The US Department of Commerce and the semiconductor foundry TSMC jointly announced on Monday that they have reached a preliminary agreement to provide the Taiwanese manufacturer with up to $6.6 billion in subsidies under the US CHIPS Act to support the construction of advanced semiconductor manufacturing facilities in Phoenix, Arizona. As part of the agreement, TSMC will also construct its third fab in Phoenix, bringing its total investment in the US to over $65 billion.

Why it matters: The agreement supports TSMC’s expansion in the US while also demonstrating a strategic partnership to strengthen advanced semiconductor manufacturing in the country as it concurrently looks to limit China’s development in the field.

Details: Following the subsidy announcement, TSMC revealed plans for a third fab in Arizona to introduce 2nm process chip technology or more advanced processes, with production beginning by the end of the decade.

• TSMC Arizona’s first fab is set to gear up for production of 4nm chips by the first half of 2025, while the second fab will produce both 2nm and 3nm chips in 2028.
• TSMC Arizona will establish a cutting-edge cluster, generating 6,000 direct manufacturing roles, over 20,000 construction jobs, and tens of thousands indirect employment opportunities in the next decade, according to the US Department of Commerce.
• With this new funding, TSMC’s total investment in the US has increased from $40 billion to $65 billion. This investment represents the largest foreign direct investment in Arizona history, and the largest foreign direct investment in a greenfield project in US history, TSMC said in the statement.
• “Our US operations allow us to better support our US customers, which include several of the world’s leading technology companies. Our US operations will also expand our capability to trailblaze future advancements in semiconductor technology,” said TSMC Chairman Dr. Mark Liu. 
• TSMC is the fifth company to receive public subsidies from the US government since the enactment of the CHIPS Act in 2022, and the only foreign entity to date, according to Chinese media outlet Jiemian. The other four companies are BAE Systems, Micron, Qualcomm, and Intel, which received subsidies of $35 million, $162 million, $1.5 billion, and $8.5 billion respectively.
• TSMC holds over 60% of the global orders for advanced process chip manufacturing, with nearly 70% of its clients coming from the US, the same Jiemian report said. According to TSMC’s previous financial conference calls, the focus of the Arizona factory is to serve clients in the US.

Context: The current construction of two fabs by TSMC in Phoenix is experiencing delays due to issues such as a shortage of skilled workers, as revealed by Chinese media outlet Icsmart.

• Fab 1’s production of 4nm technology has been delayed from 2024 to 2025, while Fab 2’s 3nm production, initially planned for 2026, is now scheduled for 2028. The two fabs are intended to produce over 600,000 wafers per year, potentially generating a market value exceeding $40 billion annually.