TSMC boosts Biden’s AI chip ambitions with US production deal

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The world’s biggest chipmaker, Taiwan Semiconductor Manufacturing Co, has agreed to make its most advanced products in Arizona from 2028, in a boost to the Biden administration’s efforts to bring the semiconductor supply chain on to home soil.

TSMC will make the latest cutting-edge 2-nanometre chips in a second fabrication plant, or fab, it is building in Phoenix, marking an upgrade from its previous plans.

It will also increase its investment in the US from $40bn to $65bn to build a third fab, with 2nm or even more advanced technology, that will be operational by 2030.

The Taiwanese company and the US commerce department said on Monday that Washington would provide it with $6.6bn in grants and up to $5bn in loans.

The subsidies fall under the Chips Act, which was passed in 2022 to boost the US industry. Last month the Biden administration unveiled a deal for $8.5bn in grants and up to $11bn in loans for Silicon Valley’s Intel, which has pledged $100bn in new investment.

TSMC’s commitment helps the White House move towards its goal of bringing 20 per cent of the world’s advanced semiconductor manufacturing onshore by 2030. Ninety per cent of cutting-edge chips are currently made in Taiwan, with the US initiative partly driven by fears of a Chinese invasion of the island.

“TSMC is expanding its manufacturing capabilities in Arizona such that for the first time ever we will be making, at scale, the most advanced semiconductor chips on the planet here in the United States of America,” said US commerce secretary Gina Raimondo. “[We are] massively strengthening our national security position.”

The deal means that some of the most advanced chips used in AI could be made in the US by the end of the decade, instead of chipmakers such as Nvidia and AMD having to rely on Asian production.

“Our US operations allow us to better support our US customers, which include several of the world’s leading technology companies,” said Mark Liu, chair of the leading contract chipmaker.

TSMC previously planned to run its US fabs on manufacturing technology that was a generation older than the most advanced used in mass production in Taiwan. Its first Arizona plant is due to start 4nm production next year, and its second one would have offered 3nm two or three years later.

But most AI chips will run on 3nm from next year or 2026. “So these chips will have to be built in Taiwan,” said Randy Abrams, head of Taiwan research at UBS.

By the time TSMC’s second Arizona fab opens, Nvidia and other AI chip vendors are likely to have migrated to 2nm, said an engineer familiar with the process. Therefore, TSMC’s original plan to have that plant run on 3nm “didn’t make sense”, a company executive said.

“The chips that TSMC makes . . . underpin all AI. Tens of thousands of leading-edge chips are required to train a single frontier AI model,” Raimondo said. “And now, because of this announcement, these chips will be made in the United States of America.”

Giving clients the right to choose which plant at least some of their made-to-order chips are made at would depart from TSMC’s established practice. It would reduce the flexibility in allocating capacity which has helped it generate gross profit margins of more than 50 per cent.

Industry executives and analysts said US tech companies would still source some of their production abroad. “Having 2nm in the second fab doesn’t mean Nvidia will not be buying chips made in Taiwan any more,” said a person familiar with TSMC’s plans, “it just means that they will have an option to issue a special requirement that a certain amount of their chips come from that [Arizona] fab.”

TSMC’s leading-edge fab investment at home continues to far outpace that in the US. It will start 2nm mass production next year and plans to build “multiple” more fabs operating on that technology in three locations in Taiwan, Liu told investors in January.

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