09/11 2024 562
Chips are the fuel of the 21st century.
Author | Huashang Taolue Dongmu Chu
Recently, the huge subsidies provided by the United States, Europe, Japan, and China to TSMC have attracted attention, and factories in these four regions have also been making headlines.
An explosion occurred at the under-construction Phoenix plant in Arizona, USA, resulting in at least one serious injury; the long-planned Dresden plant in Germany has broken ground; Kumamoto Prefecture in Japan is actively seeking to build a third plant; and TSMC's Nanjing plant has received "Verified End-User" authorization from the U.S. Department of Commerce.
In this competition for TSMC and cutting-edge chip manufacturing processes, the four factories are each pulling out all the stops. Which subsidy will ultimately bring the most desired results?
[EU Breaks Ground, Germany Spends Money]
On August 20, TSMC officially broke ground on its first European factory in Dresden, the capital of Germany's Saxony state.
At the groundbreaking ceremony, shovel-wielding guests included European Commission President Ursula von der Leyen, German Chancellor Olaf Scholz, TSMC Chairman and CEO C.C. Wei, and Saxony State Premier Michael Kretschmer.
According to publicly available investment plans, TSMC's Dresden plant will produce automotive semiconductors and other products, with mass production expected to begin in 2027.
The total investment in the plant exceeds 10 billion euros, with TSMC contributing 70% and the remaining 30% shared by German automotive components giant Bosch, automotive semiconductor giant Infineon, and Dutch semiconductor manufacturer NXP Semiconductors.
This plant embodies Europe's chip ambitions. According to the European Chips Act passed last year, the EU plans to invest 43 billion euros in the semiconductor industry by 2030, increasing Europe's global market share of chip manufacturing from the current 10% to 20%.
In his speech, Scholz emphasized the importance of semiconductors to Germany: "Semiconductors are the fuel of the 21st century economy and the future core of Germany, an industrialized country. Expanding semiconductor production capacity in Europe and Germany is of great significance, and semiconductor supply cannot rely on other regions."
Von der Leyen emphasized the importance of "supply security" to Europe: "TSMC's arrival will enable the entire European industry to benefit from more reliable supply chains and tailored new products, especially in these geopolitically tense times."
Von der Leyen did not come empty-handed. She also brought a "gift" – the EU has approved a 5 billion euro subsidy for TSMC's Dresden plant, the largest subsidy under the European Chips Act and Germany's first subsidy program.
Upon receiving the generous gift, TSMC Chairman C.C. Wei naturally expressed his gratitude, saying that the company has received strong support from all levels of the EU, Germany, Saxony, and Dresden. "Very happy, very perfect," he said.
Despite the "perfection," Germany's massive subsidies have also faced opposition.
Schmidt, director of the Leibniz Institute for Economic Research, questioned whether it would be better to use the funds for research and development of storage technology or infrastructure for hydrogen energy imports and exports rather than just spending money blindly.
The Rheinische Post considered the 5 billion euro subsidy unprofitable: "According to the company, it can create 2,000 local jobs, each costing 2.5 million euros. If the government is so generous, the electricity costs for Germany's chemical industry are too high and also need subsidies."
With so many eyes on it, TSMC's Dresden plant cannot afford any mistakes. The key to successful mass production lies in talent.
In August, the first batch of German university students who underwent training in Taiwan returned home. After interning at the plant, they gained a new understanding of TSMC. One Dresden student was particularly impressed by TSMC's "nap culture," as he had never taken a nap in Germany before:
"After lunch, everyone lies down on the table to sleep. Later, I found out it's to have more energy for overtime work. Now I'm starting to practice taking naps too."
According to TSMC's plan, 100 German university students will undergo training in Taiwan each year in the future. They will first attend classes at a local university for a semester and then intern at TSMC's plant for two months to prepare management talent for the German plant.
For those aspiring to join TSMC, the first batch of trainees advised: "Learn some Chinese. While no one expects you to speak fluently, being able to speak basic Chinese will take you further."
[US Factory Politics]
In April this year, the U.S. Department of Commerce announced that it would provide up to $6.6 billion in subsidies to TSMC for the plant complex being built in Phoenix, Arizona.
Commerce Secretary Gina Raimondo reiterated, "Ensuring that the United States can produce the world's most advanced chips is a national security issue, especially in the context of rapid AI development."
The $6.6 billion subsidy comes from the CHIPS and Science Act passed by the U.S. Congress in 2022, which aims to bring chip manufacturing back to the United States. The goal is for the United States to account for 20% of global production of advanced chips by 2030, comparable to Europe's target.
According to U.S. media reports, the $6.6 billion will be disbursed in phases, with specific implementation depending on project milestones.
It appears that TSMC still has a long way to go before receiving the full $6.6 billion. They have already spent nearly four years in the Arizona desert without starting chip production.
In December 2020, under pressure from the White House and the U.S. Department of Commerce, TSMC announced an investment of $40 billion to build a plant in Arizona to produce chips for iPhones and fighter jets.
The first plant will produce 4-nanometer chips, with mass production originally planned for 2024 but now delayed to the first half of 2025. The second plant will produce 2-nanometer chips using the next-generation chip architecture, with production expected in 2028. The third plant targets 2-nanometer or more advanced chips, with a mass production estimate in TSMC's press release of:"late 2020s."
TSMC's U.S. plant is located in the northern suburbs of Phoenix, Arizona, surrounded by desert hills. The plant area covers an area equivalent to more than 620 football fields.
In the vast desert, 2,200 employees work at this massive plant. Cultural conflicts between Taiwanese managers and American workers have left both sides unhappy.
In 2021, TSMC's U.S. plant broke ground, and 600 American employees flew to Tainan for training. It was the first time many of them had seen a semiconductor production line. Their parents had never even stepped foot in an advanced manufacturing plant. Therefore, when they saw wafers being precisely transported on overhead tracks, everyone's eyes widened:
"It's like we're visiting some kind of greater-than-human creature."
Challenges soon arose. American engineers found that most people at the plant only spoke Taiwanese and Mandarin, and they couldn't participate in Mandarin-language high-level meetings. They had to use Google Translate to communicate with Taiwanese engineers and struggled to read Chinese documents.
During training, managers conducted stress tests, where tasks had to be completed within the day or week to ensure that Americans could also adapt to overtime work and sacrifice personal time for deadlines. For American workers who couldn't complete tasks, managers suggested:
"You'd better find another job."
According to American employees, dozens of them quit midway through the training.
In 2022, American employees who had completed training returned to Arizona to prepare for mass production alongside hundreds of Taiwanese employees.
Intense work interactions have led to many conflicts. Taiwanese engineers complained that American colleagues were arrogant and liked to challenge orders, making them difficult to direct. Americans were also frustrated: "They always pretend to work overtime, arrange unnecessary tasks, and embellish data for customers."
Recruitment continues, with 6,000 positions needed for the first and second plants in the future. Departing American employees give TSMC low ratings on job apps and discourage their engineer friends from suffering in Arizona.
Three years after construction began, TSMC's first U.S. plant is still incomplete, delaying the second plant's original operation date of 2026 to 2028.
Experts point out that TSMC's first and second U.S. plants are expected to produce 600,000 chips annually, a fraction of the current 16 million. Moreover, the chips still need to be shipped back to Taiwan for testing and packaging because the packaging company's Arizona plant has not yet been built.
With progress falling short of expectations, the Taiwanese side called for "continuous support from the United States for TSMC. It took us 30 years to build the chip ecosystem, and everything needs to start from scratch in the United States."
In February this year, TSMC's Japanese plant opened first. At a weekend gathering in Phoenix, a Taiwanese engineer expressed disappointment: "The Japanese plant started mass production first. I'm so frustrated."
[China and Japan Compete for Capacity]
While U.S. subsidies have yet to arrive, subsidies from mainland China and Japan have.
According to TSMC's recent financial report, it received a total of NT$7.956 billion (approximately RMB 1.75 billion) in subsidies from mainland China and Japan in the first half of 2024. Subsidies from China and Japan in 2022 and 2023 were NT$7.051 billion (approximately RMB 1.551 billion) and NT$47.545 billion (approximately RMB 10.46 billion), respectively.
According to Japanese media reports, the Japanese government will provide up to 1.2 trillion yen in subsidies for the first and second Kumamoto plants in phases.
On August 26, Kumamoto Governor Keiji Kimura visited TSMC's Hsinchu headquarters and personally requested the construction of a third plant from TSMC executives.
TSMC CEO C.C. Wei believes that after the first and second Kumamoto plants are operational and if local residents support it, they will consider building a third plant.
Three months ago, newly appointed Governor Kimura publicly stated, "We fully support TSMC and hope to make Kumamoto Prefecture a hub for the semiconductor industry."
During the construction of TSMC's first Kumamoto plant, issues such as road congestion caused by material deliveries arose. Governor Kimura said, "The prefectural government will go all out to ensure smooth construction."
TSMC's first Kumamoto plant produces 22/28-nanometer and 12/16-nanometer chips for logic operations in automobiles and electronic devices. It mainly supplies chips to Japanese automakers and Sony's image sensors, with a monthly production capacity of 55,000 wafers, expected to ship before the end of the year.
The second Kumamoto plant plans to produce 6/7-nanometer cutting-edge chips, with construction expected to start in the fourth quarter of this year and operations in 2027, targeting a monthly production capacity of 60,000 wafers.
Meanwhile, over 1,000 kilometers away in Hokkaido, Japan, Rapidus, a semiconductor manufacturing company established by eight major Japanese companies including Sony and Toyota, is racing against time to build a factory with a goal of mass-producing the most advanced chips by 2027.
Japan will invest 5 trillion yen in Rapidus to revive its semiconductor industry.
Let's look at TSMC's Nanjing plant, designated as Fab 16 on the official website.
Fab 16 is located in Pukou, Nanjing, with a total investment of US$3 billion. At the groundbreaking ceremony in July 2016, Morris Chang attended and spoke: "Jiangsu's integrated circuit industry is developing rapidly, and the Nanjing plant will be the first 12-inch wafer fab in mainland China capable of local mass production of 16-nanometer processes."
In October 2018, TSMC held a mass production ceremony at its Nanjing plant, with a TSMC executive commenting, "The Nanjing plant has broken many TSMC records, not only for being the fastest to build and go online but also for being the most beautiful fab."
From groundbreaking to production, the Nanjing plant took less than two years, a record that even TSMC's Kumamoto plant, known as the "Asian Speed," could not break.
Another record set by the Nanjing plant is the fastest profitability, achieving a single-quarter turnaround from loss to profit in less than a year of mass production.
Initially, the Nanjing plant focused on 12/16-nanometer processes with a monthly production capacity of 20,000 wafers. In 2021, the global chip shortage caused by the pandemic prompted TSMC to expand the Nanjing plant, adding a 28-nanometer mature process line to increase monthly production capacity to 40,000 wafers.
In May 2024, TSMC announced that the U.S. Department of Commerce had granted its Nanjing plant "Verified End-User" (VEU) status, giving the plant "indefinite exemption."
U.S. suppliers can supply semiconductor equipment to chip manufacturers on the VEU list without any licenses.
TSMC also noted that the U.S. VEU authorization did not grant new privileges. The Nanjing plant can maintain its current status but cannot obtain equipment for cutting-edge chip processes."
Some argue that TSMC's expansion of its Nanjing plant and the U.S. "license" are "poisonous thorns" in China's chip industry, intended to curb the development momentum of mainland producers such as SMIC in mature processes and should not be subsidized.
To some extent, this makes sense.
Leading chip manufacturers in mainland China, such as SMIC, need sustained profitability to advance to more advanced processes. The existence of TSMC's mature processes will naturally compete with them and even pose a dimensional blow.
On the other hand, years of practice have taught us that money alone cannot truly produce chips. Just as Tesla's existence has driven the development of the entire new energy vehicle industry, having a "catfish" in the market to stimulate local enterprises to excel is often more effective than so-called policy protection.
In fact, SMIC and other manufacturers have achieved higher revenues in the first quarter of this year compared to the same period in previous years, indicating that TSMC's expansion of its Nanjing plant has not hindered domestic producers. In comparison:
Trying to reduce competition and nurturing flowers in a greenhouse is detrimental.
From Europe's "Silicon Valley" of Dresden to the birthplace of U.S. semiconductors in Phoenix, to the plants in Kumamoto and Nanjing, these cases highlight two distinct strategies in the chip industry between Europe, the United States, China, and Japan:
Europe and the United States prioritize supply chain security and control over the production capacity of cutting-edge chips; while China and Japan aim for independent R&D to catch up or even surpass technologically.
Who will achieve their desired outcomes depends not only on playing their TSMC cards well but more importantly, on who can excel in global technology resource integration and local market development: Even TSMC and the United States cannot sustainably succeed in the chip industry alone.
[References]
[1] "TSMC Holds Groundbreaking Ceremony for Its First European Plant" - NHK
[2] "TSMC Receives $6.6 Billion in U.S. Government Subsidies to Build a Third Plant in Arizona" - United Daily News
[3] "TSMC: Nanjing Plant Granted 'Verified End-User' Authorization by U.S. Department of Commerce" - China Business Network
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