Chipmaker TSMC defends overseas expansion plans

TSMC has defended its push to diversify manufacturing beyond the company’s native Taiwan as a key step to secure the future of the world’s largest contract chip maker amid rising geopolitical tensions.

Taiwan Semiconductor Manufacturing Co’s overseas expansion plans have drawn domestic concerns, with shareholders challenging management at their annual meeting on Tuesday. They asked chairman Mark Liu to explain the reasoning behind his decision to invest $40 billion in two manufacturing plants in the US, building another in Japan and considering one in Germany.

Liu said the company needed globalization to maintain and expand its technology and manufacturing leadership. The initial decision to invest in a manufacturing plant in Arizona was triggered in 2018 by customer demand that the company provide capacity in the US for defense and sensitive infrastructure related products.

“Moving to the US isn’t all negative, it’s not just about added cost, it’s the long-term growth direction for TSMC,” he added. “How can we maintain our position as a global technology leader in the coming 10 to 20 years? It has to do with the question of whether Taiwan has enough talent, whether Taiwan has enough research and development. We should not assume that our present success will continue in the future.

Liu’s comments mark the first time geopolitics has taken center stage at TSMC’s annual meeting – a change fueled by growing competition between the US and China. Their battle for technological supremacy is straining Taiwan-dominated global tech supply chains to take sides, while China is responsible for a growing military intimidation campaign against Taiwan.

If China ever invades Taiwan, there are fears of catastrophic supply chain disruption with more than 90 percent of the world’s most advanced semiconductors made in the country. However, Taipei has pushed against pressure from the US and other governments for TSMC to move chip production out of Taiwan.

Capacity TSMC is building overseas accounts for less than 10 percent of its total capital investment. CC Wei, chief executive, reassured shareholders that the lion’s share of N3’s capacity, the most advanced process technology currently in mass production, as well as the next two generations, N2 and N1.4, will remain in Taiwan.

Liu expressed cautious optimism that the governments in both the US and Germany will provide the subsidies and supply chain support TSMC needs to make its overseas plants profitable.

In current talks over the company’s plans to build a manufacturing facility in Dresden, “the feeling is not bad”, Liu said. He said there were some gaps in Germany’s supply chain and labour, but Berlin was promising a rapid build-up of capabilities.

In the US, he said the Commerce Department was open to subsidizing TSMC’s concerns on certain preconditions the foreign chip maker sees as crucial to bridging the cost gap with manufacturing plants in Asia.

“Their goal is to make these investments competitive in the US. So as long as we don’t violate US national security, they will be able to accept it.” He argued that part of the higher cost in the US was down to the fact that there had been barely any investment in chip manufacturing in the country for many years.

“Once this effort reaches a certain scale, these costs will start to come down,” he said.