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TSMC’s US fab building is Way Harder Than Expected

“Some of the U.S. chip act criteria are too strict. There are some conditions that cannot be accepted,” said TSMC chairman Mark Liu at the TSIA event.

The U.S. Chip Act subsidy application is in progress, but various restrictions are spoiling TSMC’s plan. The U.S. chip act conditions include not investing nor expanding in “countries of concern” like China in the following ten years, and exposing various confidential corporate strategies.

Currently, TSMC’s fab building in the U.S. stands way harder than expected.

For the starter, the talent-recruiting is an issue.

Software companies account for the majority of the U.S. tech industry, including prominent players like Apple, Amazon, Facebook, Google, and Microsoft; therefore, there is no lack of software engineers in the job market. However, hardware engineers are relatively fewer in the U.S. where only Global Foundries and Intel hold those talents needed by TSMC.

That explains why high salaries wouldn’t be the solution for TSMC. As a result, the company sent an airplane, bringing over 300 Taiwan engineers to the U.S. in early 2023.

Generally, a 12-inch wafer fab requires a workforce of 2000-3000 people, of which engineers take up 80%. It’s estimated by a Taiwan industry expert that altogether around a thousand engineers would be dispatched to the U.S. from TSMC in Taiwan.

The news also stirred concerns in Taiwan that TSMC Taiwan might be left “unattended”.

The second issue is with plant construction in the U.S.

Now, TSMC’s U.S. fab construction has fallen behind schedule. One problem is the construction cost has exceeded the budget. The other problem is the lack of construction workers. Consequently, the construction proceeds slowly.

Thirdly, Taiwan employees in TSMC’s US factories are paid differently for the same work as their American counterparts, which has laid hidden risks for future operations and management.

In TSMC’s U.S. fab, American employees are paid more than their Taiwanese counterparts, and are evaluated based on different KPIs. In terms of promotion, the performance appraisal of Taiwan employees is also different from that of American employees, which is easier for American employees and stricter for Taiwan employees, only because it will be difficult to retain American employees otherwise. In terms of salary adjustment, Taiwanese employees receive an annual raise of 5% to 10%, while American employees reportedly receive 30%.

This unequal treatment of employees has received a lot of complaints from Taiwanese employees. Currently, the TSMC U.S. fab has not yet officially started operations, but this conflict will become more pronounced once the staff is in place. Additionally, the proportion of Taiwanese employees is much higher than that of American employees, and how will TSMC appease Taiwanese employees remains a significant challenge.

Fourthly, there are many criteria to meet to receive US subsidies, so the pressure of funding the factory construction falls almost entirely on TSMC.

The construction cost of an advanced wafer fab is at least $16 billion. The total amount of subsidies from the US Chip Act is $52 billion. It’s said that TSMC might get approximately $3 billion, which, however, is not enough to cover the cost of even one factory, making the subsidies quite small when compared to the majority of money TSMC has to deal with itself.

Moreover, there are still various criteria in the subsidy application, although it only accounts for 19% of the total factory construction cost. TSMC still needs further negotiations to secure that $3-billion subsidy.

Fifthly, TSMC’s entry into the US market has put pressure on staff from Arizona and Taiwan alike.

On one hand, the relaxed work and life rythym enjoyed by staff from Arizona before is now gone. On the other hand, after Taiwanese employees move to the US, they would spend more money due to the higher living expenses in the U.S.; however, the subsidies they receive from TSMC is not enough to maintain the local living standards, leading to complaints from Taiwanese employees.

Above are the issues TSMC’s US factory has faced since its inception. Besides the construction, there are some other challenges facing TSMC.

TSMC’s Morris Chang has repeatedly stated publicly that the cost of production in the United States would be 50% higher than that in Taiwan. After TSMC’s US factory starts operating, who will purchase orders costing 50% higher than usual will be a problem. Apple, as TSMC’s largest customer, has always been very strict in cost management and is unlikely to become the first batch of customers of TSMC’s US factories. Without the support of major customers, how can TSMC’s US factories keep investing for continuous production?

TSMC’s U.S. factory currently holds a 5-nanometer process production line. Since the U.S. government’s goal is to develop and strengthen its advanced semiconductor manufacturing capabilities, they would hope TSMC to place 3 nm and even more latest process production lines in the US in the future. Then, another issue might arise, as Taiwan would be reluctant to relocate its most advanced processes out of Taiwan.

United States seems to have attached so much importance to TSMC. It may be for the benefit of the United States or the competition with Mainland China, but it is surely not for the sake of Taiwan or TSMC itself.

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