TSMC: The U.S. hasn’t ‘given up on semiconductors,’ analyst says

Bernstein Research's Stacy Rasgon joins Yahoo Finance Live to discuss the capacity of the two new plants Taiwan Semiconductor is building in Arizona, what it means for the chip industry, and U.S.-China competition over high-tech chips.

Video Transcript

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- We are starting today, though, by taking a look at the chip space after the Taiwan Semiconductor Manufacturing Company, also known as TSMC, raises its Arizona chip investment to $40 billion, that coming amid plans to build a second semiconductor factory. All of this comes ahead of President Biden's visit to TSMC'S current plant under construction in Arizona.

And we should point out, Rochelle, this isn't just any visit by the president. You're going to have Tim Cook from Apple, Jensen Huang from NVIDIA, executives from AMD, all the major chip makers who reportedly really pushed TSMC to consider the second option here.

There's already one plant that's underway. It went from $12-billion investment to $40 billion. And the president's really here to kind of tout what his administration has been pushing all along, which is to onshore production manufacturing of chips in the US.

And you see the results so far. No question, the president's going to be touting all of this in terms of the investments he's been able to line up under his administration as a counter to China, Rochelle.

- And it's interesting because we saw commentary from Ronnie Chatterjee, the National Economic Council member who's actually overseeing the CHIPS Act. And he actually said that, "At scale, these two factories could meet the entire US demand for US chips when they're completed. That's the definition of supply chain resilience. We won't have to rely on anyone else to make the chips we need."

But keep in mind that, the raw materials that actually go into the chips, predominantly, are mined in Russia, China, and the Democratic Republic of Congo. Obviously, there's a competitive relationship with China, current sanctions on Russia, and the Democratic Republic of Congo experiences some active conflict there at the moment.

So in terms of supply chain resilience, I think that does come with a caveat, for sure. But we'll be keeping an eye on that. In fact, joining us now for more on-the-chip conversation is Stacy Rasgon, Bernstein Research US Semiconductors and Semi-cap Equipment Senior Analyst and Managing Director. Thank you for joining us.

So I want to first get your takeaway. How much of a victory lap should Biden be taking at this point?

STACY RASGON: Hey, look, it's-- it's important. The whole point of the CHIPS Act is to try to get some of these advanced projects-- and frankly, even some of the non-advanced projects-- started here in the US versus started elsewhere.

I-- I do think it's important to put this in context. So these numbers sound really big. They're actually not that big. Like, even if TSMC is making, whatever it is, 600,000 wafers a year and 26 out of this facility, that's about 50,000 wafers a month. That's like-- it'd be like 3% of their total installed manufacturing capacity, at that point.

The numbers in semiconductors, in general, get mind-bogglingly big. These numbers, in the grand scheme of things, are not incredibly big. But-- but they are a start, right. It is-- it is important. I think it's-- it's interesting and very important that they don't just have Biden.

But as you mentioned, they do have Tim Cook, and Jensen, and-- and the CEOs of-- of the customers that are going to use these facilities, right. These things are very expensive. You don't want to build them unless you're sure that you can fill them. Looks like TSMC'S probably not going to have that much problem filling it once it gets built.

- Stacy, good to talk to you this morning. It's kind of worth, sort of, backing-- back-tracking here and looking at how the events have all lined up. Obviously, there was a CHIPS Act that passed over this summer.

And then, in October, some of the most stringent export controls that were placed on Chinese manufacturing actually disabled American companies, largely, from providing advanced chips. I wonder if you can speak to what we're hearing out of TSMC.

It's not just 5 nanometer chips. We're talking about more advanced chips, 4 to 3 nanometer. How significant is it that they're expanding in that direction now?

STACY RASGON: It is. But by the time that stuff comes online, it's not going to be, like, bleeding edge anymore. So-- so the-- remember, there's two facilities that they're talking about building now. The site, by the way, is sized for like six fabs.

So they're starting with two. The first fab looks like it's been upgraded from what was called 5 nanometers to 4. They're roughly the same. They use the same kind of equipment, set 4 nanometer is kind of an upgraded 5, but fine.

Um, by the time it comes online in 24, that's not going to be leading edge. The new fab, it looks like it's going to be doing 3 nanometer and 26. And again, by the time that comes online, that will not be the most advanced stuff.

TSMC is doing a 2-nanometer fab in-- in Taiwan. They're already talking about doing a 1-nanometer fab. So they will not be the bleeding edge of what TSMC is doing. They're going to keep that, it sounds like, in Taiwan.

But it doesn't mean that it's not important, right. Even-- even the-- the stuff that's not on-- on the true bleeding edge of process technology is still needed.

- And so what's next, in terms of where the industry goes from here? Obviously, we're starting to see some of the benefits of the CHIPS Act starting to pour in. But it's still very early days at the moment.

STACY RASGON: That's right. And-- and again, so remember, the CHIPS Act is going to take a while. There's a-- there's a couple of different pieces of it. You have the direct manufacturing subsidies. I think it was $52 billion in total, which included $39 billion for-- directly for manufacturing.

The-- the proposals for that stuff are not even really going to start coming in until, you know, the first half of next year. And the funds will be dispersed over, like, the next 5 to 10 years. So it's going to take a while.

And I think, if you look at the-- the CBO or the Congressional Budget Office, they were estimating 2026 as probably the peak year for fund disbursement. And it was something like $10 billion in that year.

And just for some context, the industry spends anywhere between, you know, $70 and $100 billion a year on-- on equipment right now. So it's-- they're-- they're-- they're relatively small, as a percentage of the total.

Um, there's also tax credits that happen. Though the tax credits can happen quicker, it's a 25% tax credit on qualified US manufacturing investments in semiconductors. I think the CBO had-- had estimated that at about $24 billion over the lifetime of the program-- of that program, which is 5 years.

So these are the kind of numbers that we're talking about. But just for some context, TSMC spends close to $40 billion a year just for themselves.

The industry as a whole-- the global industry, I mean, we did-- in 20-- this year, in 2022, we'll probably do $95 billion in equipment spending and probably $140, $150 billion in total CapEx, for semiconductors. So that just gives you some idea of the kind of numbers we're talking about here.

- Uh, Stacy, really quickly, you said, in terms of volume, this isn't significant. But this is really a critical piece of, at least, this administration's push back against China.

And I want to point to comments that we got from Commerce Secretary Gina Raimondo last week-- who has really been leading this push-- who says, "Semiconductors are ground zero in this technological competition and central to our new investment strategy.

Obviously, she goes on to talk about how the US has lost the lead in terms of global production. What does this do? The announcement today, TSMC being a Taiwanese company, announcing this in Arizona. What does that mean for the larger US-CHINA competition?

STACY RASGON: Well, uh-- so I still don't believe that the US has given up on semiconductors, although I think that the Secretary is right. In terms of manufacturing, we've let manufacturing go offshore.

There are many other critical pieces of the semiconductor issue that-- that the US controls. And by the way, the sanctions on China are-- are clear evidence of that. We-- we've chopped their knees out from under them, in terms of their own ability, probably, to develop an advanced semiconductor industry on their.

We own the-- the most important design companies. We own the most important-- some of the most important equipment companies. We own the most important-- what's called EDA, the software design companies that make the software to do this stuff.

There are many, many, many pieces of the-- of the supply chain. It's a very global and very interconnected supply chain. And the US controls big pieces of that. So I don't think it's true that we've given up on-- on semiconductors or that we've left the lead, quote, unquote, "go." Manufacturing, yes.

And-- and-- and I think it is important to bring that back on short-term-- try to bring some of it on shorter derisk. But you'll never be able, for example, to fully reshore what's in Taiwan. It'll take trillions of dollars and 20 years, if-- if that-- if-- if it's possible at all. And there's always going to be pieces of the supply chain that are critical that we can't control.

But all that being said, I-- I think the more diversification you have is important. It is very true that-- that the US-- and frankly, the world-- is very dependent on Taiwan. And it's 100 miles offshore from China. And that's becoming an increasingly untenable geopolitical situation.

And so any kind of, like, strategic diversification we can do for that supply chain, I think, is important. And this is a start. That's all it is. It's only a start. But you have to start somewhere. And this is a good start, I think, along those lines.

- Fair point, a strong start indeed. A big thank you to Bernstein's Stacy Rasgon. And thank you so much for joining us this morning.

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