Taiwan Semiconductor Manufacturing Company’s (TSMC) plans to build a US$12 billion semiconductor factory in the US is a major win for government efforts to increase domestic production of critical goods, with the aim of reducing its reliance on imports from China.

US Secretary of Commerce Wilbur Ross praised the planned investment, which he noted is “yet another indication that President Trump’s policy agenda has led to a renaissance in American manufacturing and made the US the most attractive place in the world to invest”.

The Taiwan-based chipmaker’s announcement came shortly after the US Department of Commerce (DoC) tightened export controls to close a loophole in previous sanctions on Huawei’s access to key components, which directly impacts TSMC’s business since about 13 per cent of its revenue comes from the equipment maker, analysts estimate.

US officials reportedly held discussions with several semiconductor companies including Samsung and Intel about expanding manufacturing capabilities to strengthen their domestic supply chain, as the US-China trade war shows no signs of abating.

The government’s push to curb China’s tech rise was prompted in part by the Semiconductor Industry Association (SIA) issuing a set of policy recommendations for “sustaining and strengthening global leadership” in semiconductor technology and ensuring the US “wins the race to harness the transformative, semiconductor-enabled technologies of the future”.

Influence

The goal was made clear in a statement by Micron Technology CEO Sanjay Mehrotra when SIA made the announcement in April: “The country that leads in semiconductor innovation will also lead the next wave of technology advances, influencing every aspect of the economy and life.”

Following up on SIA’s efforts, the US Congress recently proposed supporting the domestic semiconductor industry with US$22.8 billion in subsidies, mainly in the form of tax breaks for manufacturers.

Despite the hard push from the government to nurture domestic chip production, Boston Consulting Group forecasts the DoC export controls could lead to significant drops in revenue and market share for US semiconductor companies over the next three-to-five years, threatening its current global position. It believes these declines could lead to sharp cuts in R&D and capex, along with the loss of up to 40,000 jobs in the sector.

The group sees South Korea as the most likely market to fill the pending void.

Strategy Analytics estimates Huawei is one of the largest buyers of chips in the world with annual purchases of US$20 billion, meaning a slowdown in its business will directly impact many US companies.

The research company predicts US semiconductor companies could lose up to US$7 billion in business from Huawei, which would represent about a 5 per cent decline in global semiconductor sales.

Uncertainty

Head of Omdia’s Intelligent Networks team, Daryl Schoolar told Mobile World Live other overseas chipmakers likely won’t rush to invest in the US given the Covid-19 (coronavirus) pandemic and a very uncertain political situation, noting even if Donald Trump is re-elected in November, he could quickly and for no reason change his China policy, making any investments useless.

Associate director of handset component technologies at Strategy Analytics, Sravan Kundojjala agrees. largest contract chipmaker, and China-based Semiconductor Manufacturing International (SMIC) are unlikely to build facilities in the country.

With TSMC caught in the China-US geopolitical battle, Kundojjala said without a doubt its US investment could make a difference in its future relationship with Huawei. While officials have indicated the chipmaker won’t be given a licence to export chips to Huawei, he believes its investment commitment could appease US authorties and help TSMC secure a permit from the DoC.

Following Foxconn

While TSMC’s $12 billion headline investment figure is sizeable, the amount will be invested over a nine-year period, with production starting in 2024 and representing only about 4 per cent of its total output.Some analysts believe the limited facilities will lead to lower margins.

The announcement to much fanfare from the White House is all too similar to Foxconn pledging in 2017 to invest $10 billion in a plant in Wisconsin, with the creation of 13,000 jobs. But following the initial bluster and groundbreaking ceremony, work on the facilities abruptly slowed after the company said it was “reconsidering” its plans when prices of large LCD screens plunged. While Foxconn chairman Terry Gou insisted in January a factory will be up and running in 2020, the project won’t include its promised latest generation LCD production facilities and will create only a fraction of the targeted jobs.

Even if there is new US leadership in 2021, Kundojjala reckons TSMC could still opt to invest in the country to stay close to its North American clients, given the company generates a large percentage of its revenue from there.

Given the rising risk of a decoupling driven by US sanctions, TSMC’s latest move carries the risk of a China backlash. However, he said it is unclear what actions the Chinese government would take as the chipmaker continues to be a vital source for non-Huawei companies in the mainland as well.

With the US presidential election four months away and relations between the two superpowers seeming to hit new lows each week, there is plenty of time and occasion for TSMC to rethink its ambitious US plans. Meanwhile, few are likely to follow its lead to support the government’s dream of making the US a chip manufacturing powerhouse.

The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.