Business has hardly ever been so political for tech companies. Taiwan Semiconductor Manufacturing Company will invest $ 100 billion in new manufacturing plants, or fabs, over the next three years. In doing so, the world’s largest contract chip maker carefully balances demands on this capacity from the geopolitical rivals that are driving its growth: the United States and China.
The glaring example of an attempt to manage this balance gone awry is Foxconn, the world’s largest contract electronics maker. Four years after promising to build a massive LCD panel factory in Wisconsin, he still faces the fallout from his failure.
The two Taiwanese tech giants are facing political pressure from strategic US-China competition. In TSMC’s case, Washington has been pushing for increased chip manufacturing in the United States, at the very least to enter the defense-related supply chain. The message was clear enough to convince TSMC to build a $ 12 billion plant in Arizona.
Foxconn is equally resentful of the US-Chinese rivalry, US tariffs and security concerns forcing it to move the assembly of certain products out of China. But the original sin behind his troubles in Wisconsin is electoral politics rather than broader global tensions.
Terry Gou, founder of Foxconn, signed the deal in 2017. Then-US President Donald Trump was keen to promote the deal – he had narrowly won Wisconsin and wanted to keep the state in American hands. Republicans in Congressional elections.
“It served the interests of both,” said Patrick Chen, head of Taiwan research at CLSA, the brokerage. “Trump wanted to bring jobs and jobs back to the United States, but Mr. Gou at the time was trying to run for president of Taiwan. [The deal] would have a profound impact on his personal profile. ”
Analysts called the project ill-conceived: LCD manufacturing is a commoditized industry that couldn’t be more unsuited to the high-cost U.S. environment, even with massive subsidies. None of the suppliers clustered around LCD screen manufacturing centers in Asia comes close.
After Gou’s presidential race failed and he retired from Foxconn’s top post, it fell to his successor Young Liu to clean up the mess. “We already have the land and some factory buildings there, so […] I have to find a way to use it that makes commercial sense, ”Liu told reporters in March. The company currently produces servers in Wisconsin and plans to manufacture electric vehicles there from late 2023.
Foxconn last month cut its investment commitment by more than 90% to $ 672 million and its job pledge to just 1,454 from the 13,000 originally planned. Wisconsin, now led by a Democratic governor instead of the Republican who approved the generous initial grants, will give up to $ 80 million instead of the $ 2.85 billion originally envisioned.
Things couldn’t be more different with TSMC. “There are real business reasons to diversify their footprint,” said Jordan Schneider, analyst at Rhodium Group, a consulting firm. Analysts say the US base can help TSMC protect itself against overconcentration in Taiwan, which is earthquake-prone and lives under threat of a Chinese invasion. It will also strengthen the company in its competition with Samsung, its closest rival, and Intel, which announced earlier this year that it is joining the made-to-order chip business. US customers accounted for 62 percent of TSMC’s net sales last year.
But despite all of this, TSMC operates in a politically charged environment. Although Washington initially drew the company to the United States to secure its defense supply chain, U.S. automakers and members of Congress are calling for more onshore semiconductor production for the auto industry, which supports the biggest of the global shortage of chips.
As with the Foxconn LCD idea, it doesn’t make sense from a business standpoint as most automotive chips are made using more mature technology that isn’t usually installed in new factories. And like the Foxconn Wisconsin plant, subsidies play a big role: New US law allows $ 10 billion in federal subsidies and refundable tax credits for investments in new semiconductor equipment.
TSMC is therefore cautious. Although the company continues to focus on manufacturing, research and development in Taiwan, it has left the door open in the United States. The Arizona site she acquired last year is large enough to expand over time into a factory as large as her largest factories in her country.