As troubles remain at its new Arizona facility, Taiwan’s TSMC (2330. TW), which is making an unprecedented push into chip manufacture abroad, is becoming more enthusiastic about Japan as a production base, two industry sources said.

The sources claimed TSMC, the world’s biggest contract chipmaker, is upset in Arizona because it has failed to attract employees for the hard chipmaking trade, and unions have resisted Taiwanese workers.

The sources said the business is confident about Japan, where a $8.6 billion fab under development in a chipmaking powerhouse in Kyushu will start making mature-technology chips in 2024.

The sources claimed the chipmaker is exploring expanding capacity and a second fab in Japan to produce more sophisticated chips while ensuring a smooth ramp-up at the first fab.

Due to sensitivity, several semiconductor industry insiders told Reuters about TSMC’s perspective of Japan and its worldwide growth on condition of anonymity.

Japanese attempts to restore its reputation as a chip manufacturing powerhouse and assist its automotive and electronics sectors despite increased regional competition may benefit from TSMC’s development.

TSMC stated its foreign growth relies on customer demands, government backing, and cost.
TSMC aims to manufacture sophisticated chips in Arizona, but a labor shortfall has delayed operations at its first fab until 2025.

“Every endeavor has a learning curve. The Arizona project has improved greatly in the previous five months “TSMC Chairman Mark Liu stated last week.

TSMC claimed its growing U.S., Japanese, and German fabs are “inherently incomparable” due to location, configuration, and scale.

NATURAL FIT

The U.S., Japan, and Germany have given TSMC billions of dollars in subsidies to localize manufacturing to diversify chip supply for the defense, automotive, and electronics sectors.

The $40 billion Arizona investment enables TSMC to expand beyond Taiwan, where land, electricity, water, and labor are scarce.

The sources claimed the corporation prefers Japan’s work culture and government, which is simple to work with and generous with subsidies.

“The relationship between TSMC and the Japanese government is mutually beneficial,” said Isaiah Research analyst Lucy Chen.

She said that the chipmaker benefits from Japan’s network of chip equipment and materials suppliers, work culture commonalities, and closeness to Taiwan.

The sources said TSMC saw Japanese employees, renowned for long hours and strong company loyalty, as more likely to endure a grueling schedule with overtime. At the same time, chipmaking machines operate 24/7 in sterile, clean rooms.

“TSMC has to recalibrate on rebooting, so many machines cannot be shut down,” stated a semiconductor industry executive.

TSMC is cooperating with Sony (6758.T), a major image sensor producer, in Kyushu, a two-hour flight.

The sources claimed the chipmaker would offer greater salaries to attract local workers as it competes with foundry Rapidus. Taiwanese workers helping build up the fab are welcome.

“It seems to us that TSMC is really positive about investment in Japan,” said a senior official at the influential Ministry of Economy, Trade, and Industry (METI), which has awarded the first fab up to 476 billion yen ($3.23 billion) in subsidies.

The official remarked, “We will really welcome the second fab project in general but we have to see the detail first.”

Some equipment and materials companies have worldwide operations, but TSMC has moved suppliers from Taiwan to Japan to match its high requirements, insiders said.

Rising Capital Spending
Sources added that business-wide cost increases and macroeconomic concerns temper TSMC’s excitement for Japan.

Capital spending rose to $36 billion last year from $10 billion in 2018, with the corporation expecting a lesser outflow this year.

A management-briefed investor claimed TSMC expected U.S. fab construction costs would be 20% higher than Taiwan’s, but they’re 50% higher.

The sources claimed the chipmaker aims to construct a $11 billion fab in Germany with local businesses. Still, it worries about working conditions, such as extensive vacations and powerful unions, affecting production.

Higher expenses concern investors, but “the impact on TSMC today has not been that big because its leading technology gives it pricing power,” said Counterpoint analyst Brady Wang.