DIGITIMES Research analyzed the US CHIPS Act grant program for TSMC and found that although TSMC received US$6.6 billion compared to Intel's US$8.5 billion, the US government still provided beneficial conditions to TSMC.
In addition, DIGITIMES Research believes that too many commentaries and analyses of TSMC's move to the US have only focused on the single company level. They have completely ignored the need to analyze the larger competitive landscape.
US CHIPS Act funding is generous
It would be naïve to assume that the US government is impartial and unbiased. However, judging from the content of the announced Intel and TSMC grants, the US Department of Commerce used objective standards to make its decisions based on a set of criteria, which include the amount of the applicant's (committed) investment, the number of plants, and the size of the production line within a certain number of years, and so on.
Taking the easiest way to see the amount of direct subsidy compared to the amount of investment, TSMC has committed to invest $65 billion to get $6.6 billion (10.1% rate of return). In contrast, Intel committed to investing US$100 billion and got US$8.5 billion (8.5% rate of return), so it is obvious that TSMC's rate of return is higher than that of Intel.
However, the necessity of a $5 billion low-interest loan is low for TSMC because the US government subsidizes a portion of the interest on the low-interest loan. The interest rate may still be higher than the interest rate that TSMC can get on its loans in Taiwan.
For Intel, which has been in a tight financial situation for the past two years and even the next few years, and which has to greatly expand its plants and capacity globally, the US$11 billion low-interest loan can be considered a blessing. In the US where interest rates are still high, getting subsidized on the interest rate will relieve some pressure for Intel.
As for the qualified portion of capital expenditures, the investment tax credit of up to 25% from the US Department of the Treasury is equally beneficial to TSMC and Intel.
TSMC's challenge in US is relatively small
Setting up a foundry in the US will face high labor costs, strong local union attitudes, long environmental assessment procedures, cumbersome and slow approval of government subsidy application requirements, and high inflation that has caused costs to soar. For all of the above, most commentaries or analyses only see that these have led to rising costs for the construction of TSMC's Arizona facility and delays in the mass-production timetable.
However, if we look at the situation from the perspective of global competition, we will find that the delay is not unfavorable to TSMC. Why? TSMC is facing the same problems in the US.
Its two biggest competitors, Intel and Samsung Electronics are also facing them. If we compare setting up fabs in the US to struggling in a quagmire, then in terms of global capacity and investment, both competitors are stuck in the same quagmire but in a larger proportion than TSMC, especially Intel.
In other words, the impact of TSMC's US plant is a shoe in the mud for TSMC as the leader, not to mention that of the three companies, TSMC is the only one with a strong overseas fab capacity in Japan as a backup (which is also efficient in terms of operations). In this competition, TSMC can do its R&D and allocate its global capacity based on customer demand.
Pivotal transformation for a chip giant
DIGITIMES Research pointed out in a report published in July 2021 that TSMC will transform into a multinational company in the next 10 years. We expect TSMC to scale up its production capacities overseas and will continue setting up R&D centers and recruiting foreign talent.
Those efforts will also force TSMC to face new challenges, especially the cost management ability in cross-border mass volume productions, and human resource management competency in societies with different cultural contexts and people from different cultural backgrounds.
Founded in 1987, after 37 years of growth and development, TSMC is the most important company in Taiwan. It has also become an indispensable part of the global industrial supply chain in an era when semiconductor components are used in every industry and finished products in people's daily lives.
As a world-class company, TSMC is in a situation where semiconductor competition is key to industrial development and a center of gravity for strategies at the national level. TSMC should not be content with staying on a small island in East Asia, courageously facing world-class challenges is the only option.
