WEN-YEE LEE

On November 1st at 10 AM, a Business Weekly team witnessed hundreds of travelers dragging their luggage, along with paper boxes taller than the height of a person, gathering at the No. 9 counter in Taiwan's Taoyuan International Airport.

 

This group of people weren't tourists taking advantage of the lifting of the lockdown, but were workers of the world's largest contract chipmaker, TSMC, and their families. Close to 300 people were to take Flight CI036, flying more than 11,000 kilometers to Phoenix, Arizona.

 

This was the first large wave of workers sent by TSMC to its foundry in Arizona in a charter plane.

 

Moreover, this was just the start. In the next few months, there would be six such flights, with more than 1,000 engineers and their family members sent to America.

 

After around 15 hours, another Business Weekly team greeted the TSMC workers and their families as they landed at Phoenix Sky Harbor International Airport, as they filed out in a line. Some brought not only their families, but dogs, and some as soon as they entered did as locals do and took off their facemasks, looking somewhat nervous but also excited.

 

They were to be the main workforce for TSMC in Arizona, as well as to play a large role in efforts by the US to revitalize its semiconductor industry. This would prove a new chapter in the competition between US states seeking to attract semiconductor investment.

 

In 1848, a carpenter discovered gold in California, leading to large numbers of people to flock there. In a short two years, California went from being an untamed wilderness to a state. The Gold Rush attracted over 300,000 people, accelerating the speed of America's expansion westward.

 

Today, there are shortages globally because of the COVID-19 pandemic. Due to geopolitical factors, semiconductors have become a strategic material that various countries fight over. Moreover, the US seeks to expand its power while restricting China's chokepoints.

 

From the Biden administration's report on the resilience of semiconductor supply chains to the passing of the CHIPS Act, one subsidy after another has been rolled out. A "Chip Rush," then, has broken out in the 21st century on this piece of land.

 

Companies ranging from TSMC and Samsung have decided to increase investment in the US and set up semiconductor foundries. This has also led major equipment manufacturers Holland's ASML and Germany's Merck to expand work in the US. TSMC, Micron, Samsung, and Intel, the four giants of the semiconductor industry, have reached new heights of investment in the US surpassing $84 billion.

 

In order to document this structural competition implicating the US, China, and Taiwan, which will influence Taiwan's next ten years, if not twenty years, Business Weekly's news team traveled to the "Silicon Desert" frontline in Arizona for the following report.

 

In October in Arizona, the sun glared in the perpetually cloudless sky. At noon, the temperature was at 28 degrees Celsius, to the extent that it is easy to forget it was already winter. On the two sides of the road were a row of cactuses, as if to remind the people that if you come here, you need to be able to endure the heat, and the harshness of the conditions.

 

Very soon now, this desert would usher in a new historical era.

 

At the start of November, TSMC, which maintains the world's most advanced semiconductor manufacturing processes, sent its first chartered plane with employees. This was to send the first wave of "chip miners" as part of the chip rush to this piece of yellow earth. The "mine shaft" for this was TSMC Fab 21 in northern Phoenix.

 

This new factory is a thirty-minute drive from the city. The size of the site was one-quarter that of the Tainan Science Park in Taiwan. This piece of wild and desolate land originally owned by the state government, which now has a factory building and post office, has become a large landmark in the eyes of local residents.

 

At the start of December, at TSMC Arizona factory’s first tool-in ceremony, American President Joe Biden personally took the stage.

 

“All told, TSMC is investing $40 billion here in Arizona — the largest foreign [direct] investment in the history of this state. Over 10,000 construction jobs and 10,000 high-tech jobs will be created," Biden emphasized.  

 

He also stated at previous events that “Made in America” is no longer a slogan, emphasizing the CHIPS and Science Act makes historic investment in companies to build advanced manufacturing facilities in the U.S.

 

The US expects to spend $52 billion as part of efforts to revitalize its semiconductor industry. This would be for the sake of developing America's industrial techniques while reaching new heights of development.

 

Under the mantle of the government, this plan that could not be allowed to fail was seen as a once-in-a-lifetime chance for the semiconductor industry and for US scholars in terms of the chip rush.

 

"We had not looked at building factories in the United States for a very long time" said Katherine Dei Cas, Executive Vice President at EMD Electronics. “This was really the first time that we were able to get incentives to help support a factory that that we were building.” EMD Electronics, the German chemicals giant Merck’s North American electronics business announced earlier this year that it would open a new factory in Chandler near Phoenix. 

 

And the craze was not confined to just semiconductors, but had spread to campuses, also affecting real estate, restaurants, and even mattress dealers, who were all trying to get a piece of the action!

 

On the morning of a sunny and cloudless Tuesday, we walked into the engineering department of Arizona State University. Before 9 AM, close to 40 graduate students, mostly of Indian descent, were sitting in the classroom. They waited for Professor Michael Kozicki to begin the class on Advanced Silicon Processing.

 

Kozicki, who was from the UK, has taught semiconductor-related courses for 37 years. With his experience, he's seen the revitalization of the US semiconductor industry. He said that in Arizona, semiconductor manufacturing is largely "a forgotten industry."

 

In the past twenty years, the number of students taking hardware-related courses declined. By 2015, there were only twenty students taking microelectronics manufacturing courses. But now, with the US pursuing revitalizing its semiconductor industry, 125 students registered for the class. "It's just there's excitement about semiconductor manufacturing!" he said.

 

Similar excitement can be seen at Mesa Community College. In March of this year, First Lady Jill Biden visited there, taking the stage for a Quick Start training camp jointly organized by the community college and Intel.

 

Leah Palme, Executive Director of the Arizona Advanced Manufacturing Institute at Mesa Community College told us, from June to today, there were already three hundred students that had registered. "We have 2,000 on the waiting list!" she said. In the future, they also hope to collaborate with TSMC on curricula.

 

We attended the third class session of the new semester. "Do we need to spend our own money to buy bunny suits?" asked a 32-year-old female student. "Of course not!" said the lecturer, laughing.

 

Standing at the lecture podium was Intel engineering manager Gary Burley, with 18 years of experience. He was introducing to students how to properly wear dust-free clothes, referred to as bunny suits in the industry, before entering cleanrooms.

 

He began his lecture from the basics, seeing as students came from all over, were of different ages, had different ethnic backgrounds, and work histories. Some were originally middle school teachers, some were odd job workers, but what was shared among them all was that they were starting from zero in their knowledge of semiconductors.

 

Fifteen years ago, the school had worked with Intel to develop a curriculum, but with declining demand, courses were not offered for many years.

 

But with the semiconductor craze, not just TSMC but also Intel had announced that in Chandler near the southern side of Phoenix, that they would be constructing two factories. With the demand for talent, this was what led to the courses being offered again.

 

This course was more or less free. Once finished studying, the students could get back their deposits, and could have an opportunity to interview at Intel, TSMC, Applied Materials, and more than ten other companies.

 

This led many to hope for an opportunity to change their lives. One representative case in point was 41-year-old mother Tennessee Jackson.

 

She had four children and was working as a low-paid customer service operator for close to twenty years. But after finishing the course, next year in January she will start as a technician at Intel, with an hourly wage of $21--many times more than her original salary.

 

In the future, using benefits from Intel, she hopes to work while studying electrical engineering. One day she hopes to be a semiconductor engineer that makes $100,000 a year. "This [technician training] opportunity was very special," she said.

 

Charlotte Chang, a Taiwanese real estate agent who has lived in America for close to forty years, had been part of the chips rush earlier.

 

In the past half year, she has been running around Happy Valley and Anthem near TSMC, busy taking photos and videos of real estate. This was so that TSMC engineers who had not yet arrived in Phoenix could look at real estate online.

 

By now, she has already signed deals with five TSMC engineers. She has nine other cases she is working on, and as TSMC engineers arrive in Phoenix, she has started to take them to look at real estate.

 

Chang counts as one of the people to benefit from the rush. According to statistics from the Cromford Report and the Land Advisors Organization, which produce comprehensive reports on real estate, the median real estate price in Phoenix has gone from $219,000 in 2020 to nearly $450,000 this year.

 

The driving force for this in the background is infrastructure development by TSMC and Intel, as well as the trend toward remote work caused by COVID-19. A high-level manager at a TSMC supplier reveals that, in observing this upward trend, he had long since bought two houses in Phoenix as investment.

 

This trend has spread in a way that is hard to imagine. Local mattress chain, Mattress Firm, has already made considerations for TSMC workers, providing thirty percent discounts for the chip factory. 

 

This trend has also led Taiwanese food and beverage operators to move to the US. Taiwanese hand-shaken beverage company ShareTea has decided to bring other Taiwanese food and beverage companies to Phoenix, to set up a "Taiwan Town" comparable in size to a shopping center.

 

The popular craze can change the fate of towns and cities, going from wasteland to sites of significant investment, through large-scale construction.

 

According to the Phoenix city government, the first wave of work on TSMC foundries will generate $38.2 billion in return on investment for the city over two decades. This is equivalent to 16% of the city's year-on-year output value in 2020.

 

The Greater Phoenix Economic Council predicts that the factory area will create 4,300 direct or indirect employment opportunities in the next ten years. This is equivalent to an additional twenty percent increase in the number of semiconductor industry jobs in the greater Phoenix area.

 

Arizona is just the first leaf to turn red in the fall. Behind it is an entire forest of blazing red. This semiconductor craze has already spread to other states in the US. Whether Ohio, Texas, or New York, everyone wants a part of the pie.

 

"This is a race," said US Secretary of Commerce Gina Raimondo when visiting Arizona State University. "I hope every state competes."

 

America is seeing an unprecedented push for semiconductor reshoring. But different from the 19th-century Gold Rush, which was driven by the common people, we can see the US government's involvement in the 21st-century chip rush on every level, from the macroscopic to the micro-level. This is where the blaze began.

 

At the end of August, Biden signed the CHIPS Act into law through executive order, marking the formal start of this war.

 

Five days later, Arizona state governor Doug Ducey flew to Taiwan to seek investment. He said to Business Weekly, "We want to, of course, talk with the top-level leadership at [TSMC], meet with top engineers, and see what we can do to be helpful [to TSMC suppliers]."

 

But it wasn't all talk from Ducey. For TSMC's water needs, the Phoenix city government has spent more than $200 million on water infrastructure. This is even higher than the amount of money that the Kaohsiung city government in Taiwan spent on reclaimed water plants to support TSMC.

 

"[The] City of Phoenix deserves a lot of credit and that they worked diligently to figure out how best to get this major waterline to the site….. South side of the site is mountains, north side of the site is mountains, and in between that is tens of thousands of acres……It's almost like bringing it [the new infrastructure] to a city that doesn't exist," Chris Camacho, the CEO of Greater Phoenix Economic Council, told us.

 

"What I expect over the next 25 years is probably going to be 50,000 people living up in this corridor with businesses, retail, new homes," he emphasized “so [if] it [TSMC] doesn't come, that doesn't happen.”

 

Phoenix Community and Economic Development director, Christine Mackay stated that because of the complexity of the TSMC project, the city government has established a dedicated team, to ensure smooth communications between both sides and to ensure that the project proceeds apace.

 

A TSMC supplier revealed to us that if there are urgent work visas, the American Institute in Taiwan will assist in speeding up the process.

 

In spite of how much effort has been put into this, this is still no guarantee of success for America in its efforts. But what is clear is that this will have a significant impact on the global semiconductor industry and even Taiwan's fate.

 

Former Under Secretary of State for Economic Growth, Energy, and the Environment Keith Krach was quite blunt when Business Weekly interviewed him. The most important aim of this current rush is that "China will be the loser, everybody else will be the winner."

 

Although Business Weekly interviewed many scholars and experts, most believed that the American semiconductor industry in the short term would not change global semiconductor competition, as America's aim is to increase supply chain resilience.  This is very different from when China distributed money at all levels, from low to high, in the past.

 

But as described by The Economist, Taiwan is "the most dangerous place on Earth." The White House’s 100-day Review on Supply Chain Resilience also directly identified Taiwan as where semiconductor manufacturing was overly concentrated, something that directly affects Taiwan's fate.

 

It is true that if the most advanced semiconductor manufacturing processes are distributed to the US, Taiwan's irreplaceability will decline. Moreover, that the US has higher costs, and that Taiwanese are not familiar with the working culture, will prove a challenge for TSMC. This is also why company founder Morris Chang has stated that he is not optimistic about the company's establishment of a factory there.

 

"I think TSMC knows more than anyone that costs are higher [in America] and this will definitely affect profitability", the senior executive of a semiconductor foundry with tens of billions in revenue said.

 

Most of those interviewed believed that this chip craze will do more good than harm for Taiwan.

 

This trend will not cease to exist if Taiwan is not good at it, or if we are resentful because we are forced to participate in it by Big Brother America.

 

"The way to do it is take the initiative rather than be forced to do it," said Willy Shih. Shih teaches at Harvard Business School and has long been focused on the semiconductor industry. Shih took the view that even if Taiwanese businesses do not travel to the US, this craze would still take place. But if Taiwan participates, it can be a collaborative partner for the US, and Taiwan cannot pass over this opportunity. 

 

For example, for industry, this may increase revenue, and increase average selling price.

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"Inefficiency can in fact, conversely, increase these opportunities for supply chains," said Sebastian Hou, Managing Director at Neuberger Berman. He explained that the push against globalization might lead to less efficiency compared to in the past, as TSMC and Samsung need to increase their investment in other countries and procure more equipment and materials.

 

Hou argued that this includes needing to establish new footholds for supply chains and attracting nearby suppliers who are willing to absorb the higher costs. This can lead to an increase in the average selling price of equipment and material for factories and an increase in the company's overall revenue.

 

BCG Taiwan Managing Director JT Hsu believes that when industry assesses the pros and cons, there should be more consideration paid to resiliency, and distributing risk, without looking at finances as the only consideration. "If you only consider return, the abacus might not be right," he said. Hsu believes that this encourages one-sided enthusiasm in investment, but industry must actively carry out assessments, reflecting on whether if opportunities are not taken, other people willing to take the risk will take them away.

 

The same is true for TSMC.

 

With Intel and Samsung continuing to expand factories in the US, if in the future as the US requests, that national security-related semiconductors are made in America, but TSMC does not go to America, this will lead to an abrupt drop in orders. If TSMC goes, it can at least distribute risk, to continue serving customers, and reduce the shortages of water, electricity, land, labor, and talent that Taiwan currently faces.

 

In zooming in on this, this can be an opportunity for the Taiwanese industry to transition structurally and an opportunity to increase added value.

 

"In the past, we were used to using low costs, low prices, but [now] we must adapt to higher costs, to transition to higher prices." National Central University Professor of Economics Jiunn-rong Chiou believes that higher costs mean an opportunity for higher prices. Chiou believes that pursuing this may not be too comfortable, but Taiwanese industry needs to learn a new means of business operation. 

 

This is a set of circumstances larger than any individual and TSMC and the overall supply chain have no choice but to participate in this war. But in this process of transition, there are new opportunities for companies.

 

In opening new markets from the supply chain or expanding business from Intel or other large companies, to Taiwanese bubble tea companies setting up a "Taiwan Town" in the US all are new adventures. 

 

With the geopolitical circumstances, on the macro level are semiconductors, on the micro level is bubble tea. All can be new bargaining chips. It all depends on imagining oneself in a new light.

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(Published in Chinese on November 17, 2022; Added Biden’s remark on December 6, 2022 in English translation.)