Why is TSMC Building a Fab in the American Desert?

TSMC is currently constructing a fab in the Arizona desert that will manufacture 5nm advanced process wafers. Photo: Commonwealth

By Hannah Chang, Commonwealth Magazine

Ambitions to manufacture in the U.S. closer to major customers have led TSMC to set up shop in America. The project and related supply chain relocation pose numerous challenges, from cost control to talent recruitment and management techniques in a different culture.

Michelle Chang, director of the Taiwanese Chambers of Commerce North America, took a distant photo of the Taiwan Semiconductor Company’s (TSMC) construction site in Arizona, adjoining a large 1,100-acre expanse of desert, and posted it to a more than 10,000-member online group of Taiwanese businesspeople in Arizona. “Taiwan’s national guardian has come to America!” she proudly exclaimed.

While American companies were on their 2021 New Year’s holiday break, workers at TSMC’s Arizona plant site were hard at work, day and night. CommonWealth’s special assignment photographer was on the scene in January to witness dozens of cranes at work on this desert plot, the equivalent of nearly 90% of the area of the Kao-hsiung Science Park in Taiwan. At that time, several four- to five-story buildings had begun to be erected.

The company’s plans call for completion of a 5-nanometer advance process wafer fab in less than two years. It also aims to create 1,600 jobs at the facility, and to recruit 250 American engineers. The plant will produce 20,000 5nm advanced process wafers per month, giving a major boost to U.S. manufacturing.

“The Arizona facility will be a copy of the Taiwan wafer fab,” TSMC Technical Director Tony Chen states plainly.

“TSMC supports the U.S. government’s CHIPS Act,” says TSMC Chairman Mark Liu, referring to the bill passed by Congress last January that aims to boost U.S. innovation in the semiconductor industry and expand its chipmaking capacity. “In fact, it is key to TSMC’s investment in the United States.”

Inside TSMC, the Arizona facility has been dubbed “Fab 21.” As construction on the project proceeded swiftly, TSMC sent over 100 American engineers to Taiwan, while at the same time Taiwanese engineers prepared to head to the U.S.

Last year, TSMC’s 15-B Fab, located in the Taichung Science Park, hosted the training of over 15 engineers from the U.S. The sessions covered six major systems including electric power, mechanics, water treatment, gasification, instrument control, and occupational safety and environmental protection. Training even included a bonus class on occupational accidents, during which engineers wore virtual reality (VR) headsets and resolved plant emergencies such as fires and chemical leaks. By utilizing VR technology, the orientation period for newly hired engineers can be reduced from six months to four.

Fan En-tzu, deputy director of plant operations development at TSMC, notes that plant operations are critical to wafer fab production, as any accidents can result in production stoppages and losses.

Photo: Commonwealth

American engineers are expected to undergo 12-18 months of training before returning to the Arizona plant. Meanwhile, Taiwanese engineers slated to be transferred to the U.S. can be expected to perform the standard operating procedures (SOP) for TSMC’s plant at the Tainan Science Park by the second half of the year at the earliest.

“Our directive was to reproduce the 5nm Tainan Science Park wafer fab in the U.S.,” revealed one engineer.

A group of engineers works assiduously day in and day out writing production and equipment maintenance SOPs, producing exhaustively detailed charts and graphs of the Taiwan 5nm plant production flow, and translating material into English to help the American engineers get everything right.

Migrating the supply chain

Photo: Commonwealth

“Everyone is working hard to overcome the poor overall environment, including labor and material shortages,” says Lee Huei-wen, president of United Integrated Services (UIS), a major clean room provider for TSMC.

One supply chain insider disclosed that equipment such as the specialized gas lines and exhaust systems for clean rooms use a modular approach consisting of “manufacture in Taiwan, transport of the entire plant, and assembly in the U.S.”

For instance, Chiu Ming-chien, chairman of Gudeng Precision, which supplies EUV mask packaging for TSMC, is preparing to set up an office in Arizona. “Clients worry that they won’t be able to find you when problems arise, so we’ll have to send staff to be located in the U.S. to service them.”

One staff member likened the big move to “baking bread” – semiconductor chemicals, materials, and specialty gas plants are all sent to the U.S., where “the oven, flour, temperature, gases, molds, and various SOPs for how you make the bread (wafer manufacturing), roasting (photolithography), spreading jam (film), and cutting are all carried out in the same way.”

This is a completely new situation for Taiwanese vendors: moving from a low-cost country to a high-cost country, where cost planning, the language environment, assessment of the local regulatory environment, and operational strategy are completely different.

Former TSMC Chief Technology Officer Chenming Calvin Hu noted in an interview that the three biggest challenges to Taiwanese vendors setting up manufacturing in the U.S. are “environment, talent, and cost.”

Specialty electronic gases vendor Taiwan Specialty Chemicals Corporation (TSCC) is preparing to lease land to build a warehouse around 15 minutes’ drive from TSMC’s Fab 21 facility in Arizona. Other vendors purchasing or leasing land in Arizona industrial zones such as the Mack Innovation Park and Casa Grande include Kanto-PPC, the Chang Chun Group, the LCY Group, and Sunlit Fluo & Chemical.

TSCC says that it had intended to purchase land in Arizona. However, after a year of discussions and negotiations with local authorities and real estate agents, it was shocked to realize that the price of land in the immediate vicinity of the TSMC facility had quadrupled since the chipmaker’s project was announced, rocketing from around US$3.5 per square foot to US$18.

Photo: Commonwealth

U.S. wages are also expensive. TSCC President Chang Hsiung-fei says that although the average starting salary for engineers in the U.S. is around US$43,000, it is impossible to find anyone for less than US$60,000.

In addition, industry insiders worry about a bottleneck in semiconductor talent recruitment. A February 15 article in Nikkei Asia, citing unnamed sources, reported that TSMC’s progress on its Arizona plant was three to six months behind schedule due in part to a labor shortage in the U.S. state. The article also pointed to the intense competition for talent TSMC faces from Intel, which currently employs around 12,000 people in Arizona and is carrying out its own expansion efforts.

However, Calvin Hu, who now teaches at the University of California, Berkeley, foresees a gradual turnaround in the U.S. semiconductor talent supply due to media coverage that has focused the American public’s attention on the importance of semiconductors.

Moreover, under the CHIPS Act, the U.S. federal government will provide massive funding to encourage universities to train talent and strengthen related research. Such shifting of priorities is evident in the 10-fold funding increase in 2021 over 2019. And although facilities cannot be updated to the absolute cutting edge, U.S. colleges and universities adjust recruitment quickly. Thus, the introduction of more courses and projects can be expected.

Arizona State University, located 30 minutes by car from TSMC Fab 21, is taking an aggressive approach. Last July, the school introduced a certificate course in semiconductor manufacturing, and in August it hired over 30 professors with related expertise in manufacturing, mechanics, energy, and electronic chemicals.

“Because of strong historical roots and rapid expansion, Arizona is poised to be at the epicenter of the American semiconductor revolution,” the university’s college of engineering stated on its website, noting that companies such as TSMC, Intel, and Samsung could use more trained professionals.

“American teachers are very open to cooperating with TSMC,” says Hu, noting that U.S. universities are hard at work trying to resolve the talent shortfall in the semiconductor field.

Willy Shih, professor of Management Practice in Business Administration at Harvard University, offers encouragement, saying that over the mid- to long-term, Taiwanese vendors must adopt smart manufacturing, taking a page from Toyota.

Shih, whose research focuses on supply chain management, says that TSMC suppliers looking to locate manufacturing in high-cost countries must employ AI and robot learning to reduce costs, shrink scale, and raise productivity. Otherwise, he says, they will find it difficult to turn a profit.

The clearest example of successful manufacturing in the U.S. by an Asian company is Toyota Motors, which made the move in the 1980s. At the time, Toyota was similarly forced to set up shop in the U.S. and ended up creating a “Toyota miracle” there.

In his book The Toyota Way, Gary Convis, the first American president of Toyota’s U.S. subsidiary in Kentucky, described the company’s culture of “continuous improvement” and “respect for people” (workers), and how this culture successfully took root in the U.S. While Toyota’s first U.S.-based plant in Long Beach, California, and its Kentucky plant are leading U.S. factories, both were overseen behind the scenes by a “coordinator” dispatched from Japan, as “there was only one chance to establish the right culture” when setting up manufacturing operations in the U.S.

“Continuous improvement” refers to precision manufacturing approaches such as increasing plant automation and accelerating workflow. At the same time, it means giving workers more creative, challenging missions to support clients and raise technical skills, explains Convis. “Respecting people” was the key to helping Americans identify with company culture, understand its long-term ideals, and be willing to devote themselves to these aims.

TSMC and its vendors with plans to also invest in Arizona will need to adapt to local conditions and work culture. Some cite the approach Toyota used in first establishing manufacturing operations in the U.S. as a good model to follow. Photo: Commonwealth

What made an impression on Willy Shih was that Toyota’s plant managers were all Americans. He says that this group of managers has actively helped the company think of ways to reduce costs, explaining that while guest workers are used extensively on the assembly line, “only local workers understand the local legal environment, so they are able to respond to changes and reduce costs.”

Apart from SOPs, TSMC’s challenge is how to transplant the company’s mission and values onto American soil. In late 2021, the position of “coordinator” appeared on the Careers section of TSMC’s website. Other roles TSMC is currently seeking to fill for its Arizona plant include engineer, analytical chemist, as well as nearly 70 new positions, including global logistics management specialist and global supply chain specialist.

In addition to satisfying U.S. demand, the most important thing for TSMC and its legion of allies is to find new opportunities amid challenges – venturing into the American desert to dig up new clients and strike more of their own gold.

— This article first appeared in CommonWealth Magazine Vol. 740 in January 2022. It has been reprinted, with editing and updating, with permission from the publisher. Translation from the original Chinese was done for CommonWealth by David Toman.