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Home Industrial: Technology, News & Trends Obstacles Hinder Expansion Plans for U.S. Chip Manufacturing

Obstacles Hinder Expansion Plans for U.S. Chip Manufacturing

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Chip manufacturing

The latest reports that just as the Biden administration begins to allocate funds to stimulate domestic production, there are delays in the completion of the new plant. A construction machine and a lone figure stand on the pavement in front of an industrial building. A “Made in America” flag hangs between the American flag and the Arizona state flag, draped along the building.

In December 2022, TSMC, the world’s leading manufacturer of cutting-edge chips, said it plans to spend $40 billion to build its first major US semiconductor production center in Arizona. The high-profile project in Phoenix will see the construction of two new factories, one of which will feature more advanced technology, becoming a symbol of President Biden’s efforts to boost domestic chip production in the United States. Chips are pieces of silicon that help various devices perform calculations and store data. Last summer, however, TSMC pushed back initial production at its first plant in Arizona from this year to 2025, saying local workers lacked the expertise to install some of the advanced equipment. Last month, the company said production at its second plant would not be until 2027 or 2028, rather than 2026, due to uncertainty over technology choices and federal funding.

Progress on the Arizona plant will depend in part on “how much incentive the U.S. government can provide,” TSMC Chairman Liu Deyin said in an investor conference call. TSMC is just one of several chipmakers that have hit a roadblock in their U.S. expansion plans. Intel, Microchip Technology, and others have also adjusted their production plans as slumping sales of a wide range of chips put pressure on companies to manage infrastructure spending. The new chip factories are complex, involving thousands of construction workers, long construction timelines, and billions of dollars in equipment. The delays come as the Biden administration begins to release the first major allocations of a $39 billion fund aimed at building the U.S. semiconductor industry and reducing U.S. reliance on East Asian manufacturing technology. On Monday, the U.S. government said it would provide $1.5 billion in grants to chipmaker GeSilicon to upgrade and expand factories in New York and Vermont that make chips for automakers and the defense industry. But problems encountered by companies like TSMC with the project could dampen expectations and raise questions about the prospects for success of the Biden administration’s industrial policy plans. These investments are expected to be a key issue in Biden’s re-election campaign in the coming months.

“There are no failed projects yet.” Emily Kilcrease, a senior fellow, and director of the Energy, Economics, and Security Programme at the Center for a New American Security, a Washington think tank, said, “But we’re going to have to see some progress in the next couple of years and have these plants come online for the program to be considered a success.”

The U.S. Department of Commerce is responsible for distributing federal funds provided under the Chip Act of 2022 to stimulate domestic chip production. In addition to the grant to GeSilicon, the department has awarded two small production grants to date. In the coming weeks and months, the department is expected to offer billions of dollars in large awards to chipmakers such as TSMC, Intel, Samsung, and Micron. The government is engaged in complex negotiations with these major chipmakers to determine the amount and timing of the incentives. The companies are still awaiting guidance from the Treasury Department on which investments will qualify for the new tax credits for advanced manufacturing, which were scheduled to be released by the end of 2023.

Analysts say any delay in the process could hurt the U.S., which is racing to reduce its global dependence on Taiwan, South Korea, and China for chip factories. Rival countries are offering their incentives to lure chipmakers. TSMC, for example, plans to increase production in Japan and Germany at the same time as in the United States.

The longer the U.S. government waits to distribute the benefits, “the more other regions will grab those investments, and more cutting-edge investments will be made in East Asia,” said Jimmy Goodrich, senior adviser for technology analysis at the RAND Corp. “The clock is ticking fast.”

Chips

A Commerce Department official countered claims that it is slow to hand out incentives. He said the Commerce Department is taking time to protect taxpayer interests and push companies to do more to strengthen domestic chip supply chains.

A White House official said the chip companies’ plan changes were only minor adjustments to complex projects such as new manufacturing plants. He added that forecasts indicate that demand will be very high when these facilities begin producing chips.

Treasury officials have made the tax credit situation clear to companies planning to invest and are working on additional guidelines as soon as possible, a Treasury spokeswoman said.

The Chip Act authorizes the release of grants and other incentives to promote chip production in the United States and provides tax credits for investments in factories and production equipment. More than 600 companies and organizations have submitted letters of intent on the grants, while private investment commitments to date are estimated at $235 billion, the Commerce Department said. However, most of the expansion plans were made during the chip shortage a few years ago when the epidemic spurred consumer spending on electronics. That demand has dried up, leading chipmakers to stockpile large quantities of unsold components, while demand for new factories has been virtually nil.

“Companies are rethinking how to invest, what to invest in, and when to invest,” said Thomas Sandman, chief executive of Minnesota-based chipmaker SkyWater Technology, which has received subsidies from the Department of Defence and is pursuing Chip Act funding.

One chipmaker feeling the pinch is Arizona-based Microchip Inc. Two years ago, Microchip saw a surge in orders. It applied for Chip Act funding to spur production and is expected to receive $162 million. However, it recently announced two two-week plant shutdowns as sales slumped. Microchip’s chief executive, Ganesh Moorthy, said the company still plans to upgrade its plants in Oregon and Colorado, which will receive Chip Act grants. But orders for equipment will have to wait until the business climate improves.

“We’ve put a moratorium on expansion,” Moorthy said.

Intel, which is expanding production, has also adjusted its purchases of expensive equipment. The company recently said it doesn’t expect to begin production in Ohio in 2025, as it initially expected, and it is investing $20 billion in two new plants in Ohio. The change was reported earlier by the Wall Street Journal.

Nonetheless, Intel said the construction of the plant and its expansion plans for the U.S. and three other countries are not slowing down.

“Our strategy doesn’t change from one quarter to the next.” Kevan Esfahani, executive vice president overseeing Intel’s manufacturing operations, said. “We’re still on track.”

Some chipmakers, such as Texas Instruments and Micron Technology, continue to expand chip production for competitive reasons. New factories can help produce higher-quality, higher-volume, cheaper chips. Despite the downturn in the market for memory chips, which store data in devices such as smartphones and computers, Micron is continuing to push ahead with a $15 billion plant in its hometown of Boise, Idaho, and plans to build a larger manufacturing facility near Syracuse, N.Y. Scott Gatzelmeyer, Micron’s vice president for expansion, said construction projects that take several years should be based on future chip demand, not current conditions. Renting large cranes and other equipment as well as securing construction workers is a big expense that may need to be repeated if the project is halted, he added.

“Once you start, you don’t want to stop.” He said.

Other chipmakers are reluctant to begin construction without government funding. SkyWater’s Sandman, for example, said the company’s plan to build a $1.8 billion plant in Indiana hinges on getting funding through the research-specific portion of the Chip Act. At TSMC’s Arizona plant, there have been many unanticipated problems over the past year. Last summer, the state’s construction union raised workplace safety concerns and objected to TSMC bringing in workers from Taiwan to assist in the installation of precision equipment at its first plant. Delays in installing the machines led to production delays announced in July. Last December, TSMC and the Arizona Council of Building and Construction Trades Unions agreed to ground rules for on-site safety, workplace training, site staffing, and other issues. In a statement emailed by Deyin Liu, who recently announced his retirement plans, he expressed optimism that tensions among workers are over.

He acknowledged “challenges” in building the first plant in Phoenix, but said TSMC remains “the fastest” of its peers in completing such projects. While he told analysts in January that the company would delay the start of production at its second plant, also known as a fab, worker skills were unlikely to be a reason.

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