Stanley Chao

The View | As TSMC’s Arizona chip foundry setbacks show, geopolitics is a terrible way to run a business

Amid delays, higher costs and worker complaints, one wonders if TSMC’s plans in Arizona are anything other than an effort to stay in the US’ good graces

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US President Joe Biden shakes hands with TSMC chairman Mark Liu at a “first tool in” ceremony at the TSMC facility under construction in Phoenix, Arizona, on December 6. Photo: Bloomberg

Stanley Chao

Published: 8:30pm, 8 Nov 2023

Once again, the Biden administration has ratcheted up chip sanctions against China. The measures, announced last month, limit sales of additional semiconductor equipment, software and certain types of chips, all in an effort to throttle China’s advancement in artificial intelligence and military technology.

As the political weaponisation of the chip industry escalates, companies are often forced into decisions based on factors other than business fundamentals. The plan by Taiwan Semiconductor Manufacturing Company (TSMC) to build an advanced chip foundry in Arizona shows how disastrous geopolitical public relations stunts can be for the bottom line.

First announced in 2020, the US$12 billion investment by the world’s top chip producer reflected America’s desire to cut out mainland China by wooing Taiwan. It was less clear what TSMC stood to gain in Arizona. Three years in, the more pressing question is how much it stands to lose.

As TSMC is learning, the Sonoran Desert has a very different business climate from Hsinchu. TSMC chief financial officer Wendell Huang has said construction costs in Arizona could be four or five times higher than in Taiwan. Cost overruns have combined with a lack of skilled personnel, logistical inefficiencies and a cumbersome regulatory bureaucracy to delay production by at least a year.

TSMC’s next problem is production costs. Morris Chang, TSMC’s founder and former CEO, admitted the cost of making chips in Arizona would be at least 50 per cent higher than in a Taiwanese foundry.

TSMC might have heeded the warning of John Tu, president of the world’s largest computer memory module maker, Kingston Technology, which has manufacturing sites in both Taiwan and the US. “Producing chips in the US can be two to three times more expensive when compared to Asia,” Tu told me. “I can think of a dozen other places to make chips before settling on Arizona.”