TSMC gets one-year extension to ship US chip equipment into China

Taiwan Semiconductor Manufacturing Company (TSMC) today obtained another one-year waiver allowing the world's largest contract chip manufacturer to ship US chip equipment to its factories in China, Taiwan's economy minister Wang Mei-hua announced today.

The one-year extension falls far short of a permanent waiver that Wang was hoping TSMC would be granted. The company manufactures and supplies 92% of global demand for advanced semiconductors, according to a 2021 story in The Wall Street Journal, which cited research from Capital Economics.

This week, the US government issued an indefinite waiver to memory chipmakers Samsung Electronics and SK Hynix to supply advanced American chip-making tools for their China operations. With the indefinite waiver, both companies do not need permission for separate export cases.

Talking to reporters in Taipei Thursday before the waiver extension was confirmed, Wang hinted at her hopes that TSMC would be given a longer exemption period for bringing American advanced chipmaking tools into China. When the sweeping export controls took effect in October last year, TSMC received a 12-month waiver.

“Whether it will be the same treatment as Samsung and SK Hynix, it’s up to the announcement from the US government,” Wang told media outlets. "I believe that TSMC, as an international company, will protect business secrets and comply with relevant regulations."

Related:Samsung, SK Hynix get indefinite waiver on export of US chip gear to China

In her briefing today, Wang did not give details about the conditions for the extension. However, industry observers have been speculating that the waiver would be similar to what TSMC had been granted the previous year – one that covered its factory in Nanjing, China, that makes less-advanced 28-nanometer chips.

The 28nm process chips have a wide range of applications and are used in electronic devices, including smartphones, tablets and computers. In July, TSMC announced it will expand the capacity of the Nanjing factory.

International expansion as a de-risking strategy

The increased investment in its Nanjing plant shows TSMC's long-term commitment to manufacture and sell chips in the mainland amid the escalating US-China geopolitical tensions and the resulting tech war that began in 2020 under the Trump administration.

Nevertheless, TSMC was compelled to spread its operations further afield – not only because of current political tensions, but because lessons learned from the COVID pandemic underlined the need to introduce resiliency in its supply chain.

In the last four years, TSMC has embarked on an international expansion that will see the semiconductor giant operating factories in Arizona in the US, Kumamoto in Japan and Dresden in Germany. These investments, valued close to $60 billion, also seek to mollify global concerns that TSMC produces virtually all its chips in Taiwan, which faces the perennial threat of a potential naval blockade by China.

When these new overseas factories come online in the next few years, TSMC will have truly global operations with a presence in five countries across three continents.

The US government will partially subsidize the two factories in Arizona through the CHIPS and Science Act, which provides $52 billion to boost US semiconductor chip production. TSMC said operation at its new US sites will be delayed by a year to 2025 primarily due to a lack of skilled workers.

For the factories in Kumamoto and Dresden, TSMC departed from its decades-old practice of outright ownership of all its facilities and offered equity partnerships to Sony Semiconductor Solutions and Denso in Japan, and Robert Bosch GmbH, Infineon Technologies AG and NXP Semiconductors in Germany.

"TSMC’s balance sheet is solid, its cash flow is stable, and its credit rating is high. It doesn’t need clients nor governments to hand it money in order to pay for these new facilities," wrote Tim Culpan in Bloomberg two months ago.

"What it does need, though, is buy-in. These remote factories at locations many time zones from home require firm orders as well as a solid commitment from third parties motivated to ensure the company’s success. Having the likes of Sony, Infineon and NXP on the ownership list ensures they have skin in the game, while government involvement should help secure political and economic support," he added.

When all is said and done, however, analysts estimate that the new factories will contribute only about 10% of the global capacity. The cutting-edge chips are still likely to come out of the company's Taiwan fabs.