Plans to Increase Chip Manufacturing in the United States Are Facing Challenges

The primary manufacturer of the most advanced chips in the world, Taiwan Semiconductor Manufacturing Company, announced in December 2022 that it will invest $40 billion in Arizona to establish its first significant U.S. base for semiconductor production.

The much-heralded project in Phoenix, which includes two new plants, one of which has more sophisticated equipment, came to represent President Biden’s efforts to increase domestic chip production. Chips are silicon slices that are used in a wide range of devices to perform computations and store data.

Then, last summer, TSMC announced that local workers lacked the experience to install some advanced equipment, delaying the start of manufacture at its first Arizona factory until 2025 instead of this year.

The business stated last month that it will not be producing chips at the second factory until 2027 or 2028, instead of 2026, due to uncertainty around federal funding and tech choices.

In an investor call, TSMC chairman Mark Liu stated that the Arizona site’s progress is partially dependent on “how much incentives that the U.S. government can provide.”

TSMC is just one of numerous chip manufacturers that are encountering difficulties with their plans to expand into the United States. Due to pressure to control their expenditure on new infrastructure following a decline in sales of many different types of chips, businesses like Intel, Microchip Technology, and others have also modified their manufacturing schedules. The creation of new chip plants is extremely complex, requiring billions of dollars’ worth of machinery, thousands of personnel, and extended construction deadlines.

The delays occur as the Biden administration starts distributing the first significant grants from a $39 billion fund intended to strengthen the American semiconductor sector and lessen the country’s reliance on technology produced in East Asia. The administration announced on Monday that it would give the chipmaker GlobalFoundries $1.5 billion in incentives to modernize and expand its facilities in Vermont and New York, where it produces chips for the defense and automotive industries.

However, the problems that businesses like TSMC are having with their projects may overshadow this publicity and cast doubt on the viability of President Biden’s industrial policy agenda. Over the next months, Mr. Biden’s reelection campaign is anticipated to place a significant emphasis on the investments.

“As of yet, nothing has failed,” stated Emily Kilcrease, senior fellow and head of the energy, economics, and security program at the Washington-based think tank, Center for a New American Security. However, for the program to be deemed successful, some advancement and the actual opening of those plants within the following few years are required.

Federal funds under the 2022 CHIPS Act are to be distributed by the Commerce Department to promote domestic chip manufacturing. Apart from the funding given to GlobalFoundries, the government has already awarded two minor grants for production. In the upcoming weeks and months, chipmakers including TSMC, Intel, Samsung, and Micron are anticipated to get substantially greater awards totaling billions of dollars.

The quantity and timing of the awards are the subject of intricate discussions between the government and these large chipmakers. Businesses are still awaiting word from the Treasury Department over which investments will be eligible for a new advanced manufacturing tax credit, which was supposed to be announced before the end of 2023.

Analysts warned that as the world races to lessen its reliance on semiconductor manufacturing in China, South Korea, and Taiwan, any delays in the process could be detrimental to the United States. Competing nations are providing court chip producers with their own incentives. For instance, TSMC intends to increase production not only in the US but also in Germany and Japan.

According to Jimmy Goodrich, a senior adviser for technology analysis at the RAND Corporation, “the more other geographies are going to snap up these investments, and more leading-edge investments will be made in East Asia,” the longer the U.S. government delays in allocating benefits. Thus, the timer is running out.

Rejecting claims that the Department of Commerce had been tardy to provide incentives was a Commerce Department official. According to him, the department is taking its time to safeguard taxpayer interests and encourage businesses to take further steps to strengthen the local chip supply chain.

According to a White House official, the timetable modifications made by the semiconductor makers were small tweaks that were typical of intricate projects like the new production facilities. 

Forecasts, he continued, indicated that when the plants began producing these chips, there would be an enormous demand for them.

According to a spokeswoman for the Treasury Department, officials there have clarified tax incentives for businesses preparing investments and are striving to release more guidelines as soon as feasible.

The CHIPS Act enabled tax credits for investments in factories and manufacturing equipment, along with grants and other incentives to increase U.S. chip production. According to the Commerce Department, over 600 businesses and organizations had expressed interest in receiving grants; thus far, the department has estimated that private investment pledges have totaled $235 billion.

However, the majority of expansion plans were made during a period of chip scarcity a few years ago, following a surge in consumer spending on electronics driven by the pandemic. Chip manufacturers were left with large stocks of unsold components and little urgent need for new factories when that market dried up.According to Thomas Sonderman, CEO of SkyWater Technologies, a Minnesota semiconductor company that has received Defense Department subsidies and is vying for CHIPS Act funds, “companies are rethinking how and what and when investments will occur.”

Microchip, an Arizona-based company, is one chip manufacturer that is struggling. Microchip was inundated with orders two years ago. 

It is eligible to receive $162 million after applying for CHIPS Act money to boost manufacturing. However, it has announced two separate two-week plant shutdowns as sales have declined.

According to its CEO, Ganesh Moorthy, Microchip still intends to modernize the plants in Oregon and Colorado that are going to get grants under the CHIPS Act. However, purchasing machinery to boost output will have to wait until things pick up for the company.

“We’ve put off expanding,” Mr. Moorthy declared.

In addition to increasing output, Intel has modified its procurement of expensive manufacturing equipment. The business recently stated that it had not anticipated beginning production in Ohio in 2025, as it had previously anticipated, despite investing $20 billion in two new factories there. The Wall Street Journal first reported on the adjustment.

Intel employees inside a “clean room” at a facility in Oregon in 2021.Credit…Philip Cheung for The New York Times

Intel reiterated that construction on the site and expansion plans in the United States and three other countries remained unaffected, despite external factors. Keyvan Esfarjani, the executive vice president overseeing Intel’s manufacturing operations, emphasized that the company’s strategy remained consistent over time.

While some chip manufacturers like Texas Instruments and Micron Technology are forging ahead with expanding chip production to maintain competitiveness, Intel remains committed to its course. Micron, for instance, is proceeding with the construction of a $15 billion factory in Boise, Idaho, and has plans for an even larger manufacturing complex near Syracuse, N.Y., despite market challenges in its memory chip segment.

Construction in 2021 in Chandler, Ariz., where Intel is building two factories. Credit…Philip Cheung for The New York Times

Scott Gatzemeier, a Micron vice president overseeing expansion efforts, stressed the importance of aligning construction projects with future chip demand rather than current market conditions. He highlighted the significant expenses involved in renting equipment, securing construction workers, and emphasized the need to avoid halting projects once started due to the potential for increased costs.

Some chip manufacturers are hesitant to commence construction without government funding. For instance, Mr. Sonderman of SkyWater mentioned that his company’s plans for a $1.8 billion facility in Indiana are contingent on securing funds through a portion of the CHIPS Act dedicated to research.

At TSMC’s Arizona site, unforeseen challenges have arisen over the past year. Construction unions raised concerns about workplace safety and objected to the employment of workers from Taiwan to install sophisticated equipment in the first factory. Delays in machine installation prompted an announcement in July regarding production delays.

In December, TSMC and the Arizona Building and Construction Trades Council reached agreements on ground rules at the site to address safety, workplace training, staffing, and other issues. Mr. Liu, who recently announced plans to retire, expressed optimism that tensions among workers had eased.

While acknowledging challenges in building the first Phoenix factory, Mr. Liu emphasized that TSMC remains among the fastest in completing such projects compared to its peers. Although the start of production at the second factory may be delayed, Mr. Liu indicated that worker skills are unlikely to be a significant factor, expressing confidence that construction of the second fab will proceed more smoothly, citing the quick learning abilities of workers in Arizona.