In Phoenix, a Taiwanese Chip Giant Builds a Hedge Against China

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Former President Donald J. Trump and now Biden administration officials have pushed for measures to encourage both foreign and domestic chip makers to build more factories in the United States. Democrats and Republicans, influenced by a recent chip shortage, agreed in July to a $52 billion package of subsidies in the CHIPS and Science Act for the greater expense of building such plants.

Chip makers have responded with announcements of major factory projects, including by Intel in Ohio, Micron Technology in New York and Samsung Electronics in Texas. But the most coveted producer these days is TSMC, whose founder, Morris Chang, in 1987 pioneered the concept of manufacturing chips for other companies that design them.

TSMC is by far the world’s biggest “foundry,” as the industry calls such services, and has lately boasted the most advanced manufacturing technology. Besides Apple, its big customers include Amazon, Qualcomm, Nvidia and Advanced Micro Devices.

Those companies haven’t publicly expressed worries about the concentration of chip manufacturing in Taiwan, which faces risks associated with earthquakes and droughts in addition to China’s claims. But the presence of senior executives from several of the companies at Tuesday’s event suggests strong support for having more key components for their products manufactured close to home.

The expansion plan in Phoenix shows customer pressure is having greater sway over TSMC, which had long argued that concentrating production in giant “gigafabs” in Taiwan was most efficient, analysts and industry executives said.

TSMC relaxed that stance somewhat in 2020 by agreeing to open the factory in Phoenix. But the company set a limit on the factory’s level of production technology, which is rated by measuring how small a company can make key parts of individual transistors on a chip. The smaller those dimensions — measured in nanometers, or billionths of a meter — the more transistors can be packed on a piece of silicon.

The company originally set the technology level at the Phoenix site at five nanometers. That was an advance over most chips in 2020, but behind the level that TSMC would produce in Taiwan in 2024, when the U.S. factory was set to open. The new plan would upgrade the factory to also use four-nanometer technology, which Apple was first to adopt. The second factory, expected to begin operating in 2026, will be able to produce three-nanometer chips, TSMC said.