According to two sources inside the industry, Taiwan’s TSMC (2330. TW), which is making an unprecedented push into chip manufacture abroad, is adopting a more hopeful view of Japan as a production base. This comes as issues arise at the company’s newly constructed facility in Arizona.
According to the sources, TSMC, the biggest contract chipmaker in the world, is upset in Arizona, where it has failed to attract employees for the arduous chipmaking profession and encountered criticism from unions on attempts to bring in workers from Taiwan. TSMC’s efforts to bring in workers from Taiwan have been met with resistance.
The corporation is becoming more confident in Japan, where a $8.6 billion fab is now being constructed in a chipmaking hotspot on the island of Kyushu. According to the sources, the fab is scheduled to begin manufacturing chips with mature technology in 2024.
According to the sources, the chipmaker wants to ensure a smooth ramp-up at the first fab. Still, they are also investigating boosting capacity and a second fab in Japan, which may entail the fabrication of more sophisticated chips.
Many chip industry insiders discussed TSMC’s perspective on Japan and its worldwide growth with Reuters on the condition that they remain anonymous due to the delicate nature of the subject matter.
Suppose TSMC’s expansion in Japan is successful. In that case, it might boost Japan’s aspirations to reclaim its lost reputation as a chip manufacturing powerhouse and strengthen its automotive and electronics sectors in the face of increased competition.
TSMC issued a statement saying that its foreign development is contingent on several circumstances, including the requirements of customers, the degree of assistance provided by the government, and financial considerations.
In Arizona, TSMC intends to manufacture cutting-edge chips. Still, because of a lack of available staff with the necessary expertise, the firm has been forced to put back production at its first fab by one year, to 2025.
“Every endeavor… will include at least a little learning curve. When asked about the Arizona project one week ago, TSMC Chairman Mark Liu noted that there has been an incredible amount of progress made in the last five months.
According to TSMC, the Fabs in the United States, Japan, and Germany, all of which are locations where the company is growing operations, are “inherently incomparable” due to location, setup, and scale variances.
ONE WITH NATURE
In an attempt to diversify the supply of chips, which are crucial to the defense, automotive, and electronics sectors, the United States of America, Japan, and Germany have provided billions of dollars in subsidies to TSMC in the hopes that it would localize manufacturing in their respective countries.
TSMC can sell its capacity outside of Taiwan because of its $40 billion investment in Arizona. In Taiwan, the company confronts land, electricity, water, and labor limitations.
According to the sources, the corporation considers Japan to have a work culture that is a more natural match, and the Japanese government is straightforward to negotiate with and generous with subsidies.
An analyst at Isaiah Research by the name of Lucy Chen said that the partnership between TSMC and Japan’s government is mutually beneficial.
She said that some of Japan’s benefits for the chipmaker include its network of chip equipment and materials suppliers, the similarities in work culture between the two countries, and its closeness to Taiwan.
According to the sources, TSMC believes that employees in Japan, which is renowned for long hours and strong devotion to companies, are more prepared to work a grueling schedule with overtime. At the same time, chipmaking machines operate around the clock in antiseptic clean rooms. Japan is known for its long hours and strong loyalty to businesses.
According to a senior executive in the semiconductor business, “TSMC cannot turn off a large number of machines because it incurs costs to recalibrate on rebooting.”
It takes less than two hours to fly to Kyushu, home to TSMC’s partnership with many firms, one of which is Sony (6758.T), a market-leading manufacturer of image sensors.
According to the sources, the chipmaker will pay higher salaries to recruit local personnel as it competes with competitors such as the foundry venture Rapidus. Taiwanese workers who arrive to help set up the fab are welcome to do so, and the chipmaker will welcome their assistance.
“It seems to us that TSMC is really positive about investment in Japan,” said a senior official at the influential Ministry of Economy, Trade and Industry (METI), which has granted subsidies for the first fab totaling up to $3.23 billion worth of yen, which is equivalent to 476 billion yen.
“We will really welcome the second fab project in general, but we have to see the detail first,” the official said.
According to the sources, TSMC has also moved suppliers to Japan from Taiwan to achieve its stringent criteria. This is even though many equipment and materials manufacturers already have worldwide operations.
INCREASING DEBT FOR INVESTMENTS
According to the sources, TSMC’s excitement towards Japan is being dampened by concerns regarding increasing expenses throughout the industry and fears regarding the macro climate.
The corporation anticipates a slightly lower outflow of funds this year even though its capital expenditures skyrocketed to $36 billion in 2018 from $10 billion the previous year.
According to an investor informed by company management, TSMC originally estimated that the expenses of building a fab in the United States would be 20% more than in Taiwan. Still, they are roughly 50% higher.
According to the sources, the chipmaker intends to develop a $11 billion fab in Germany in partnership with local companies. However, the chipmaker is afraid that the work culture in Germany, which has extensive vacations and powerful unions, may affect production.
Investors are concerned about increased prices’ impact, but “the impact on TSMC today has not been that big because its leading technology gives it pricing power,” said Brady Wang, an analyst at the research company Counterpoint.