It’s fitting that semiconductor industry leaders chose Phoenix as the place to launch the National Semiconductor Economic Roadmap (NSER). In 18 months the region welcomed $32 billion in chip fab investments from Intel and Taiwan Semiconductor Manufacturing Company (TSMC) alone.
The NSER aims to boost U.S. semiconductor competitiveness through a focus on the workforce, supply chain and infrastructure. It comes as the world experiences an economy-buckling chip shortage, and the nation watches as its share of global chip production has fallen from a peak of 37% in 1990 to 12% today — with 80% of fabs now located in Asia.
“A thriving semiconductor ecosystem requires solid infrastructure, a comprehensive supply chain, and a steady inflow of talented and dedicated people,” said Rick Cassidy, CEO and president, TSMC Arizona. “TSMC is building a fab in Arizona using 5nm technology that is set to be the most advanced semiconductor manufacturing facility on U.S. soil when it is completed, and we look forward to contributing towards a prosperous semiconductor ecosystem in the United States.”
TSMC’s $12 billion project was announced in May 2020. I asked Nina Kao, TSMC spokeswoman and head of public relations, to walk me through the site selection process.
“We started this evaluation when TSMC Chairman Mark Liu attended the SelectUSA conference in 2019,” she says. “There were many meetings conducted, including many state site visits, before a final decision was made. These meetings were in person, and later held virtually due to COVID-19. In May 2020, we announced our intention to build and operate an advanced fab in Arizona and got board approval later that year in November.”
Asked about the level of support TSMC received in Arizona, Kao says, “The Arizona state government, the Phoenix Mayor’s office, as well as the Arizona Commerce Authority and the Greater Phoenix Economic Council were excellent resources to us in our evaluation. They have been very supportive and enthusiastic about our planned growth in Arizona. In addition to strong state incentives, there are investment options such as land and green energy and also effective and efficient labor and environmental regulatory management policies aligned with science-based global benchmarks.”
The Phoenix region is known for its semiconductor cluster and supply chain. Is there already spinoff from TSMC’s megaproject?
“There was already an existing semiconductor industry infrastructure in the state of Arizona, which is one of the many reasons we were drawn to the region,” Kao says. “We expected that our investment would bolster this infrastructure and encourage other suppliers to the industry to grow their presence in the state. We see this in particular for companies that supply ultra-pure chemical and gases for leading-edge semiconductor technologies.”
The investment in Arizona comes at the same time that water supply concerns are rising, and just as TSMC unveils its net-zero-impact sustainability goals. What enables TSMC to surmount the water supply issue, and how are partners in Arizona going to help in that endeavor?
“We take green manufacturing very seriously and TSMC implements rigorous sustainability practices,” Kao says. “Our track record on this is well documented. We will approach the design on this new fab with that same commitment. Increasing our resilience against natural events such as a drought is a regular focus. For example, earlier this year Taiwan was in the grip of its own water crisis as it experienced its worst drought in over half a century. TSMC managed to keep our operation running without any disruptions. Our fab in Arizona is being designed with the same commitment to water reuse. At our estimates, a drop of water is reused 3.5 times in our manufacturing process. And we expect to partner closely with the City of Phoenix on our water reclamation approach.”
Asked about the discussion in Washington, D.C, and policy circles about a new level of national incentives for more semiconductor industry investment in the U.S., Kao says, “We think forward-looking investment policies like the CHIPS act will help create a level playing field for a thriving semiconductor technology ecosystem in the U.S.”Behind the Scenes
Getting TSMC’s 1,900-job project decision to the finish line was a long, complex and ultimately rewarding process for leaders in Greater Phoenix, including Phoenix Mayor Kate Gallego, whose visit to Taiwan in 2019 was crucial.
“We were celebrating our 40-year sister city history with Taipei when I met with TSMC executives in Taiwan,” she tells me. “It also happened to coincide with my birthday, and that helped build an important business and personal relationship. When we sat down, my experience from working in economic development at SRP [Salt River Project], our local utility, allowed me to answer serious questions about water surety, line siting, power availability and security, each critical to a semiconductor manufacturing operation, but also to the entire ecosystem of suppliers and vendors that we look forward to welcoming. Many big city mayors are lawyers, but in this case my unusual background of having worked in economic development came in handy.”
She also had experience with talent attraction.
“The demand for workforce is a familiar story across all sectors today, but ensuring top talent demanded we make connections with school districts, universities and training centers,” she says. “Additionally, we had to address housing availability and connect with our Mandarin-speaking community so that our new residents are welcome to this new home.”
The Greater Phoenix Economic Council finds itself in the middle of a national policy conversation around the semiconductor supply chain and federal incentives for the industry. I asked GPEC President and CEO Chris Camacho to describe his experience of this conversation. The first words out of his mouth: “Semiconductors are nothing new to Arizona.”
It amounts to an 80-year run, incorporating Intel’s presence since the late 1970s and Motorola’s transistor operations since the 1950s. Greater Phoenix is the fourth largest market in the U.S. for employees in the sector. It’s also had a role in thought leadership nationally, with Camacho sitting on an international advisory council for the past two U.S. secretaries of commerce and Arizona senators leading the charge for a conversation about reshoring of chip manufacturing. The cost differential between the U.S. and Asia-Pacific nations is still between 30% and 50%. “It’s really about how competitive the U.S. wants to be,” Camacho says. “We’re hopeful the $52 billion CHIPS Act gets passed in the near term.”
The U.S. Innovation and Competition Act, or USICA, passed by the U.S. Senate in June 2021, includes $52 billion to support chip research, design, and manufacturing provisions in the CHIPS for America Act authorized in the enacted FY 2021 National Defense Authorization Act. Congress is also considering the FABS Act that would establish a semiconductor investment tax credit.
Camacho and his team saw an opportunity several years ago around branding the Phoenix region as “the connected place,” given that everything in the business-to-consumer and business-to-business realms was being digitized and had a digital footprint. (The area is attracting its share of major data centers too.) The relationship with TSMC was struck up around four and a half years ago. When it comes to do-or-die moments in his economic development career, Camacho says, the TSMC project takes the cake.
“I’ve done 500-plus expansions or relocations in my career,” he says, “but I’d put this at the top of the list in terms of complexity. You’re talking multibillion-dollar investments with global consequences. There are so many risk factors. You have to get approvals internally from the company to go through their capital committees. There is the risk factor of distilling the energy load that a company like this will need,” as well as working out water, wastewater and land procurement details.
The labor demand is significant too, he says, with TSMC looking to take advantage of a high percentage of ASU engineering graduates for its precision manufacturing, and planning to take those newly minted employees back to Taiwan for on-the-ground training in company culture.
“Proving out your labor market is a do-or-die moment,” Camacho says. “This is several thousand employees at high-wage jobs. ‘Can your market support our today growth, but also our tomorrow growth?’ ‘Near-term plans are already approved, but what if we want to do more?’ Fortunately we are a market that can scale. There are now 25,000 engineering students at ASU. On the scale side, only a few places in the U.S. can make that happen.”
Another go-or-no-go situation had to do with the finally selected location on the north side of Phoenix, and working with the Arizona Land Department and the City of Phoenix’s Mayor Gallego and economic development director Christine Mackay to check all the boxes.
“I give the city a ton of credit,” Camacho says. “The Council moved quickly and in lockstep and made an investment in a $200 million water line enhancement that was going to be critical. A lot of moments were pivotal, but those were the top two,” he says, with a third being the attention on the project from former President Donald Trump and his cabinet. “Everyone wanted to see TSMC enhance the U.S. position,” Camacho says.
The Other Big Shoe Drops
There’s an American company that’s been enhancing the U.S. position from Arizona for a long time, and now is literally putting all its chips on the table.
Intel, which already employs 12,000 in Arizona, in September broke ground on two chip factories — Fab 52 and Fab 62 — at its Ocotillo campus in Chandler, which will now be home to six fabs overall. The new investment will create more than 3,000 high-tech, high-wage Intel jobs, 3,000 construction jobs, and support an estimated 15,000 additional indirect jobs in the local community.
“Today’s celebration marks an important milestone as we work to boost capacity and meet the incredible demand for semiconductors — the foundational technology for the digitization of everything,” said Intel CEO Pat Gelsinger. “We are ushering in a new era of innovation — for Intel, for Arizona and for the world. This $20 billion expansion will bring our total investment in Arizona to more than $50 billion since opening the site over 40 years ago.”
“Fab” is almost too short a word for the complexity it represents. As Intel describes it, a fab is “a manufacturing marvel.” Three of its four levels support the clean room where actual chip production occurs, and the entire operation includes 1,200 multimillion-dollar tools and 1,500 pieces of utility equipment.
“Intel has been steadfast investor in our region,” Camacho says, calling the massive investment not just another testament to Arizona’s economy, “but a commitment by Pat Gelsinger and his team to really double down on the United States.”
The two new fabs will also provide committed capacity for the recently announced Intel Foundry Services (IFS). “With Intel Foundry Services, Intel is opening its fab doors wide to serve the needs of foundry customers around the globe – many of whom are looking for more geographical balance in the semiconductor supply chain,” said IFS President Randhir Thakur in an editorial the company released on the day of the groundbreaking. “Customers are enthusiastic about these capabilities. And we have plans for continued investments in the United States, but we can’t do it without government partnership to level the playing field.”
America can look to Greater Phoenix for evidence of the payoff. Intel’s two campuses in Chandler alone have an annual economic impact of $8.6 billion. But like thin film deposed on a substrate, there are layers upon layers in this ecosystem.
“What people often don’t see is the supply chain implications,” Camacho says. There are more than 300 total firms evaluating the Phoenix region, and 45 of them are semiconductor manufacturing-related supply chain companies in such areas as packaging and substrate. “Those are not inconsequential jobs,” he says. “Those 45 companies represent 12,000 total jobs and the potential of $60 billion in total investment.”