The “tool-in” ceremony of TSMC’s new fab in Arizona drew a lot of attention last week. CEOs from Apple, Nvidia, and AMD attended and spoke. President Biden, along with a coterie of cabinet officials, congresspeople, and local Arizona politicians, came to rally, celebrate, and claim (as we will see, a premature) victory.
Amidst all the pomp and circumstance was a short, but powerful and sobering speech by Morris Chang, the now-91-years-old founder of TSMC. He shared his dream of building a fab in the US, the hard-earned lessons from TSMC’s first time building a fab in America 25 years ago, his perspective that globalization and free trade is almost dead, and why this event is just the “end of the beginning”.
It was the only speech that gave a real sense of what America’s semiconductor future would really look like. Yet no one listened. No American, or any Western media outlet for that matter, bothered to cover this speech. Only Nikkei and a handful of Taiwanese outlets wrote about it. Not even C-Span carried footage of the speech. (And C-Span carries everything!)
Here are some of my top takeaways from this speech. (You can read my own, non-official transcription of the speech at the end of this post.)
The most powerful, and somewhat uncomfortable, part of Chang’s speech is his declaration that:
“Globalization is almost dead. Free trade is almost dead. And a lot of people still wish they would come back, but I really don’t think they will be back for a while.”
TSMC is arguably the one company that most epitomizes all the forces of globalization – free trade, hyper specialization, cross-border supply chain, and the assumption of geopolitical stability that lets all these forces interact and interconnect. In this world, TSMC, and manufacturers like it, would build factories wherever it deems to make the most economic sense, without needing to worry about adverse political consequences.
Chang no doubt reflected on the core nature of globalization and free trade, of which he and TSMC are beneficiaries. Witnessing TSMC’s newest fab being built in Arizona, a location TSMC would have never chosen if globalization were alive and well (a point he has made many times in the past), it is only appropriate for Chang to somberly proclaim the death of globalization (though he still hedged a bit with “almost”).
The unfortunate second-order effect of the death of globalization that no one likes to talk about is the rising cost of all kinds of goods and products – a future that may make persistent inflation even worse. Tim Cook announced to much fanfare at the same event that Apple will use chips made from TSMC Arizona. What he did not say is whether that will make the pricey iPhones and MacBooks even pricier to buy.
In Morris Chang’s own estimation, the chips produced from TSMC Arizona may cost “at least 50% more” than the chips from TSMC Taiwan. Will TSMC pass on that cost to Apple or let it eat into its margins? Will Apple pass on that cost to consumers or let it eat into its margins? No one knows right now, but as TSMC Arizona starts churning out wafers, we will know soon enough.
To be clear, this is not a critique of TSMC’s decision to build fabs in America. Given the reality of the world, it is probably the right thing to do. Morris Chang, who may be reluctant but is ultimately a pragmatist, gave his blessing by being at the ceremony. But he did not let the bigger lesson go unspoken.
“Offshoring” is out of fashion, and “onshoring” and “friendshoring” is the new black. Any wishful thinking that globalization will continue in its previous form is naive.
The other uncomfortable yet thought-provoking part of Chang’s speech is this:
“…We hired almost 600 engineers here a year and a half ago, we sent them to Taiwan, and they were under training in Taiwan for one year to a year and a half. In the meantime, about the same number of Taiwan engineers underwent training in Taiwan also.
So before we see a single wafer, we have about more than a thousand people being trained. This, I think, is a very good sign that we are prepared.”
If you read between the lines, what Chang is really saying is TSMC cannot find enough qualified American talent to do the jobs TSMC needs to operate. So it must spend extra money (more cost) to send every new hire in America to
