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TSMC Is Spending $40 Billion in the U.S. It Won’t Stop the Chip War With China.

Taiwan Semiconductor Manufacturing is slated to spend an estimated $100 billion on capital expenditures from 2022 to 2024.

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Taiwan Semiconductor’s announcement that it will increase its investment in U.S. chip making factories by tens of billions of dollars is a positive step. But despite the fanfare from politicians and tech executives over the news, it won’t be a panacea for America’s semiconductor supply-chain.

On Tuesday,
TSMC
(ticker: TSM) said it would expand its U.S. chip-making investments in Arizona to more than $40 billion—up from its prior $12 billion commitment. The company’s first Arizona fab will be begin production of 4-nanometer (nm) process technology in 2024 and a second fab will manufacture products based on 3-nm process technology in 2026. Semiconductors made on smaller nanometer technology have historically meant faster and more power efficient chips.

President Joe Biden will visit the Arizona facility later on Tuesday to celebrate the larger investment. The White House said he would be joined at the event by other U.S. technology CEOs, including
Apple’s
Tim Cook (AAPL) and
Nvidia’s
(NVDA) Jensen Huang.

While the announcement is an incremental step toward more domestic chip making capacity, the benefits could be limited for the foreseeable future.

Taiwan has become a geopolitical flashpoint for the U.S. and China largely because of the increased concentration of advanced chip making production on the island. Taiwan accounts for more than 90% of the world’s most advanced chip manufacturing, with South Korea at 8%, according to a report last year from the Semiconductor Industry Association and the Boston Consulting Group. Most of the capacity comes from
TSMC,
which was established in 1987, and has pioneered the business model of making chips for external customers.

By the time the new Arizona TSMC plants come on line they will be one or two generations behind the most advanced processes being used in Taiwan. J.P. Morgan expects TSMC to start making 3-nm chips in the first quarter of next year—something that won’t be made in the U.S. until 2026. By that point, Taiwan Semiconductor’s home factories are likely to have moved on to a more advanced technology.

Taiwan Semiconductor did not immediately respond to a request for comment about its U.S. technology roadmap.

In practical terms, that means that by 2026 chips made for the latest
Apple
iPhone won’t be produced in the U.S. because they require the most advanced chip making technology. It’s more likely that legacy products such as prior generation iPhones or iPads will be supported by the Arizona fabs. Apple didn’t immediately respond to a request for comment on how it would use TSMC’s Arizona capacity.

Then there is the overall $40 billion investment number, which sounds impressive in the aggregate, but isn’t quite as large given that it will be spread over multiple years. TSMC didn’t specify the timeframe for the investment. It will be a fraction of TSMC’s overall capital spending budget during the same time period. TSMC is slated to spend over $100 billion in capital expenditures from 2022 to 2024, according to J.P. Morgan estimates,

Last month, Tufts history professor Chris Miller and author of the recently released book Chip War: The Fight for the World’s Most Critical Technology told Barron’s that U.S. policy makers were still underestimating the significant risks around Taiwan, should geopolitical conditions deteriorate.

While Tuesday’s event may relieve some political pressures by showing progress is being made, advanced chip making will still be dominated by Taiwan. Despite the headlines, the crux of this problem remains.

Write to Tae Kim at tae.kim@barrons.com

Credit: marketwatch.com

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