Intel warns Ohio factory could be delayed because Congress is dragging its feet on funding

[Daniel Nenni]

The US CHIPS Act: Why Intel Supports It

Intel’s leaders support the act to incentivize more private-sector investment with the hope it will enable a resilient and innovative semiconductor supply chain.

www.intel.com

"In 1990, 80% of the world’s semiconductors were produced in the U.S. and Europe. Today, 80% are produced in Asia, where countries provide substantial incentives to domestic semiconductor industries. This helps create a 30% to 50% cost disadvantage for companies that produce semiconductors in the U.S."

I would like to know more about these "substantial incentives". Does anyone have fact based research on this? Does TSMC and Samsung get government money for new fabs?

"This helps create a 30-50% cost advantage" Where does this number come from? "Helps create"? I'm not buying it. Show me the numbers!

 

[lilo777]

Yes but Ohio is getting fabs that include federal funding, AZ did not. We shall see how many fabs Intel actually builds in Ohio. The problem with Federal handouts is that it changes the funding landscape. Will other states go it alone or will they wait for Federal help? If they wait for federal money it is going to be a much longer wait and it may never come, my opinion.

I'm all for reshoring manufacturing of all types. My first job was in a fab, I get it. I am concerned however with the costs associated and oversupply. To me it should stay at the state level for better control. If the feds want to play, reward the states that do the best job at reshoring. Don't make reshoring contingent on federal money.

I agree with your sentiment. But the reality now seems to be that semiconductors have become a big geopolitical factor so governments everywhere are in a rush to give away the money. And the taxpayers are questioning these actions. Here is a similar story, only it's about Japan government giving money to TSMC: Will TSMC take Japanese taxpayer money and run?

 

[blueone]

Yes but Ohio is getting fabs that include federal funding, AZ did not. We shall see how many fabs Intel actually builds in Ohio. The problem with Federal handouts is that it changes the funding landscape. Will other states go it alone or will they wait for Federal help? If they wait for federal money it is going to be a much longer wait and it may never come, my opinion.

It is not clear which companies or which fabs will get federal funding, and I agree with you that the Chips for America Act doesn't seem likely to get passed at all. Here's the current text of the Senate bill, which I think is more likely to get passed:

Text - S.3933 - 116th Congress (2019-2020): CHIPS for America Act

Text for S.3933 - 116th Congress (2019-2020): CHIPS for America Act

www.congress.gov

See Section 48D, which implies there will be a credit for any equipment placed into service for a given tax year. I don't see any mention of whether the company is based in the US or not, so by my admittedly non-critical and non-expert reading, TSMC's plants in AZ would qualify.

I'm all for reshoring manufacturing of all types. My first job was in a fab, I get it. I am concerned however with the costs associated and oversupply. To me it should stay at the state level for better control. If the feds want to play, reward the states that do the best job at reshoring. Don't make reshoring contingent on federal money.

I don't think the states are rich enough to make the necessary difference, or it would have happened already.

 

[Daniel Nenni]

I agree with your sentiment. But the reality now seems to be that semiconductors have become a big geopolitical factor so governments everywhere are in a rush to give away the money. And the taxpayers are questioning these actions. Here is a similar story, only it's about Japan government giving money to TSMC: Will TSMC take Japanese taxpayer money and run?

The semiconductor shortage narrative brought a lot of attention. In 2023 we could have an economic crash oversupply narrative so what will happen then? Will the politicians be off chasing something else shiny to get them re elected? Pat Gelsinger and Tom Caulfield could be the boys who cried wolf.

 

[Daniel Nenni]

I don't think the states are rich enough to make the necessary difference, or it would have happened already.

Samsung is in Texas, TSMC is in AZ and they are making it work. I'm sure Intel got help from AZ as well back in the day. I really need to see the numbers to fully believe the 30-50% cost advantage narrative.

 

[blueone]

Samsung is in Texas, TSMC is in AZ and they are making it work. I'm sure Intel got help from AZ as well back in the day. I really need to see the numbers to fully believe the 30-50% cost advantage narrative.

Every big investment manufacturer gets a property tax abatement from anywhere in the US, or property taxes are ridiculous for a fab. So the states are already doing most of what (I think) they can do. Oregon and Arizona certainly gives Intel breaks, but the feds don't do anything I'm aware of. And New York is certainly doing a lot for GF to build another fab on its NY campus. Hard numbers are obviously not available from simple internet searches, or you wouldn't be asking for this data. For anyone who hasn't seen it, here's what SIA says:

https://www.semiconductors.org/wp-content/uploads/2020/07/U.S.-Needs-Greater-Semiconductor-Manufacturing-Incentives-Infographic1.pdf

I honestly don't know where 30-50% comes from, unless everything in the above link is correct. Then I believe it.

 

[lilo777]

The semiconductor shortage narrative brought a lot of attention. In 2023 we could have an economic crash oversupply narrative so what will happen then? Will the politicians be off chasing something else shiny to get them re elected? Pat Gelsinger and Tom Caulfield could be the boys who cried wolf.

There are actually two narratives: shortages and on-shoring. The former one seems very overblown (I agree with you here) but the latter probably has legs. Since China is positioned to overtake US as economic superpower (and based on PPP and the size of their import and export Chinese economy is already larger than the American one) US government is getting more and more concerned. Taiwan situation naturally causes some uncomfortable thoughts hence the push for on-shoring. Right now this push may be in conflict with the cyclical nature of semiconductor industry.

 

[blueone]

Samsung is in Texas, TSMC is in AZ and they are making it work. I'm sure Intel got help from AZ as well back in the day. I really need to see the numbers to fully believe the 30-50% cost advantage narrative.

I forgot to mention, I don't think TSMC is making anything work in AZ yet. They're just building. I think what they're doing smells more like an appeasement play for US politicians. Looking at the ineptness of their so-called "Oregon Fab" that's in Washington, I'm curious about how serious they are about AZ.

 

[Daniel Nenni]

Every big investment manufacturer gets a property tax abatement from anywhere in the US, or property taxes are ridiculous for a fab. So the states are already doing most of what (I think) they can do. Oregon and Arizona certainly gives Intel breaks, but the feds don't do anything I'm aware of. And New York is certainly doing a lot for GF to build another fab on its NY campus. Hard numbers are obviously not available from simple internet searches, or you wouldn't be asking for this data. For anyone who hasn't seen it, here's what SIA says:

https://www.semiconductors.org/wp-content/uploads/2020/07/U.S.-Needs-Greater-Semiconductor-Manufacturing-Incentives-Infographic1.pdf

I honestly don't know where 30-50% comes from, unless everything in the above link is correct. Then I believe it.

According to those numbers Taiwan is at the bottom of subsidies with the USA yet they are at the top of 300mm logic market share. How could that be?

 

[blueone]

According to those numbers Taiwan is at the bottom of subsidies with the USA yet they are at the top of 300mm logic market share. How could that be?

View attachment 819

That 5 year tax holiday (Taiwan's corporate tax rate is 20%) and the free land and hiring credits look pretty rich. But I think TSMC's investment rate is mostly driven by competitive success. China and South Korea are a different story, and note that this document is from 2019, in case you hadn't noticed.

 

[benb]

Samsung is in Texas, TSMC is in AZ and they are making it work. I'm sure Intel got help from AZ as well back in the day. I really need to see the numbers to fully believe the 30-50% cost advantage narrative.

This goes back to the Morris Chang Brookings Institute podcast:

"However, the cost difference between Taiwan manufacturing and Oregon manufacturing has remained about the same. The same product, the Oregon cost, is about 50 percent more than the Taiwan cost. Well, of course for us, the Oregon product is still profitable, although not nearly as profitable as the Taiwan product. So still we have maintained it. We started it in 1997. Initially it was chaos, it was just a series of ugly surprises because when we first went in, we really expected the costs to be comparable to Taiwan. And that was extremely naive. But after a few years of trying to make it work, we had to settle down, we had to accept it. And since it was still profitable, of course, we still accepted it, but we didn’t expand it. That was Oregon. We still have about a thousand workers in that factory, and that factory, they cost us about 50 percent more than Taiwan costs."

https://www.brookings.edu/wp-content/uploads/2022/04/Vying-for-Talent-Morris-Chang-20220414.pdf

So Gelsinger is saying essentially the same thing as Morris Chang.

 

[blueone]

That 5 year tax holiday (Taiwan's corporate tax rate is 20%) and the free land and hiring credits look pretty rich. But I think TSMC's investment rate is mostly driven by competitive success. China and South Korea are a different story, and note that this document is from 2019, in case you hadn't noticed.

I think I misinterpreted the five year tax holiday. After some thought, I suspect the taxes referred to in the document are not income taxes, but some sort of property or inventory taxes.

 

[blueone]

This goes back to the Morris Chang Brookings Institute podcast:

"However, the cost difference between Taiwan manufacturing and Oregon manufacturing has remained about the same. The same product, the Oregon cost, is about 50 percent more than the Taiwan cost. Well, of course for us, the Oregon product is still profitable, although not nearly as profitable as the Taiwan product. So still we have maintained it. We started it in 1997. Initially it was chaos, it was just a series of ugly surprises because when we first went in, we really expected the costs to be comparable to Taiwan. And that was extremely naive. But after a few years of trying to make it work, we had to settle down, we had to accept it. And since it was still profitable, of course, we still accepted it, but we didn’t expand it. That was Oregon. We still have about a thousand workers in that factory, and that factory, they cost us about 50 percent more than Taiwan costs."

https://www.brookings.edu/wp-content/uploads/2022/04/Vying-for-Talent-Morris-Chang-20220414.pdf

So Gelsinger is saying essentially the same thing as Morris Chang.

I'm not believing Chang's claim. For one thing, he doesn't even know where the fab is. so anything else he says is suspect. The other reason is that the cost difference he's claiming is in the range of TSMC's corporate gross margin, and yet the US fab is still profitable.

 

[benb]

Morris must think of Camas, WA as a suburb of Portland, OR. Seems reasonable.
"And since it was still profitable, of course, we still accepted it, but we didn’t expand it."--> TSMC is expanding in the US now, and if the cost difference remains 50%, they'll have some 'splainin' to do in the quarterly calls. So eventually this difference, which I'm certain is real, will be explained.
I think it has to do with Taiwan keeping their currency undervalued vs. USD. So every USD expenditure in the US fab comes with a 30-50%, invisible, tax (from the standpoint of a corporation reporting earnings in TWD).
TSM ADR trades in USD though. If TSM changes the flow from this: USD Fab-->TWD earnings-->USD ADR to this: USD Fab-->USD LLC IPO their USD spinoff at least won't be a tax and might close the gap somewhat.

 

[IanD]

This goes back to the Morris Chang Brookings Institute podcast:

"However, the cost difference between Taiwan manufacturing and Oregon manufacturing has remained about the same. The same product, the Oregon cost, is about 50 percent more than the Taiwan cost. Well, of course for us, the Oregon product is still profitable, although not nearly as profitable as the Taiwan product. So still we have maintained it. We started it in 1997. Initially it was chaos, it was just a series of ugly surprises because when we first went in, we really expected the costs to be comparable to Taiwan. And that was extremely naive. But after a few years of trying to make it work, we had to settle down, we had to accept it. And since it was still profitable, of course, we still accepted it, but we didn’t expand it. That was Oregon. We still have about a thousand workers in that factory, and that factory, they cost us about 50 percent more than Taiwan costs."

https://www.brookings.edu/wp-content/uploads/2022/04/Vying-for-Talent-Morris-Chang-20220414.pdf

So Gelsinger is saying essentially the same thing as Morris Chang.

Is Morris Chang saying that wages are 50% higher in the US than Taiwan, or that overall fab operating costs are 50% higher?

AFAIK wages are a relatively small part of fab costs, which are dominated by equipment costs (the same everywhere), then construction and power and water costs (also higher in the US?).

 

[blueone]

Morris must think of Camas, WA as a suburb of Portland, OR. Seems reasonable.

It doesn't seem reasonable to me. Chang is quite familiar with the US, having been educated at MIT, and for years most of his major customers were in the US when he was CEO of TSMC. Camas is not even close to being a suburb of Portland, and if the definition of a suburb were stretched a bit, Camas would be a suburb of Vancouver, WA. But the most confusing part of his slip is that during the negotiations for the construction of the WaferTech facility, including tax negotiations, would have been with Washington, not Oregon. Oregon would have no part of the transaction at all, except that the most convenient airport to fly into would be PDX in Portland.

"And since it was still profitable, of course, we still accepted it, but we didn’t expand it."--> TSMC is expanding in the US now, and if the cost difference remains 50%, they'll have some 'splainin' to do in the quarterly calls. So eventually this difference, which I'm certain is real, will be explained.
I think it has to do with Taiwan keeping their currency undervalued vs. USD. So every USD expenditure in the US fab comes with a 30-50%, invisible, tax (from the standpoint of a corporation reporting earnings in TWD).
TSM ADR trades in USD though. If TSM changes the flow from this: USD Fab-->TWD earnings-->USD ADR to this: USD Fab-->USD LLC IPO their USD spinoff at least won't be a tax and might close the gap somewhat.

I don't know enough about relative currency valuations to agree or argue with you. The USD has been getting stronger for years now, but a 30-50% disadvantage makes the new TSMC fabs in AZ look like nothing more than a money-losing political ploy.

 

[VCT]

Taiwan 5-year tax credit was no longer available.
No free land in Taiwan.
Preferential loan was not significant since the interest rate was very low for a long time. TSMC did not really need loan.

I believe the 50% higher cost Morris Chang mentioned were related to yield and suppliers cost. He also mentioned even TSMC move more employees from Taiwan but result is still the same.

 

[blueone]

Taiwan 5-year tax credit was no longer available.
No free land in Taiwan.
Preferential loan was not significant since the interest rate was very low for a long time. TSMC did not really need loan.

I believe the 50% higher cost Morris Chang mentioned were related to yield and suppliers cost. He also mentioned even TSMC move more employees from Taiwan but result is still the same.

Thanks for the clarifications. The 50% cost difference makes no sense to me. If that's true then building the fabs in AZ is dumb. TSMC doesn't seem to do dumb things, so it's very odd.

 

[VCT]

Thanks for the clarifications. The 50% cost difference makes no sense to me. If that's true then building the fabs in AZ is dumb. TSMC doesn't seem to do dumb things, so it's very odd.

One retired TSMC executive said when hard working Taiwanese workers move to USA for one year, they feel the life style is more relax. Work first mentality changed to work life balance.

 

[blueone]

One retired TSMC executive said when hard working Taiwanese workers move to USA for one year, they feel the life style is more relax. Work first mentality changed to work life balance.

Sounds ridiculous and a lot like nationalistic bigotry, and probably has nothing to do with Chang's claim of a 50% cost difference.