Plans for U.S. chip making are running into obstacles

TSMC has been pushing back its factory opening

SAN FRANCISCO >> In December 2022, Taiwan Semiconductor Manufacturing Co., the key maker of the world's most cutting-edge chips, said it planned to spend $40 billion in Arizona on its first major U.S. hub for semiconductor production.

The much ballyhooed project in Phoenix — with two new factories, including one with more advanced technology — became a symbol of President Joe Biden's quest to spur more domestic production of chips, the slices of silicon that help all manner of devices make calculations and store data.

Then last summer, TSMC pushed back initial manufacturing at its first Arizona factory to 2025 from this year, saying local workers lacked expertise in installing some sophisticated equipment. Last month, the company said the second plant wouldn't produce chips until 2027 or 2028, rather than 2026, citing uncertainty about tech choices and federal funding.

Progress at the Arizona site partly depends on “how much incentives that the U.S. government can provide,” Mark Liu, TSMC's chair, said in an investor call.

TSMC is just one of several chipmakers running into obstacles with their U.S. expansion plans. Intel, Microchip Technology and others have also adjusted their production schedules, as a sales slump in many kinds of chips pressures the companies to manage their spending on new infrastructure. New chip factories are hugely complex, involving thousands of construction workers, long construction timelines and billions of dollars of machinery.

The delays come as the Biden administration begins dispensing the first major awards from a $39 billion pot of money aimed at building up the U.S. semiconductor industry and reducing the nation's dependence on technology manufactured in East Asia. On Monday, the administration said it would award $1.5 billion in grants to chipmaker GlobalFoundries to upgrade and expand facilities in New York and Vermont that make chips for automakers and the defense industry.

But the issues that companies such as TSMC face with their projects could undercut this fanfare, raising questions about the prospects of success for Biden's industrial policy program.

The investments are expected to figure heavily in Biden's reelection campaign over the next few months.

“Nothing has failed yet,” said Emily Kilcrease, a senior fellow and the director of the energy, economics and security program at the Center for a New American Security, a Washington think tank. “But we're going to have to see some progress and those factories actually coming online in the next few years for the program to be considered a success.”

The Commerce Department is responsible for handing out federal money from the 2022 CHIPS Act to spur domestic chip production. In addition to the grant to GlobalFoundries, the department has issued two small production grants so far. It is expected to give much larger awards in the billions of dollars to chipmakers such as TSMC, Intel, Samsung and Micron in the coming weeks and months.

The CHIPS Act authorized grants and other incentives to boost U.S. chip production, plus tax credits for investments in factories and manufacturing equipment. More than 600 companies and organizations had submitted statements of interest in the grants, the Commerce Department said, while it estimates pledges of private investment so far at $235 billion.

But most expansion plans were set when chips were scarce several years ago, after a pandemic-fueled burst of consumer spending on electronic products. That demand dried up, leaving chipmakers stuck with big inventories of unsold components and little immediate need for new factories.

“Companies are rethinking how and what and when investments will occur,” said Thomas Sonderman, CEO of SkyWater Technology, a Minnesota chip manufacturer that has won Defense Department subsidies and is aiming for CHIPS Act funding.

One chipmaker feeling the pinch is Microchip, an Arizona company. Two years ago, Microchip was swamped with orders. It applied for CHIPS Act funding to stoke production and stands to receive $162 million. Yet as sales have slumped, it recently announced two separate two-week factory shutdowns.

Microchip still plans to upgrade its factories in Oregon and Colorado that are set to receive CHIPS Act grants, said Ganesh Moorthy, its CEO. But ordering machines to increase production capacity will have to wait until business conditions improve.

“We've paused on expansion,” Moorthy said.

Intel, which is expanding production, has also adjusted purchases of costly factory tools. The company recently said it didn't expect to start manufacturing in Ohio, where it is spending $20 billion on two new factories, in 2025 as it originally expected. The change was reported earlier by The Wall Street Journal.

Still, Intel said neither construction on that site, nor plans to expand in the United States and three other countries, had slowed.*

PHILIP CHEUNG — THE NEW YORK TIMES Intel employees work inside a “clean room” at a facility in Hillsboro, Ore., in 2021. Delays in finishing new factories are emerging, just as the Biden administration begins handing out money to stoke domestic production.

ADRIANA ZEHBRAUSKAS — THE NEW YORK TIMES Taiwan Semiconductor Manufacturing Company announced it planned to spend $40billion on its first major U.S. hub.