According to a report on the morning of October 25th, Taiwan, China-based chip manufacturing giant TSMC (TSM.US) has achieved early production of usable chips in its first chip factory in Arizona, USA. That is to say, significant progress has been made in the yield rate of chip products manufactured in the early stage of this factory. Surprisingly, the chip yield rate of this factory even exceeds that of similar-sized factories with similar chip manufacturing processes in Taiwan. This is a major breakthrough for the US chip manufacturing expansion project which was initially hampered by delays and labor conflicts.
According to an attendee, Rick Cassidy, the president of TSMC's US subsidiary, told all the participants in a webinar on Wednesday that the proportion of usable chips produced in TSMC's chip factory in Phoenix, Arizona, is about 4 percentage points higher than that of similar factories in Taiwan. The proportion of usable chips, also known as the chip yield rate in the industry, is one of the most crucial indicators in the chip manufacturing industry because it determines whether a chip company can afford the huge costs brought by chip manufacturing factories.
The chip yield rate measures the ratio of usable chips produced during the manufacturing process and is a key factor in evaluating the efficiency of chip manufacturing. The yield rate directly affects the economic benefits of chip factories as it determines how many chips that meet the formal commercial standards can be produced from each wafer.
Specifically, in the early chip manufacturing activities of TSMC's Arizona factory, the yield rate is even 4 percentage points higher than that of similar factories in Taiwan. This is a very important development because an increase in the yield rate means that more chips can meet commercial standards, which can help chip factories significantly reduce production costs and comprehensively enhance profitability.
This breakthrough achievement can be regarded as a historical milestone of the progress made by the US government in its efforts to revitalize the domestic chip manufacturing industry and promote the "return of chip manufacturing to the US". TSMC is the core chip foundry partner of American tech giants such as NVIDIA, AMD, Broadcom, and Apple, and it can be said to control almost all the chip production of the entire American tech industry.
With the support of the Chips and Science Act (abbreviated as the "Chips Act") passed by the US government in 2022, TSMC's chip factory construction in the US is expected to receive up to $6.6 billion in government subsidies, $5 billion in special loans, plus a 25% tax credit. These funds will be fully used to build three large chip manufacturing factories in Arizona, USA. Currently, the first factory has already started early chip manufacturing.
However, these subsidies and government support measures for TSMC, like those that other chip companies such as Samsung, Intel, and Micron can obtain under the Chips Act, have not been finally implemented. These subsidies and support measures still need to undergo further review and approval by the US government and have not been officially in place.
According to media reports, an official spokesperson for TSMC refused to directly comment on the latest remarks made by Cassidy and referred to the remarks made by TSMC's CEO C. C. Wei during a call with investors last week.
"Our first chip manufacturing factory in the US started engineering wafer production in April, using the 4nm chip manufacturing process to produce chip products, and the results are very satisfactory with excellent early production," said C. C. Wei, the head of TSMC, at the investor meeting at that time. "This is an important business milestone for TSMC and our customers, demonstrating TSMC's extremely powerful manufacturing capabilities and execution."
Compared with the early positive progress made by TSMC's US factory, the construction processes of the US chip factories of the other two global top chip manufacturers, Intel and Samsung, which are also at the core of the Biden administration's chip technology strategy, have been struggling negatively in recent months. Intel is the biggest beneficiary of the Chips Act, receiving the highest amount of subsidies and government loans among the global chip companies supported by the Act - Intel will receive up to $8.5 billion in government subsidies and as many as $11 billion in special loans. However, it is now facing severe financial pressure, so much so that Intel has postponed the global chip factory construction process and is considering selling some of its assets.
Meanwhile, TSMC, known as the "King of Chip Foundry", has been sailing smoothly. The third-quarter results announced by this world's largest chip manufacturer last week exceeded expectations across the board. Its stock price hit a historical high this month, and it has raised its revenue growth target for 2024.
The latest performance of TSMC has significantly strengthened the investment view that the AI boom is still in full swing and the demand for AI chips is extremely hot. When talking about the market demand for AI chips, C. C. Wei, the head of TSMC, said at the performance meeting that the outlook for the demand for AI chips is very optimistic and emphasized that the demand of TSMC's customers for CoWoS advanced packaging far exceeds the company's supply.
TSMC's management expects the company's annual revenue to grow by nearly 30%, exceeding the 20% - 25% generally expected by analysts and the expectation given by the company in the previous quarter. The management also expects that this year, the related revenue of TSMC's data center artificial intelligence server chips (including a wide range of AI chips such as NVIDIA AI GPU, Broadcom AI ASIC, etc.) will increase more than twofold.
The "return of chip manufacturing to the US" may no longer be an empty slogan.
With the consent of the world's three major chip manufacturers - TSMC, Intel, and Samsung - to build new large chip factories in the US under the support of the Chips Act, the pace of the "return of chip manufacturing to the US" may be getting faster. According to the statistics of the Semiconductor Industry Association (SIA) of the US, the share of the US in global semiconductor manufacturing capacity has dropped from 37% in 199 Bundestag, 1990 to only 12% in 2020. Both former US President Trump and current US President Biden have regarded the "return of chip manufacturing to the US" as an important task during their terms.
The US government passed the Chips and Science Act in 2022. The Act aims to help chip companies build more chip factories in the US, and its ultimate goal is to build the US into the strongest chip manufacturing country again and accelerate the realization of the "return of chip manufacturing to the US" expected by the US government. With the significant breakthrough in the chip yield rate of TSMC's US factory and the manufacturing process being 4nm, which is one of the current highest-end processes of TSMC, second only to the 3nm process, the "return of chip manufacturing to the US" seems no longer to be an empty slogan.
For TSMC's US factory, the latest increase in the proportion of usable chips is noteworthy because this chip giant has always established its most advanced and efficient chip manufacturing factories in Taiwan. The construction of its Arizona factory was extremely difficult because TSMC could not even find enough technicians to install advanced chip manufacturing equipment at the beginning, and the workers also struggled with safety and personnel management issues. TSMC reached an agreement with the American Construction Union at the end of last year.
This chip manufacturing giant originally planned to promote the full production of its first factory in Arizona in early 2024, but due to continuous labor issues, it postponed the goal of full production to 2025. Later, the company postponed the start date of its second US chip factory from the initially predicted 2026 to 2027 or 2028. This triggered concerns at that time that TSMC might not be able to manufacture chips in the US as efficiently as in Taiwan.
Cassidy added at this meeting that TSMC may now be keen to further expand its chip manufacturing business in the US, partly depending on whether the US government will provide more support measures. He cited the early conversations in Washington about a second Chips Act and said that there is space for at least six wafer factories in the Phoenix complex.
It is understood that C. C. Wei was optimistic about the US push during last week's performance meeting. "We now expect that the mass production of our first chip manufacturing factory will start in early 2025, and we are confident that the chip factory in Arizona will provide the same level of manufacturing process and reliability as the Taiwan chip factory," he said.
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