US chip self-reliance hindered by lack of packaging facilities despite TSMC’s Arizona fab

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The TSMC Arizona fab is a crucial part of President Joe Biden’s plan to design and produce leading-edge logic chips, as reported by the National Institute of Standards and Technology (NIST) in 2023. However, construction on the fab has been delayed due to a shortage of skilled US workers. Despite this, the fab remains integral to US infrastructure and military modernization efforts.

Last December, Apple (NASDAQ:AAPL) announced it would become the Arizona fab’s biggest customer. Apple CEO Tim Cook stated that these chips could be proudly stamped “Made in America”. However, Dylan Patel, chief analyst at SemiAnalysis, argued that without a local packaging facility, the Arizona fab is effectively a paperweight and does not significantly contribute to America’s advanced chip supplies.

The Center for Strategic and International Studies (CSIS) reported in 2021 that US semiconductor firms offshore almost all packaging processes, with only 46 facilities located domestically specializing in outsourced testing and assembly operations. Meanwhile, there are 107 such facilities in Taiwan and 111 in China—countries responsible for at least 81 percent of global chip assembly, packaging, and testing.

Apple hasn’t specified how many chips it plans to purchase from the Arizona fab. The company might be planning to buy less advanced chips that could be packaged outside Taiwan for its iPads and MacBooks. However, more advanced chips used in the iPhone, Apple Watch, and advanced Mac desktops would still likely have to come from Taiwan.

TSMC employees told The Information that building a packaging facility in the US is unlikely due to high costs. Analysts also believe that the Arizona fab won’t produce enough chips to justify TSMC building a packaging facility in the US. When fully operational, the fab will produce 600,000 wafers per year, a relatively small amount compared to the 15 million total wafers TSMC produced in 2022.

On Thursday, September 14, 2023, Dylan Patel reiterated his stance, stating that the TSMC Arizona fab will be little more than a paperweight in any geopolitical tension or war with China over Taiwan due to the need to send the chips back to Taiwan for packaging.

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