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TSMC injects a bonus $3.5B into Arizona chip fabs

Roses are rad, violets are lame, Taiwan's playing a very long game

In spite of slowing semiconductor demand, particularly at the high end and for leading edge nodes, Taiwan Semiconductor Manufacturing Co. (TSMC) plans to plow an additional $3.5 billion into its Arizona fab sites.

The increased capital expenditures were approved by the foundry giant's board of directors announced in a memo on Tuesday. The move comes just months after TSMC nearly tripled its investment in Arizona as part of an increasing push to expand its facilities in the US.

TSMC's Grand Canyon State campus, first announced in mid-2020, was initially envisioned a $12 billion facility capable of producing 20,000 silicon wafers a month based on its then novel 5nm process node. Located just outside of Phoenix — across town from Intel's Ocotillo chip center — the fab was expected to employ roughly 1,600 people when it came online in 2024.

With $52 billion CHIPs funding for new fab capacity on the table, TSMC in December said it would build a second fab at its Arizona site and increase its investment to roughly $40 billion. Combined, the company says the two fabs will pump out 50,000 wafers a month once they are fully up and running.

The second fab, which is slated to come online in 2026, will reportedly produce chips based on the company's new 3-nm process node. However, as we've noted in the past, it's likely the site will produce much more advanced chips by the time its lithography machines are powered on. Originally, the foundry operator's first Arizona fab was to produce chips based on its 5nm process, but by 2022 TSMC said the fab would use its 4nm process tech instead.

Demand is dropping, but for how long?

In the nearly three years since the TSMC site was first announced, the semiconductor industry has undergone a radical transformation as a confluence of events, set off by the COVID-19 pandemic and complicated by growing tensions between the US and China, gave rise to a global semiconductor shortage.

TSMC's continued investments in fab infrastructure come in the face of deteriorating demand for chips, as the global economy contracts. We've already seen this play out in the PC and gaming markets where spending on PCs, laptops, smartphones, GPUs have all but disappeared over the past two quarters.

So far, the world's largest chip producer has managed to shrug off the economic headwinds, growing revenues 26.7 percent year-on-year to $19.93 billion in Q4. However, the company's outlook isn't nearly so optimistic.

TSMC executives last month projected the company's first revenue decline in nearly four years. In response to the changing economic winds, the company has curbed its spending plans, from $40 billion to somewhere between $32 and $36 billion.

TSMC isn't the only foundry operator facing headwinds.Reuters reports that Samsung Electronics, the second largest foundry operator next to TSMC, this week will need to borrow $16 billion from its display business to use as operational funds.

The news comes after Samsung posted its weakest quarter in years. In Q4, the company saw its operating profits plummet 69 percent year over year to $3.4 billion. Executives blamed ballooning DRAM and NAND flash inventories which were driving average selling prices to new lows. Despite this the company surprised many by doubling down on its foundry expansion, promising to invest in high value process tech, like DDR5 and high-bandwidth memory products.

Samsung Electronics says it will pay back its display division with interest by 2025.

While TSMC and Samsung continue to invest in their foundry businesses, Intel is having trouble finding the cash to pay for its new fabs. Last week, local media reported that Intel had approached the German economy minister with a request for an additional €3.2 billion for the company's Magdeburg mega fab on top of the €6.8 billion the country had already agreed to pay.

Due to rising inflation and higher fuel prices, Intel now estimates the facility will cost €20 billion to complete. ®

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