You can just picture it now. It’s 2025 and Apple Inc. Chief Executive Officer Tim Cook has just taken the stage to announce the company’s latest gadget. It’s faster, more powerful, and in every way better than the previous iteration. And, one more thing: it features chips made in the US of A. The crowd applauds.
Apple, its key component supplier Taiwan Semiconductor Manufacturing Co., US Congress, and the Arizona state government have been working up to this moment since early 2020. Dozens of press releases have been written, billions of dollars spent, and numerous speeches given lauding America’s return to chip supremacy. Having once been a global leader in semiconductor manufacturing, the world’s great superpower ceded control to Taiwan, which plays host to more than 90% of the planet’s leading-edge capacity.
In a meeting with employees in Germany recently, Cook revealed what the world knew: “We’ve already made a decision to be buying out of a plant in Arizona, and this plant in Arizona starts up in ’24,” he said in comments reviewed by Bloomberg News’ Mark Gurman. Apple is the world’s most-valuable company, the leading maker of smartphones by revenue, and accounts for 26% of TSMC’s sales. And it’s American. So of course the company was going to source from this new factory. (To be fair, Cook didn’t name TSMC but it’s highly unlikely he was talking about Intel Corp., which also operates factories in the state.)
Equally, TSMC works closely with clients that also include Nvidia Inc., Qualcomm Inc. and Advanced Micro Devices Inc. — all American — and doesn’t make a major decision without consulting them. This year’s record $36 billion capex figure wasn’t pulled out of thin air, it was carefully planned after detailed discussions with the very customers who would be purchasing capacity from the Hsinchu-based company.
While it’s a great step forward for Apple to be buying US-made components, it barely moves the needle on global sourcing. For one thing, TSMC’s new factory will make chips at the 5-nanometer technology node. That was leading-edge last year, but the chipmaker has already moved to 3nm (smaller is better) and will be even more advanced by the time the plant opens in 2024 thanks to the break-neck speed of technical development. It’s exceedingly unlikely that Apple will be using Arizona-made processors to power its most-recent iPhones anytime soon.
TSMC won’t have the capacity anyway. The new site will produce 20,000 wafers of silicon chips per month. That’s less than 1.6% of the 1.3 million it currently churns out monthly. And even if it adds another Arizona plant, as expected, the US facility will be nowhere near able to fill Apple’s total orders. More likely it’ll get orders for a couple of key chips used in lesser devices like AirPods, TV, HomePod or Watch.
Then there’s Europe. In his recent tour, Cook hinted that the continent would be another source of chips. TSMC doesn’t have factories there and hasn’t announced plans for any. Financially, it doesn’t make sense. The chipmaker’s strength lies in being concentrated on one island with its facilities and engineers all within a bullet-train ride from each other. That irks clients, though, because Taiwan also faces greater risks as tensions with China heat up.
A new plant in Japan and the Arizona project will already spread its human resources thin, and another location on the other side of the world will make operations even more challenging. That said, there’s a good chance Germany will spend enough money and offer sufficient incentives to snag a factory, and the bragging rights that come with luring TSMC to its shores. Such a European plant wouldn’t be leading-edge either, and thus incapable of churning out Apple’s most-advanced processors used in iPhones, iPads and Macs. And that’s okay.
What these factories are likely to offer is lesser components made using legacy manufacturing processes. And though older technology is not as cool, it is critical to the global semiconductor supply chain. More chips are made today using techniques available in 2010 than those that debuted in the past two years. The recent shortage, which hit products from cars to computers, was largely due to capacity constraints for technology released a dozen years ago.
You won’t hear politicians crow about spending billions of dollars (or euros) to lure a factory that makes “old” chips. But that’s the reality, and it’s a perfectly acceptable one because these are the very components the world needs most. Of course Apple, Nvidia, Qualcomm and AMD will be eager to announce their made-in-the-US chips, but the actual supply will be meager and tokenistic.
The point of TSMC’s global expansion isn’t to distribute the world’s best chipmaking technology around the globe. It’s to allay concerns, increasingly expressed by business and political leaders, about having too much capacity concentrated in one place.
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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Tim Culpan is a Bloomberg Opinion columnist covering technology in Asia. Previously, he was a technology reporter for Bloomberg News.
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