TSMC's CHIPS Act Money

At the end of my video on TSMC’s experiences in Japan, I wrote:

As for TSMC Arizona, that fab will eventually make chips. Local news just reported that they added their last steel beam in February 2024. But as Mark Liu said, the future depends on the size of the subsidy.

If TSMC wants 40% support like with Japan on a $40 billion project, that's $16 billion in subsidies. Will the administration want the PR optics of giving $16 billion of taxpayer money to a foreign company in an election year?

Maybe. Maybe not. I should add that that $16 billion doesn't have to come in the form of cash subsidy. The investment tax credits will do some heavy lifting too.

I should not have been so skeptical. Uncle Sam came through with the chips and salsa, baby 🎉! From Bloomberg:

The US plans to award Taiwan Semiconductor Manufacturing Co. $6.6 billion in grants and as much as $5 billion in loans to help the world’s top chipmaker build factories in Arizona, expanding President Joe Biden’s effort to boost domestic production of critical technology.

Under the preliminary agreement announced by the US on Monday, TSMC will construct a third factory in Phoenix, adding to two facilities in the state that are expected to begin production in 2025 and 2028. In total, the package will support more than $65 billion in investments at the three plants by TSMC, the go-to chipmaker for companies such as Apple Inc. and Nvidia Corp.

TSMC’s third fabrication site, or fab, will rely on next-generation 2-nanometer process technology, and is slated to be operational before the end of the decade.

I am frankly tired of doing videos about TSMC for now. So this newsletter is all that we are going to get. Here are some raw thoughts about the TSMC CHIPS deal, based on what I have seen. Add disclaimers - things are subject to change. Memorandum of Intent etc.

$11.5 billion is a lot of money. And then if we add the investment tax credit, which I think is underrated. It credits you 25% of capital investments in semiconductor equipment and facilities. So TSMC upped their total investment to $65 billion. Assuming that is all capital, that can be up to $16 billion in tax credits - which are deducted directly from tax liabilities. TSMC did about $30 billion USD of pre-tax profit in 2023. Tax credits will be nice.

So all in all, my crappy napkin estimate is that TSMC gets something like $28 billion in US government support. That well clears the 40% requirement that I had mentioned in the Japan video. I cannot imagine another non-American domiciled company ever getting this much government support before. Can you?

(Though Samsung is probably going to get something comparably monstrous. Samsung is upping their Texas investment to $44 billion. So my guess they eventually get a total package worth 40% of that as well all-in with credits, loans, and taxes.)

Nikkei Asia also posed this issue to a US government official and they said:

TSMC is the most advanced leading semiconductor company in the entire world. What taxpayers' dollars are achieving here is of the utmost importance for our country and for our economic and national security

Arizona Ahead of Schedule?

TSMC is taking the Arizona plant very seriously. As soon as I heard that they sent their VP of Operations Wang Ying-lang (王英郎) over to Arizona like the freakin’ Wolf, I knew that things were going to get DONE.

I briefly mentioned him at the end of another video.

Wang is TSMC’s youngest ever deputy general manager, and a crazy guy who got his PhD during the day while also working the TSMC night shift. Nobody at TSMC knew.

Dude and his team has been chugging. UDN, who I generally find pretty reliable, published a report saying that TSMC is pushing as hard as it can to get some chips out by end of 2024.

Now, you might want to say - “Oh TSMC was sandbagging until the CHIPS money comes out”. To that, I would say: Eh, progress has been going all the while. They just raised the last steel beam in Feb 2024.

Considering 6.5 months for fabrication and 1 month for testing, the wafers have to go into the oven like right now if they want to be out by end of 2024. Right now they are rushing to connect the power and get that first production line up and running by that deadline. Two-ish months from last steel beam to a N4 wafer entering the production line does not sound like sandbagging to me.

(Reader Paul pointed out that the LinkedIn post points out that this beam raising is for an auxiliary building for the second fab. I stand corrected. The first Fab is already done so it is not really a mad dash anymore.)

If Wang pulls this off, the man is a legend and deserves to be a future CEO.

N2 Fab

The Third phase of the Arizona will be an N2 fab, and TSMC says that this will be operational before the end of the decade - 2030.

(I will be in my forties by then. NO!!!!! REVERT)

The N2 part gets the headline. But I should again point out that TSMC will be on to their A14 (and I guess A10?) nodes by then. Guess that one comes out in Taiwan some time in 2028?

All in all, this is a great thing. We get more silicon to build towards AGI - especially since indications seem to point to this N2 node being particularly well suited for AI calculations. What with the GAAFET and all. And TSMC seems to be building it literally everywhere they can - Hsinchu, Kaohsiung, Taichung. Maybe even Japan.

CHIPS Act

I asked before, What was the CHIPS Act Office doing? What was taking so long? Someone finally got back to me and the answer to me seems pretty reasonable.

As it turns out, they were working hard to disburse the limited amount of money and it takes a long time to do that. They were modeling out the cost structures of the fabs, basically to sanity-check whether the proposals coming to them were being reasonable or not. And they were working hard from a point of zero, setting up a new office and staffing it. That takes time, unavoidably. That’s fair.

I wonder if these announcements - and their sheer size - put the ball back in Japan’s court. They are undoubtedly negotiating for a Phase 3 Fab of their own over there, and I wonder if the CHIPS Act affects whatever aid package TSMC will get.

Taiwan

I think there might be some consternation back home in Taiwan. Oh, is the US stealing TSMC again? They all need to get over this. TSMC is now building fabs in Japan, the US, and Germany - and the governments are writing massive checks to make it happen for them. It is an amazing opportunity for Taiwan!

I hope it allows those countries to see the best side of Taiwan. I hope it lets them appreciate what Taiwan can do. And at the same time, I hope this lets TSMC and their Taiwanese suppliers see some of the best of what those other countries can offer - with open pathways for both sides to learn.

Let’s make some chips!!