SK Hynix is rumored planning to build an advanced packaging fab worth USD 4 billion in West Lafayette, Indiana. According to a report from The Wall Street Journal, it is expected to commence operations by 2028, creating up to 1,000 job opportunities. This initiative may receive support in the form of state and federal tax incentives.

As reported by The Wall Street Journal and Tom’s Hardware, SK Hynix’s investment aims to enhance its capabilities in advanced semiconductor packaging, with a particular emphasis on manufacturing High-Bandwidth Memory (HBM).

Considering a potential capital expenditure of USD 4 billion for the construction, per Tom’s Hardware, if the project proceeds, it will become one of the largest advanced packaging facilities globally. Hence, government support is crucial, with expectations of tax incentives from both state and federal levels in the US.

SK Hynix, a supplier of HBM memory for NVIDIA, is eyeing enhanced capabilities in advanced chip packaging, particularly crucial for manufacturing HBM. The recent NVIDIA Blackwell B200, with each GPU utilizing 8 HBM3e chips, has also underscored SK Hynix’s role in the critical components supply chain for the AI industry.

The recent CHIPS and Science Act allocated USD 8.5 billion to Intel, enhancing US semiconductor competitiveness. SK Hynix’s plan to build a fab in Indiana is a significant stride, fostering US semiconductor growth.

However, US subsidies for chip manufacturing and packaging have been slow, with only three American companies currently benefiting, including BAE Systems, GlobalFoundries, and Microchip Technology.

Reportedly, SK Hynix’s plan remains more of an intention statement than a finalized deal, and whether it proceeds to the construction phase remains to be seen.

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(Photo credit: SK Hynix)

As per the report from Bloomberg, the US government is set to invest USD 3.5 billion in Intel to enhance the production capacity of advanced chips for military and intelligence purposes. Reportedly, the move is potentially positioning Intel as a leading semiconductor provider in the defense market.

Under the US government’s RAMP-C initiative, numerous companies, including IBM, Microsoft, and NVIDIA, are developing chips for the US military. Stu Pann, Intel’s head of foundry, recently stated in an interview with Tom’s Hardware that the company has signed a USD 1 billion contract with the US government and the Department of Defense.

According to the same report from Tom’s Hardware, this funding could be part of the total appropriation of USD 39 billion under the CHIPS and Science Act or may stem from the proposed Secure Enclave program specifically designed for military and intelligence chips. In any case, it will strengthen Intel’s position as a leading manufacturer in the defense market.

As the new funding announcement emerges, the U.S. Department of Commerce is also poised to invest billions of dollars in leading chip manufacturers like Intel, Micron, Samsung, and others, aiming to enhance local semiconductor manufacturing capabilities.

The U.S. government enacted the “Chip Act” in 2022. For now, only three American companies currently benefiting from the subsidies, including BAE Systems, GlobalFoundries, and Microchip Technology.

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• [News] Announcement on Additional Subsidies for Chip Act Expected This Week; Intel Could Receive Billions

(Photo credit: Intel)

According to a report by TechNews citing an article from the international column Project Syndicate, Burn Lin, former R&D Vice President of TSMC, Chintay Shih, former President of the Industrial Technology Research Institute, and Chang-Tai Hsieh, an Academia Sinica member and economics professor at the University of Chicago Booth School of Business, collaborated on an article titled “How America’s CHIPS Act Hurts Taiwan.”

In the article, they collectively elucidated how US semiconductor subsidies weaken TSMC’s strength, rendering the entire semiconductor industry more vulnerable. Additionally, they expressed concern that if China were to blockade or invade Taiwan, the supply chain would become compromised.

The US CHIPS and Science Act, aiming to address this issue with a USD 52 billion subsidy, seeks to encourage semiconductor manufacturers to relocate to the United States. However, according to the report addressing on the design of the bill, its objectives may not be achievable and could even weaken Taiwan’s most crucial industry, posing a threat to Taiwan’s security.

Concerns Arise Over Chip Act Threatening Taiwan’s Security

Currently, the semiconductor industry is dominated by specialized companies distributed globally. TSMC specializes in contract manufacturing, focusing primarily on high-end chips. Other important companies include AMD, NVIDIA, Qualcomm, ASML, Tokyo Electron, and Arm.

Specialization in the industry offers two major benefits.

Firstly, each part of the global supply chain can concentrate on its core expertise and advance further, benefiting other supply chains. Secondly, the production capacity of each link in the global supply chain increases, enhancing resilience against demand shocks.

The cost of specialization is that the industry becomes vulnerable to supply shocks. This issue is not unique to Taiwan; all segments of the supply chain face potential bottlenecks.

However, unlike other segments, Taiwan is reportedly confronted with territorial claims from China. Therefore, the United States and Japan have offered substantial subsidies for TSMC’s relocation. TSMC is constructing new factories in Kumamoto, Japan, and Phoenix, Arizona, in the United States.

Currently, Fab 1 in Kumamoto has been completed according to plan, and many of TSMC’s suppliers have also set up shop there. However, the Arizona plant is substantially behind schedule, and fewer TSMC suppliers have followed suit to establish operations in the United States.

Moreover, TSMC’s experience at its Portland plant in Washington state over the past 25 years has raised doubts about the prospects of the Arizona plant. TSMC struggled to find competitive workers there; even with identical training and equipment, production costs in the U.S. were still 50% higher than in Taiwan. Therefore, TSMC chose not to expand its Portland plant further.

Still, the fundamental issue lies in the fact that while American workers are skilled in chip design technology, they lack the skills required for chip manufacturing, which is crucial in this field.

The article further mentions that TSMC’s Phoenix plant will continue to struggle because there is a shortage of American workers with the skills necessary for semiconductor manufacturing.

As warned by TSMC’s founder, Morris Chang, in 2022, seeking economic security by relocating semiconductor manufacturing to the United States is an expensive exercise in futility. Furthermore, while the USD 52 billion subsidy from the United States may seem substantial, it is insufficient to establish a self-sufficient semiconductor ecosystem in Phoenix.

Additionally, the article points out that Taiwan’s industrial planners have deliberately chosen a niche market built upon existing manufacturing advantages, without attempting to replicate the model of the leading Intel at that time, due to the scarcity of Taiwanese workers with the necessary design skills. Similarly, Japan’s subsidies for TSMC are likely to succeed because Japan already possesses an ample supply of skilled manufacturing workers.

The article also highlights three major risks brought about by the US chip act at the end:

Firstly, if TSMC shifts its focus and loses its investment in innovation, the biggest losses will be incurred by its customers and suppliers, most of which are American companies.

Moreover, it may hinder AI development, as this field largely relies on TSMC-manufactured advanced chips. Consequently, TSMC may reduce its investment in production capacity in Taiwan, reducing the entire semiconductor industry’s ability to withstand demand shocks.

Lastly, TSMC may lose its way and risk being replaced by other companies, losing its leadership position in the field of advanced semiconductor manufacturing.

Well-Intentioned US Chip Act with Poor Design May Ultimately Harm Taiwan’s Economy

The commentary suggests that despite the well-intentioned nature of the US chip act, its design is flawed. Instead of establishing a sustainable semiconductor manufacturing cluster in the United States, it may result in long-term damage to TSMC and ultimately harm Taiwan’s economy.

A better approach for the United States, per the report, would be to protect its own economic security while strengthening Taiwan’s, committing to defend Taiwan, and building production capacity in countries like Japan. This strategy may be more prudent in the long run.

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(Photo credit: TSMC)

U.S. Commerce Secretary Gina Raimondo previously mentioned during an online Intel foundry event that the U.S. must continue investing to regain global leadership and requires “Chip Act 2.”

According to a report from TechNews citing from global media Tom’s Hardware, the U.S. Department of Commerce plans to announce additional subsidies for the semiconductor bill as soon as this week.

Raimondo is scheduled to attend the “Revitalizing American Innovation” conference hosted by the Center for Strategic and International Studies (CSIS) in Washington on February 26th and will unveil the latest subsidies under the “Chip Act.”

In this regard, Intel is expected to receive a government subsidy of USD 10 billion, while TSMC and Samsung may also be included in the latest subsidy list. Samsung Electronics is, according to its own expectation, investing USD 17 billion to construct a foundry in Taylor, Texas, while TSMC is investing roughly USD 40 billion to build a foundry in Phoenix, Arizona. However, it’s rumored that due to the U.S. prioritizing domestic companies, the expected subsidy amounts may differ from those of Intel.

The U.S. government enacted the “Chip Act” in 2022, but subsidies have been modest, with only three American companies currently benefiting, including BAE Systems, GlobalFoundries, and Microchip Technology.

Due to Intel’s investment of USD 43.5 billion in the United States since 2021, constructing new semiconductor plants, sources cited by the report believe that the likelihood of Intel receiving USD 10 billion (equivalent to 23% of the investment amount) is quite high.

Read more

• [News] GlobalFoundries Reportedly Becomes Third Recipient of CHIPS Act Subsidy, Receives USD 1.5 Billion
• [News] US Allocates USD 39 Billion Subsidy to Semiconductor Industry for Establishing Plants

(Photo credit: TSMC)