8 ms·

US, Europe 'unrealistic' in fab expansion drive, says TSMC chair

39 points by craigjb 6y ago

hahahahe 6y ago
Sounds like someone wants to hold onto unsustainable monopoly. Edit: chip shortage has been a known variable for over a year now. I think TSM overplayed its hands a bit. They didn’t want to expand and get caught when the demand would subside, which is very understandable. But what they didn’t foresee is that the US govt would get involved in propping up its competition in direct response.
- greggyb 6y ago
  A year is not nearly enough time to spin up a new fab. It is impossible to say with any certainty that TSMC did not respond correctly to a variable that has been known for only a year.
lumost 6y ago
Doesn't this imply that it would be unrealistic to create large amounts of new supply to satisfy local strategic needs in a global economy? for a large market like the US/Europe couldn't they choose to not participate in the global market for chips? or tip the scales such that local competitors are favored? I don't see any reason why certain products couldn't be on a sliding tariff scale dependent on how much is imported. 20-40% imports = no tariffs, 80% triggers a sliding tariff scale. This would allow for strategic preservation and global competition. Once you fully outsource an industry it's hard for it to ever grow back - even if it makes sense for it too.
- resonantjacket5 6y ago
  Unrealistic given how much fab facotiries cost. Your tariff method would work for say mining copper or say iron screws but not for a fab factory as it can't really be scaled halfway
  - medium_burrito 6y ago
    What's the US military budget? Let's say DOD decides it wants onshore chips. $10B is peanuts; $100B is easily doable if they say it's important enough- which it is.
    - varispeed 6y ago
      They probably already have fabs.
    - resonantjacket5 6y ago
      the DoD budget was around 700 billion, no one is going to spend around 1/10th of their entire military budget on semi conductors at cost. They're going to assume some returns on these fab factories.
      - newsclues 6y ago
        With the price of crypto DoD could self fund its wars by owning advanced fans and licensing GPUs.
- dv_dt 6y ago
  The question of unprofitability is interesting on large capital projects - it's often a question of what timescale we're talking about, and if nations become involved then the timescales can be both significantly larger as well as the dynamics of possibly loaned or direct grant money for the capital. If it's a matter of subsidizing one industry to favor the overall economy (e.g. more chips so the automotive and other sectors don't slow down), then nations also get involved. China pretty much directly and openly, and the US/Europe more indirectly.
- hedora 6y ago
  Tariffs like that can backfire and prop up non-innovative companies. The US steel industry is a good example. It’s still based on WWII technology, and there’s guaranteed income regardless of whether it’s competitive.
amelius 6y ago
What is the distribution of education-level of workers at a typical fab? Is it like 90% researchers, or more like 90% production workers?
- sct202 6y ago
  I couldn't find anything by site, but TSMC reported these stats in their 2019 Annual Report as a whole out of 51k employees: 5k managers, 24k professionals, 4k assistants and 17k technicians. They reported highest level of education for their workforce of: 4.5% PHD, 44.9% Masters, 25.5% Bachelors.
  - amelius 6y ago
    Interesting, thanks!
whatshisface 6y ago
It would be nice if they reported on the reasons given in support of the claims instead of just the claims on their own.
lainga 6y ago
Is Liu misunderstanding the Western plans or am I? I was under the impression that the US and Europe intended to get some onshore fab capacity as a second-source and backup in case Taiwan is blockaded or worse. If the plan was to replace TSMC entirely, well, I'd think he was justifiably concerned as (a) a threat to his business and (b) evidence that the US was decoupling from Taiwan. But I don't think that's the case.
- PeterisP 6y ago
  Arguably US and Europe absolutely intend to get some onshore fab capacity as a backup, and the choice for TSMC is to either do that (perhaps demanding some subsidies as enticement) or refuse with the expectation that this will inevitably cause attempts to decouple from TSMC even if it's not economically viable, purely for strategic reasons. IMHO there are some similar trends with EU agricultural policy, where arguably one of the reasons (not much discussed to general public, but obvious if you look at what's being done) for sustaining farming subsidies in sectors where EU would be uncompetitive (due to climatic reasons and labor costs) is the strategic goal to ensure that EU does not become reliant on imported food even if it can be farmed cheaper elsewhere, so that in case of major geopolitical disturbances in coming decades (e.g. caused by climate change) there's local farmers, farmland, skills and infrastructure for that. The costs seem huge, but in proportion to the whole economy they're affordable - the same would apply for on-shore chip fab capacity that's needed for strategic self-sufficiency of key resources. On the other hand, I fully agree with the TSMC statement that it would be economically unrealistic for EU to expand semiconductor fab capacity to fully satisfy their own needs - it's feasible to expand fab capacity so that you have some onshore supply of modern chips, but it's impractical (and IMHO not within plans of any politician) to ensure that there would be enough fab capacity to supply all the consumer consumption, the expectation is that most of the volume would still be supplied from Taiwan and elsewhere.
  - PeterisP 6y ago
    On the other hand, if I think more about it, it may be a key strategic interest of Taiwan to ensure that USA and EU don't get any reasonable onshore fab capacity in the near future - if Taiwan (and trade with it) becomes irreplaceable for USA and EU, possibly even more irreplaceable than the trade with mainland China, that would ensure that USA and EU would be motivated to defend Taiwan against any attempts of forceful reunification.
atty 6y ago
It may be true that TSMC and Samsung can meet demand during normal times, but it completely misses the point that NA and EU want significant production capacity locally not to reduce costs, but to secure a critical supply chain. Is this a situation where he may be concerned that significant expansion of production capability away from Taiwan and SK will reduce the West’s reliance on TSMC, which may be a security risk for TSMC or Taiwan? I’m nowhere near an expert on this sort of thing, I’m honestly curious.
- bilbo0s 6y ago
  And frankly, this is everyone's motivation. EU wants to not depend on TSMC. US has gone all-in to not depend on TSMC. China has gone all-in to not depend on TSMC. And there are even rumors that Russia is trying to build their capabilities in this regard. I think the leadership at TSMC is being a little naive. Alternatively, they may know very well what's going on here and they are being willfully obtuse to paint as bright a picture as possible of their long-term prospects.
  - deleted 6y ago
    [deleted]
  - mirthflat83 6y ago
    You don’t become a leader in this industry by being naive. HN readers are being naive believing that TSMC really meant what they said. Anyone with a brain knows that the US wants to reduce reliance on TSMC
  - tachyonbeam 6y ago
    Yeah. It's not just supply chain, it's also national security. > I think the leadership at TSMC is being a little naive. Alternatively, they may know very well what's going on here and they are being willfully obtuse to paint as bright a picture as possible of their long-term prospects. It could be two things: 1. Some arrogance, "hah, this is harder than you think" 2. They're trying to discourage the competition because they know it will hurt their bottom line. Even if they only lost 10% of their revenue, that can still hurt a lot. They could go from being a growing business to stagnating or shrinking.
zwieback 6y ago
This gives a little overview: https://fortune.com/2020/08/10/us-china-trade-war-semiconductors-chips-tsmc-chipmakers/ https://fortune.com/2020/08/10/us-china-trade-war-semiconduc... Sounds like a tricky situation for everyone, don't want to alienate Taiwan or Apple or China. And TSMC is building capacity in the US. It isn't really a West vs. East game.
villgax 6y ago
As if like Champagne it can only be called a chip if made in Taiwan? GTFO
- varispeed 6y ago
  That made me laugh hard, thank you so much good sir
varispeed 6y ago
I think TSMC over estimates how state sponsored fabs would look like. I can predict now that it will be a disaster and many billions will be funnelled to bureaucrat friends through questionable procurement. If there is going to be a miracle and they actually build a fab, it will be lacking as they will not find specialists willing to work for EU wages and level of taxation.
- kar1181 6y ago
  I think Intel will do a good job of it. They have no choice if they get this expansion wrong they are done. My expectations for Europe though, are sadly much lower.
  - greggyb 6y ago
    Europe saves on shipping from ASML to any fabs on the continent! That's a competitive advantage! /s
    - trynumber9 6y ago
      To some extent it's true, but pretty minimal as ASML sometimes delivers machinery to their East Asian customers by rail to China then does the last bit by sea.
layla5alive 6y ago
"We built enough capacity for the world so you shouldn't build any local capacity to ensure resiliency of supply chains because this will harm the current efficiency of our monopoly position." These people are awful. That's like saying you should never use anything other than RAID0 because anything else costs you more for the same performance. Yeah, sometimes cost/performance aren't the only important metrics! The pandemic has literally been a real-life example of the downsides of the approach he is advocating.
petree 6y ago
The whole world economy relies on 3 countries in balistic rocket range of each other; not great. Having foundries distributed around the world sounds way more resilient to any conflicts or disasters that might arise in that particular region.
bww 6y ago
I think Liu is trying to dismiss the west’s concerns on the only basis that he can: the short term economics. In reality there is a more important strategic priority at the core of these initiatives, but that’s a whole lot harder to play down.
dirtyid 6y ago
Semi is oil now, there's more strategic/geopolitical considerations than supply/demand curve. US/EU/CN do not want Taiwan to have semi dominance, it's not in anyone's interest. Current TSMC position is happenstance due to poor industrial policies that countries are scrambling to address. IMO press releases and capex spending around Arizona announcement suggest TSMC wasn't prepared to built US fab, let alone 6. US pressured them, EU failed to. There's a good chance TSMC/Taiwan will try to delay their silicon shield evaporating for as long as they can. Probably not a coincidence big ticket US weapons sales are scheduled around when fabs would be up. Future will be priority sourcing from domestic fabs, let TSMC whither, by design.
booleandilemma 6y ago
I guess they would say that, right?
tehjoker 6y ago
TSMC is probably completely accurate. Their contention is that moving the supply chain would create "non-profitable capacity". However, national supplies do not need to be profitable if they are subsidized or fully funded by a state. The state is free to, and often does, engage in non-profitable production to ensure essential domestic needs can be satisfied. This doesn't make sense from a market perspective, but it can often make sense from a needs based perspective.
- blueblisters 6y ago
  Won't this lead to innovation grinding to a halt? Right now TSMC has a decent profit margin to re-invest into newer technologies. If the margins become thinner, the industry will find it difficult to set aside R&D dollars for the newest technologies. Of course, you can always have a newcomer who can disrupt the market but most Moore's law advancements appear to happen in government funded research labs and large semiconductor companies.
  - ffggvv 6y ago
    IMO its just smart in case china tries to annex taiwan or initiates military moves and then we're cut off from semiconductors.
    - tehjoker 6y ago
      This is correct, but imo it is far more likely for the US (the largest military power in the world) to start something. No need to be hyper nationalistic about this.
      - deleted 6y ago
        [deleted]
      - zepto 6y ago
        It’s not obvious that the US will be the largest military power for long. And china has been flying incursions into Taiwanese airspace with increasing regularity. Plus, China has broken its treaty obligations in Hong Kong, and explicitly expresses the view that Taiwan is part of China, and it has no strategic semiconductor fabrication capability of its own. Given all this, I’m not sure why you’d imagine the US would ‘start something’ purely because of the dollar amount it has spent on the military.

39 points by craigjb 6y ago

Sounds like someone wants to hold onto unsustainable monopoly. Edit: chip shortage has been a known variable for over a year now. I think TSM overplayed its hands a bit. They didn’t want to expand and get caught when the demand would subside, which is very understandable. But what they didn’t foresee is that the US govt would get involved in propping up its competition in direct response.

greggyb 6y ago
A year is not nearly enough time to spin up a new fab. It is impossible to say with any certainty that TSMC did not respond correctly to a variable that has been known for only a year.

lumost 6y ago

Doesn't this imply that it would be unrealistic to create large amounts of new supply to satisfy local strategic needs in a global economy? for a large market like the US/Europe couldn't they choose to not participate in the global market for chips? or tip the scales such that local competitors are favored? I don't see any reason why certain products couldn't be on a sliding tariff scale dependent on how much is imported. 20-40% imports = no tariffs, 80% triggers a sliding tariff scale. This would allow for strategic preservation and global competition. Once you fully outsource an industry it's hard for it to ever grow back - even if it makes sense for it too.

resonantjacket5 6y ago
Unrealistic given how much fab facotiries cost. Your tariff method would work for say mining copper or say iron screws but not for a fab factory as it can't really be scaled halfway
- medium_burrito 6y ago
  What's the US military budget? Let's say DOD decides it wants onshore chips. $10B is peanuts; $100B is easily doable if they say it's important enough- which it is.
  - varispeed 6y ago
    They probably already have fabs.
  - resonantjacket5 6y ago
    the DoD budget was around 700 billion, no one is going to spend around 1/10th of their entire military budget on semi conductors at cost. They're going to assume some returns on these fab factories.
    - newsclues 6y ago
      With the price of crypto DoD could self fund its wars by owning advanced fans and licensing GPUs.
dv_dt 6y ago
The question of unprofitability is interesting on large capital projects - it's often a question of what timescale we're talking about, and if nations become involved then the timescales can be both significantly larger as well as the dynamics of possibly loaned or direct grant money for the capital. If it's a matter of subsidizing one industry to favor the overall economy (e.g. more chips so the automotive and other sectors don't slow down), then nations also get involved. China pretty much directly and openly, and the US/Europe more indirectly.
hedora 6y ago
Tariffs like that can backfire and prop up non-innovative companies. The US steel industry is a good example. It’s still based on WWII technology, and there’s guaranteed income regardless of whether it’s competitive.

amelius 6y ago

What is the distribution of education-level of workers at a typical fab? Is it like 90% researchers, or more like 90% production workers?

sct202 6y ago
I couldn't find anything by site, but TSMC reported these stats in their 2019 Annual Report as a whole out of 51k employees: 5k managers, 24k professionals, 4k assistants and 17k technicians. They reported highest level of education for their workforce of: 4.5% PHD, 44.9% Masters, 25.5% Bachelors.
- amelius 6y ago
  Interesting, thanks!

whatshisface 6y ago

It would be nice if they reported on the reasons given in support of the claims instead of just the claims on their own.

lainga 6y ago

Is Liu misunderstanding the Western plans or am I? I was under the impression that the US and Europe intended to get some onshore fab capacity as a second-source and backup in case Taiwan is blockaded or worse. If the plan was to replace TSMC entirely, well, I'd think he was justifiably concerned as (a) a threat to his business and (b) evidence that the US was decoupling from Taiwan. But I don't think that's the case.

PeterisP 6y ago
Arguably US and Europe absolutely intend to get some onshore fab capacity as a backup, and the choice for TSMC is to either do that (perhaps demanding some subsidies as enticement) or refuse with the expectation that this will inevitably cause attempts to decouple from TSMC even if it's not economically viable, purely for strategic reasons. IMHO there are some similar trends with EU agricultural policy, where arguably one of the reasons (not much discussed to general public, but obvious if you look at what's being done) for sustaining farming subsidies in sectors where EU would be uncompetitive (due to climatic reasons and labor costs) is the strategic goal to ensure that EU does not become reliant on imported food even if it can be farmed cheaper elsewhere, so that in case of major geopolitical disturbances in coming decades (e.g. caused by climate change) there's local farmers, farmland, skills and infrastructure for that. The costs seem huge, but in proportion to the whole economy they're affordable - the same would apply for on-shore chip fab capacity that's needed for strategic self-sufficiency of key resources. On the other hand, I fully agree with the TSMC statement that it would be economically unrealistic for EU to expand semiconductor fab capacity to fully satisfy their own needs - it's feasible to expand fab capacity so that you have some onshore supply of modern chips, but it's impractical (and IMHO not within plans of any politician) to ensure that there would be enough fab capacity to supply all the consumer consumption, the expectation is that most of the volume would still be supplied from Taiwan and elsewhere.
- PeterisP 6y ago
  On the other hand, if I think more about it, it may be a key strategic interest of Taiwan to ensure that USA and EU don't get any reasonable onshore fab capacity in the near future - if Taiwan (and trade with it) becomes irreplaceable for USA and EU, possibly even more irreplaceable than the trade with mainland China, that would ensure that USA and EU would be motivated to defend Taiwan against any attempts of forceful reunification.

atty 6y ago

It may be true that TSMC and Samsung can meet demand during normal times, but it completely misses the point that NA and EU want significant production capacity locally not to reduce costs, but to secure a critical supply chain. Is this a situation where he may be concerned that significant expansion of production capability away from Taiwan and SK will reduce the West’s reliance on TSMC, which may be a security risk for TSMC or Taiwan? I’m nowhere near an expert on this sort of thing, I’m honestly curious.

bilbo0s 6y ago
And frankly, this is everyone's motivation. EU wants to not depend on TSMC. US has gone all-in to not depend on TSMC. China has gone all-in to not depend on TSMC. And there are even rumors that Russia is trying to build their capabilities in this regard. I think the leadership at TSMC is being a little naive. Alternatively, they may know very well what's going on here and they are being willfully obtuse to paint as bright a picture as possible of their long-term prospects.
- deleted 6y ago
  [deleted]
- mirthflat83 6y ago
  You don’t become a leader in this industry by being naive. HN readers are being naive believing that TSMC really meant what they said. Anyone with a brain knows that the US wants to reduce reliance on TSMC
- tachyonbeam 6y ago
  Yeah. It's not just supply chain, it's also national security. > I think the leadership at TSMC is being a little naive. Alternatively, they may know very well what's going on here and they are being willfully obtuse to paint as bright a picture as possible of their long-term prospects. It could be two things: 1. Some arrogance, "hah, this is harder than you think" 2. They're trying to discourage the competition because they know it will hurt their bottom line. Even if they only lost 10% of their revenue, that can still hurt a lot. They could go from being a growing business to stagnating or shrinking.

zwieback 6y ago

This gives a little overview: https://fortune.com/2020/08/10/us-china-trade-war-semiconductors-chips-tsmc-chipmakers/ https://fortune.com/2020/08/10/us-china-trade-war-semiconduc... Sounds like a tricky situation for everyone, don't want to alienate Taiwan or Apple or China. And TSMC is building capacity in the US. It isn't really a West vs. East game.

villgax 6y ago

As if like Champagne it can only be called a chip if made in Taiwan? GTFO

varispeed 6y ago
That made me laugh hard, thank you so much good sir

varispeed 6y ago

I think TSMC over estimates how state sponsored fabs would look like. I can predict now that it will be a disaster and many billions will be funnelled to bureaucrat friends through questionable procurement. If there is going to be a miracle and they actually build a fab, it will be lacking as they will not find specialists willing to work for EU wages and level of taxation.

kar1181 6y ago
I think Intel will do a good job of it. They have no choice if they get this expansion wrong they are done. My expectations for Europe though, are sadly much lower.
- greggyb 6y ago
  Europe saves on shipping from ASML to any fabs on the continent! That's a competitive advantage! /s
  - trynumber9 6y ago
    To some extent it's true, but pretty minimal as ASML sometimes delivers machinery to their East Asian customers by rail to China then does the last bit by sea.

layla5alive 6y ago

"We built enough capacity for the world so you shouldn't build any local capacity to ensure resiliency of supply chains because this will harm the current efficiency of our monopoly position." These people are awful. That's like saying you should never use anything other than RAID0 because anything else costs you more for the same performance. Yeah, sometimes cost/performance aren't the only important metrics! The pandemic has literally been a real-life example of the downsides of the approach he is advocating.

petree 6y ago

The whole world economy relies on 3 countries in balistic rocket range of each other; not great. Having foundries distributed around the world sounds way more resilient to any conflicts or disasters that might arise in that particular region.

bww 6y ago

I think Liu is trying to dismiss the west’s concerns on the only basis that he can: the short term economics. In reality there is a more important strategic priority at the core of these initiatives, but that’s a whole lot harder to play down.

dirtyid 6y ago

Semi is oil now, there's more strategic/geopolitical considerations than supply/demand curve. US/EU/CN do not want Taiwan to have semi dominance, it's not in anyone's interest. Current TSMC position is happenstance due to poor industrial policies that countries are scrambling to address. IMO press releases and capex spending around Arizona announcement suggest TSMC wasn't prepared to built US fab, let alone 6. US pressured them, EU failed to. There's a good chance TSMC/Taiwan will try to delay their silicon shield evaporating for as long as they can. Probably not a coincidence big ticket US weapons sales are scheduled around when fabs would be up. Future will be priority sourcing from domestic fabs, let TSMC whither, by design.

booleandilemma 6y ago

I guess they would say that, right?

tehjoker 6y ago

TSMC is probably completely accurate. Their contention is that moving the supply chain would create "non-profitable capacity". However, national supplies do not need to be profitable if they are subsidized or fully funded by a state. The state is free to, and often does, engage in non-profitable production to ensure essential domestic needs can be satisfied. This doesn't make sense from a market perspective, but it can often make sense from a needs based perspective.

blueblisters 6y ago
Won't this lead to innovation grinding to a halt? Right now TSMC has a decent profit margin to re-invest into newer technologies. If the margins become thinner, the industry will find it difficult to set aside R&D dollars for the newest technologies. Of course, you can always have a newcomer who can disrupt the market but most Moore's law advancements appear to happen in government funded research labs and large semiconductor companies.
- ffggvv 6y ago
  IMO its just smart in case china tries to annex taiwan or initiates military moves and then we're cut off from semiconductors.
  - tehjoker 6y ago
    This is correct, but imo it is far more likely for the US (the largest military power in the world) to start something. No need to be hyper nationalistic about this.
    - deleted 6y ago
      [deleted]
    - zepto 6y ago
      It’s not obvious that the US will be the largest military power for long. And china has been flying incursions into Taiwanese airspace with increasing regularity. Plus, China has broken its treaty obligations in Hong Kong, and explicitly expresses the view that Taiwan is part of China, and it has no strategic semiconductor fabrication capability of its own. Given all this, I’m not sure why you’d imagine the US would ‘start something’ purely because of the dollar amount it has spent on the military.