data from Panjiva shows shipments of semiconductor manufacturing equipment from suppliers shipped into the U.S. by Intel surged 25% year over year in the fourth quarter of 2019, but have fallen off nearly 46% year over year in the first four months of 2020. “That may reflect a mixture of capital investment disruptions due to COVID-19 as well as marking a pause in investment after” the fourth quarter uptick, according to a research note from Panjiva, the supply chain research unit of S&P Global Market Intelligence.
