New supplier solutions won't come cheap

March 29, 2021 12:00 AM

Taiwan Semiconductor Manufacturing Co.’s fabrication plant in Hsinchu, Taiwan

The world supply of microchips has been so tight this year that it has shut down vehicle assembly lines. The shortage is a temporary problem, but it also highlights a growing problem for the auto industry: Technologies and vehicles are rapidly changing and new supply chain investments will be necessary to keep up.

Chip fabricator Taiwan Semiconductor Manufacturing Co. shows the sort of commitment that will be needed.

TSMC is investing in a significant new fabrication plant, referred to in the supply chain as a "fab," near Phoenix that could be producing 20,000 12-inch silicon wafers a month by 2024.

The new plant will be able to make 20,000 of these round wafers of microchips per month.

But it doesn't come cheap.

The project will require a $3.5 billion investment to get up and running. And that's only the start.

TSMC officials say its long-term plan is to invest $12 billion there by 2029 to keep pace with the growing North American demand for chips. Unofficial reports have said the total investment could end up being as much as three times that.

TSMC, the world's largest semiconductor foundry, is a major chip supplier to Apple and other major global tech companies — not just automotive.

Zoom in: When auto and chip industries collide

The microchip business seemed to be a million miles away from auto manufacturing — until this year’s global shortage began shutting down assembly lines. Chris Richard, principal of semiconductor industry at consultancy Deloitte, spoke with Staff Reporter Alexa St. John about the segment’s outlook.

Q: How did the microchip industry end up with a shortage of chips for automotive manufacturing?

A: These are two industries that are notoriously cost-competitive and penny-pinching. The semiconductor industry is under constant pressure to reduce cost year after year. Automotive operates the same way. When you put together a cost-focused buyer with a cost-focused supplier, you don’t end up with a lot of buffer in between .

Is the auto industry prepared to compete with other industries for its share of chips?

If you’re a chip company and you’re selling to a computer manufacturer, your purchases are coming from people who are very close to the industry. But in automotive, the culture is much more focused on the powertrain, the body and mechanical parts. In vehicles over the years, that intimate familiarity is probably not there like it is in the other sectors.

Can the Biden administration’s efforts to mitigate this shortage help?

There could be things that make a difference over the longer run. The U.S. is competing against a lot of other countries that are very aggressive in providing R&D incentives. I don’t know if executive orders can fix this, but certainly incentives to encourage this type of R&D and manufacturing could make a difference.

Speaking to investors in January, company CEO C.C. Wei said, "We are entering a period of higher growth, as a multiyear megatrend of 5G, and [high-performance computing]-related applications are expected to fuel strong demand for our advanced technologies in the next several years.

"As we enter the 5G era, a smarter and more intelligent world will require massive increases in computation power and greater need for energy-efficient computing and, therefore, require leading-edge technologies," he said.

The 1,100-acre Phoenix project was long in the works before today's chip shortage hit, said TSMC spokeswoman Nina Kao.

TSMC, which had net revenues of $45.5 billion in 2020 and supplies customers in automotive, mobile phones, high-performance computing and Internet of Things, began considering a U.S. location more than a year ago.

The company's plans weren't to prepare for a possible shortage but to make a strategic move in anticipation of the increasing chip demand.

"We didn't really foresee the chip supply challenges that we are facing right now," Kao told Automotive News. "The current chip shortage is not something that the Arizona fab will be a solution to."

Plant construction is expected to begin this year.

Kao said TSMC has been tracking two technologies. "One is 5G, one is AI. These two megatrends will actually drive the [semiconductor] usage in the future. And we know both 5G and AI are multiyear megatrends that are going to drive devices, and a lot of different innovations or applications."

The Arizona plant will also help TSMC push deeper into a new technology referred to as "5 nanometer" processing. The innovation promises to allow electronic devices to run 15 percent faster than currently, and to be 30 percent more power efficient.

"A lot of customers are already starting to adopt 5-nanometer tech into their designs, including automotive," Kao said. "This is the most advanced semiconductor process technology available in the world.

"Higher computing power and lower energy consumption are going to be what our leading technology customers want to use to adopt into their product design."

Projections for semiconductor growth this year alone signal that the company's massive investment will be timely. The company anticipates the overall market to grow about 8 percent this year.