TSMC says first advanced U.S. chip plant ‘dang near back' on schedule. Here's an inside look at the Arizona fab

Atop a newly completed, 3.5-million-square-foot building that stands on 1,100 acres in the Arizona desert north of Phoenix is a giant logo of a microchip wafer and the letters TSMC. 

Taiwan Semiconductor Manufacturing Company's first Arizona chip fabrication plant, or fab, is making history because it's the most advanced chip fab on U.S. soil, and Apple has committed to being the site's largest customer. 

CNBC first visited the fab in 2021, not long after TSMC broke ground. The company initially announced the plant would cost $12 billion and pump out 5-nanometer chips by the end of 2024. Three years later, that price tag has soared to $20 billion and full production is delayed until 2025. 

Instead, the fab is in pilot production, making sample wafers and sending them to customers for verification. TSMC has committed to building two more fabs on the site by the end of the decade, for a total investment of $65 billion.

The project is "dang near back on the original schedule," TSMC Chairman Rick Cassidy told CNBC during an exclusive first look at the completed fab in November.

"When we came to the U.S., we knew we were going to go through a learning process," Cassidy said. "Whether it was permitting, learning how to work with the trades, learning how to work with the unions, local labor laws. Lots of learnings that went on. Now we've overcome those." 

With the help of some 2,000 employees, the fab is set to make more-advanced chips than originally planned. It will produce 4-nanometer chips, at a rate of 20,000 wafers per month, TSMC said.  

Wafers cost upward of $18,000, according to a Morgan Stanley report. The price has continued to rise, taking TSMC's stock value with it over the past couple of years. 

"We've seen TSMC be able to kind of name its price, and everyone's going to pay it because right now it's the dependability and the quality that is needed," said Daniel Newman, CEO of The Futurum Group. 

'On par with our Taiwanese compatriots'

The fab's yields are anticipated to be "right on par with our Taiwanese compatriots," Cassidy said. Still, some 92% of the world's most advanced chips are currently made by TSMC's Taiwan fabs, so the U.S. is far from self-reliant. 

"It's difficult or impossible for the U.S. or any country to be fully self-sufficient in everything that they need to build semiconductors," said Stacy Rasgon of Bernstein Research. "That's a pipe dream."

Despite being the birthplace of microchips in the 1950s and remaining a top chip design hub, the U.S. now manufactures only 10% of the world's chips and none of the most advanced ones. When supply chain chaos collided with booming demand for consumer electronics during the pandemic, the resulting chip shortage exposed the big risks of relying on outsiders for such a critical technology. 

In the event of aggression between China and Taiwan, an earthquake or some other event that impacts Taiwan for a period of time, "the entire market, the entire world could suffer from lack of availability of leading edge nodes," Newman said. 

A deadly 7.4 magnitude earthquake in April briefly halted production in Taiwan and led to a $92 million loss for TSMC. The Arizona buildings are "well prepared" for earthquakes, Cassidy said.

Other fears surfaced when President-elect Donald Trump expressed opposition to the $52 billion CHIPS Act in October during his campaign. Weeks later, the U.S. Commerce Department finalized TSMC's allotted $6.6 billion from the bipartisan bill. 

"Repealing the CHIPS Act would make Americans less safe," Commerce Secretary Gina Raimondo told CNBC in an interview, adding that she doesn't think the incoming administration would repeal it.

"I just don't think they'll do that," Raimondo said.

Talks with TSMC about bringing advanced chip production to the U.S. began in 2018, during Trump's first term. 

"I set up a phone call between the chairman of TSMC and the head of Apple," said Wilbur Ross, who was commerce secretary at the time. "Apple became very strongly supportive of the idea of TSMC coming." 

Rose Castanares, a 26-year company veteran and now president of TSMC Arizona, was also involved with the early conversations. Customers "wanted supply resilience," Castanares said. 

Relying on chips from Asia has also complicated the U.S. drive for technological dominance. That's why President Joe Biden hit the chip industry with a complex web of export controls meant to keep China from pulling ahead with advanced tech. 

In October, some TSMC chips were spotted in Huawei devices, despite bans on selling to the Chinese company. 

"This problem is as old as time," Newman said. "There's a lot of complex rerouting of goods to get gray market to different countries that have limited access to leading edge or the most advanced technology."

Workers, water and power

Nearby, in Chandler, Arizona, Intel is also building two huge fabs.

The U.S. company has a far different business model, designing and manufacturing its own chips, while TSMC only makes chips for others. The relationship between the two companies is solid, Cassidy said. 

"We meet with [Intel] weekly and the feedback is we're helping them increase their ranks," Cassidy said. "We're helping them train on the most advanced stuff, so I think they're pretty happy with what we're doing."

Both companies have delayed the timelines for full production at their new Arizona fabs. But where TSMC has remained the uncontested leader in advanced chips, Intel has stumbled time and again. 

The two will also be competing for a scarce resource in the U.S. chip industry: workers.  

"When we finished the construction of this fab, it was really the first advanced manufacturing fab that had been built in the United States for at least 10 years. Semiconductors is a very, very tough technology," TSMC's Castanares said. "The experience is just not here in the United States." 

At the beginning of the project, TSMC sent some 600 engineers to train in Taiwan. Process integration engineer Jeff Patz spent 18 months there starting in 2021. 

"The purpose was to go and actually make things, right? And learn how they're made," Patz said. "You have to have a kitchen to cook."

TSMC has also brought experts over from Taiwan on three-year temporary assignments. The company plans to hire at least 6,000 workers by the time all three fabs are completed. 

"For engineers, we are actively recruiting at universities in Arizona and all across the U.S.," Castanares said. Arizona State University "even has what they call a TSMC day." 

Water is another scarce resource needed in abundance. 

With Taiwan recently facing its worst drought in nearly a century, TSMC is no stranger to recycling the massive amount of water it needs to make chips. TSMC will take 4.7 million gallons of water daily to run the first Arizona fab, but it will bring that demand down to 1 million gallons a day, in part by recycling some 65% of that, the company said. 

It also takes a massive amount of power to make chips. 

TSMC built solar on site, but it's not nearly enough to cover the 2.85 gigawatt-hours per day needed to run the first fab. That's equivalent to the power used by roughly 100,000 U.S. homes. TSMC said it's purchasing renewable energy credits to offset that. But amid the data center boom fueled by artificial intelligence, Arizona's largest utility warned that it could run out of transmission capacity before the end of the decade.  

That's also when TSMC plans to start production at its third Arizona fab, which Cassidy said is "probably going to be 2 nanometer and more advanced." 

TSMC is also broadening its global footprint. It opened its first fab in Japan in February and broke ground on an $11 billion fab in Germany in August.

Within the U.S., Cassidy said TSMC is also likely to keep expanding.

"There's room for lots of fabs," Cassidy said.

Watch the full video for never-before-seen footage inside TSMC's Arizona fab: https://cnbc.com/video/2024/12/12/inside-tsmcs-new-chip-fab-where-apple-will-make-chips-in-the-us