Apple's desired chips cannot be made in the United States.

Wallstreetcn
2023.09.12 00:58
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Even if we can manufacture chips in the United States, advanced packaging remains an insurmountable hurdle.

Introduction:

  • TSMC's Arizona factory is more of a political project and will not change the big tech companies' reliance on Taiwan, China.

  • The packaging of iPhone chips and Nvidia H100 chips will still be done in Taiwan, China.

  • TSMC has no plans to build advanced packaging factories in the United States.

In December of last year, Apple CEO Tim Cook visited a highly anticipated factory being built by TSMC in Phoenix, Arizona, together with US President Joe Biden, and stated that the factory would produce chips for Apple.

However, Cook avoided an unsettling fact: this factory in Arizona will hardly help the United States achieve self-sufficiency in chip production. This factory has been a focal point of Biden's plan and will cost $40 billion to build. According to interviews with several TSMC engineers and former Apple employees, this is because many advanced chips manufactured in Arizona for Apple, Nvidia, AMD, Tesla, and other clients will still need to be assembled in Taiwan, China, a process known as packaging.

TSMC employees stated that TSMC has no plans to build packaging factories in Arizona or elsewhere in the United States, mainly due to the high cost of such projects.

This disclosure indicates that while TSMC's factory in Arizona may score political points, it will not reduce the United States' reliance on Taiwan, China. The factory will begin mass production in 2025 and will employ 4,500 workers across the two facilities.

TSMC is unable to fully assemble chips for Apple and other companies in the United States, which demonstrates how difficult it is for Biden to bring chip manufacturing to the United States without completely reshaping the entire semiconductor supply chain. The semiconductor supply chain is primarily concentrated in Asia, with Taiwan, China holding a particularly important position in this field.

Cook has stated that Apple will be TSMC's largest customer at the Arizona factory, but did not specify which chips will be produced there or how many chips will be produced. The packaging of less critical chips for both companies, including those for iPads and MacBooks, can be handled outside of Taiwan, China.

Nvidia, AMD, and Tesla also plan to use the Arizona factory for chip production, although they have not specified which chips. However, TSMC employees have stated that the most advanced artificial intelligence chips, including Nvidia's coveted H100 chip, still rely on packaging technology that TSMC exclusively uses in Taiwan, China. TSMC is investing billions of dollars to expand its packaging capabilities in Taiwan, China to meet the explosive growth in demand for AI computing.

"Huge Expenditure"

Whether and when TSMC will introduce advanced chip packaging to the United States depends on cost. Paul Triolo, Senior Vice President at consulting firm DGA-Albright Stonebridge Group responsible for China operations, stated that the chips produced by TSMC's factory in Arizona are not enough to justify the cost of building advanced packaging facilities there. He said:

"Building such a facility is a huge expenditure of capital, time, and energy, and it seems unlikely that TSMC will be able to do so quickly in the desert of Arizona, especially considering all the problems the company has encountered so far in terms of construction, costs, and personnel."

These issues have prompted TSMC to delay the start date by one year, until 2025, as the company previously stated in July that it was difficult to find enough skilled workers to construct the factory.

Chip analysts like Triolo and industry organizations such as the Institute of Printed Circuits have expressed that the US government has not done enough to encourage companies involved in packaging to move their operations to the US, with only 3% of global advanced packaging taking place in the country.

The US government has recognized the gap in advanced packaging. Last year, the US passed the CHIPS Act, which provides approximately $52 billion in subsidies to chip companies building factories in the US and calls for the establishment of a national advanced packaging manufacturing program. This program will receive at least $2.5 billion in funding from the CHIPS Act this year, according to IPC, which indicates that packaging "has not been given explicit priority."

The US Department of Commerce played a key role in the development of the CHIPS Act. A spokesperson for the Department of Commerce declined to comment on potential applicants seeking funding for advanced packaging facilities but mentioned a speech by US Secretary of Commerce Gina Raimondo in February, in which she stated that the US will develop multiple high-capacity advanced packaging facilities and become a global leader in the field.

However, Triolo says that without more subsidies, it is unclear how advanced packaging companies can justify the high costs of building facilities in the US compared to Asia.

Chip packaging involves encapsulating chips in protective materials and placing chip components as close together as possible to reduce the distance signals must travel between them. As the industry faces physical limitations on how many transistors can be etched on a chip wafer, advanced packaging has become important for improving chip performance. TSMC and another Taiwanese company, ASE Group, have handled some of the world's most advanced packaging in Taiwan, while Samsung Electronics has significant facilities in South Korea, and industry pioneer Intel is establishing a large advanced packaging facility in Malaysia.

But in this field, other companies cannot compare to TSMC. According to current and former employees of TSMC, the company initially developed advanced packaging for another customer, Qualcomm, for use in iPhones, but Qualcomm ultimately did not use this technology. Instead, Apple began using it for the main chip in iPhones as early as 2016.

Today, the main chips in iPhones still use TSMC's advanced packaging method called Integrated Fan-Out Packaging, also known as InFO_PoP. This method places the memory of the iPhone on top of the processor, making the overall chip smaller and thinner to improve its energy efficiency and performance.

Apple's Discounts

Former Apple and TSMC employees have stated that Apple has made significant contributions to the use of TSMC's advanced packaging, making Apple the only customer to extensively utilize TSMC's methods.

However, previous reports indicate that Apple has received substantial discounts on TSMC's packaging due to a commercial contract bundling its manufacturing of processor chips with TSMC. This has provided Apple with unique advantages. Apple also employs TSMC's advanced packaging for the Apple Watch and its most advanced Mac desktop computers.

According to Patil from SemiAnalysis, as chip packaging becomes increasingly advanced, Apple and other TSMC customers like NVIDIA will find it more difficult to separate themselves from Taiwanese factories in China. This is because TSMC always develops the latest manufacturing and packaging processes locally, where costs are lower and talent is more readily available.

This means that Apple is considering TSMC's future advanced packaging methods, which will likely only be available in Taiwan, China. According to an employee directly familiar with the matter at TSMC, Apple is evaluating the possibility of using Small Outline Integrated Circuits (SOIC) for future MacBooks and Mac computers. This involves dividing the processor into smaller blocks and stacking them together, resulting in a smaller overall chip size while also improving performance.