A site near Dresden in northeastern Germany is the main contender as TSMC negotiates with customers, automakers and governments over incentives and costs. A possible venture with NXP Semiconductors NV, Robert Bosch GmbH and Infineon Technologies AG includes state subsidies and would have a budget of at least 7 billion euros ($7.7 billion), although it is expected to be closer to 11 billion euros, Bloomberg News reported last week. The Hsinchu-based company said it is still evaluating the possibility of building on the mainland.
If the deal goes ahead, TSMC could commit more than $50 billion in new factories outside Taiwan, which currently houses more than 95% of its capacity. This risk requires it to find the right business model in each location, one that adapts to local needs without losing sight of its vision to remain the world leader in chip manufacturing and technology. That Europe is so different from the US is what may end up rationalizing this latest move.
The two regions have some things in common when it comes to semiconductor strategy. Both want to rekindle their perceived loss of chip prowess. And governments on both sides of the Atlantic are willing to spend tens of billions of dollars (and euros) to lure the biggest and most powerful players to their shores. In all cases, local authorities are taking a leading role in distributing incentives such as tax breaks and cheap land.
A key purpose of the Arizona project is to help the US catch up with cutting-edge semiconductor technology after being the world leader. However, in Europe, the aim is to ensure the continued supply of crucial components to the automotive industry, an economically and politically important sector for many countries in the region. The crippling shortage due to the Covid-19 pandemic highlighted the importance of chips for car manufacturers.
In 2020, the state won the big prize when TSMC announced it had chosen a site near Phoenix as the home for a $12 billion project that would make near-cutting-edge chips (Oregon was believed to was preselected). This program was later tripled and there is a good chance that another expansion will be announced.
TSMC doesn’t make $40 billion commitments on a whim. Its decision to invest an unprecedented sum in what amounts to a greenfield project comes as key customers such as Apple Inc. and Nvidia Corp. they told the chipmaker, implicitly or explicitly, that they will buy from these new factories. Its chips are largely logic processors: components that act as the brains of devices ranging from iPhones to artificial intelligence servers. Washington politicians and industry leaders hope that one day the world’s best chips will be made on American soil. They won’t. Not for TSMC, anyway.
Europe is different and TSMC’s strategy there makes more sense. Although the Taiwanese company introduced its 28-nanometer process 12 years ago, it is expected to be at the heart of the chipmaker’s European strategy. There are two reasons for this: most automotive chips still use this node, and TSMC has targeted this technology at more niche applications rather than processors. As industry observer Paul McLellan once wrote, “TSMC’s old factories don’t die, they become specialized technology factories.”
While 28nm was used in 2013 to make the A7 chip for Apple’s iPhone 5s, today it is commonly used to make sensors (e.g. LiDAR, used to detect a car’s surroundings ), microcontrollers and radio frequency transmitters. A modern car includes semiconductors to detect traffic, control side mirrors and monitor battery levels. That’s not to say the newest processes won’t be found in cars: TSMC’s 5-, 7- and 16nm offerings are also being deployed to make components for advanced driver assistance systems, infotainment and control circuitry.
Apple, Nvidia and Advanced Micro Devices Inc. they are eager to switch to new manufacturing techniques annually because this allows their own products to be more powerful, a key selling point for logic processors. Automotive chip designers such as NXP, Infineon and STMicroelectronics NV, on the other hand, work on longer product cycles that require detailed security controls and integration into more complex systems. There are many more electronic components in a car than in a smartphone, and the auto industry updates its vehicles at a slower pace. In his case, newer is not always better.
Although this older technology only accounts for about 10% of TSMC’s revenue, compared to more than 50% of processes introduced over the past seven years, the chip giant remains the world leader by market share. The belief that electric vehicles and the continued deployment of sensors and electronics in cars is a long-term trend justifies a bet on Europe. With partners and local governments footing much of this bet, it’s the kind of project TSMC will find hard to resist.
More from Bloomberg Opinion:
• Moore’s Law Keeps Chip Leaders Ahead of the Pack: Tim Culpan
• India’s tech hub caught between SVB and traffic: Andy Mukherjee
• Intel pays a high price for its great ambition: Tim Culpan
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Tim Culpan is a Bloomberg Opinion columnist covering technology in Asia. He was previously a technology reporter for Bloomberg News.
More stories like this one are available at bloomberg.com/opinion
