China throws money at domestic chip firm as TSMC stops taking orders from Huawei

The US move to impose a ban on any US tech being used in the production of Huawei chips has sent shockwaves through the semiconductor industry.

A couple of reports illustrate this well. Bloomberg notes that the Chinese state is pumping $2.25 billion into Semiconductor Manufacturing International Corporation. This will apparently give the Chinese state even more control over the company than it had anyway and is clearly a move designed to accelerate the country’s move towards silicon self-sufficiency, despite the company name.

Meanwhile the Nikkei Asian Review reports that TSMC has stopped taking new orders from Huawei as a direct result of the US ban. This is pretty massive for TSMC as Huawei is one of its biggest customers, so you have to wonder if the decision was influenced by incentives as well as threats from the US.

Huawei, of course, is not impressed with the latest US move against it. Here’s the statement made earlier today at its virtual analyst event in full.

Huawei categorically opposes the amendments made by the US Department of Commerce to its foreign direct product rule that target Huawei specifically.

The US government added Huawei to the Entity List on May 16, 2019 without justification. Since that time, and despite the fact that a number of key industrial and technological elements were made unavailable to us, we have remained committed to complying with all US government rules and regulations. At the same time, we have fulfilled our contractual obligations to customers and suppliers, and have survived and forged ahead against all odds.

Nevertheless, in its relentless pursuit to tighten its stranglehold on our company, the US government has decided to proceed and completely ignore the concerns of many companies and industry associations.

This decision was arbitrary and pernicious, and threatens to undermine the entire industry worldwide. This new rule will impact the expansion, maintenance, and continuous operations of networks worth hundreds of billions of dollars that we have rolled out in more than 170 countries. 

It will also impact communications services for the more than 3 billion people who use Huawei products and services worldwide. To attack a leading company from another country, the US government has intentionally turned its back on the interests of Huawei’s customers and consumers. This goes against the US government’s claim that it is motivated by network security.

This decision by the US government does not just affect Huawei. It will have a serious impact on a wide number of global industries. In the long run, this will damage the trust and collaboration within the global semiconductor industry which many industries depend on, increasing conflict and loss within these industries.

The US is leveraging its own technological strengths to crush companies outside its own borders. This will only serve to undermine the trust international companies place in US technology and supply chains. Ultimately, this will harm US interests.

Huawei is undertaking a comprehensive examination of this new rule. We expect that our business will inevitably be affected. We will try all we can to seek a solution. We hope that our customers and suppliers will continue to stand with us and minimize the impact of this discriminatory rule.

According to the Global Times, Huawei had a cunning plan to order loads of chips from TSMC during the grace period included in the US measures, but the Nikkei story would appear to scupper that. To add insult to injury, Nokia has just announced a 5G network deal win with Taiwan Star Telecom. It increasingly looks like Taiwan is doing everything it can to distance itself from the Chinese state, something the latter is very unlikely to take lying down.

TSMC to build new fab in the US – your move China

The mobile industry’s default semiconductor manufacturer is building its next fab in the US, a move that could have major geopolitical implications.

Rumours of the US incentivising big chip-makers to expand their presence on US soil circulated at the start of this week and now we know their provenance. Intel is a US company anyway, so the big prise was always going to be TSMC, which has most of its operations in Taiwan. It looks like bribes offers of support from the US government were too good to refuse.

“TSMC today announced its intention to build and operate an advanced semiconductor fab in the United States with the mutual understanding and commitment to support from the U.S. federal government and the State of Arizona,” opened the TSMA announcement.

“This facility, which will be built in Arizona, will utilize TSMC’s 5-nanometer technology for semiconductor wafer fabrication, have a 20,000 semiconductor wafer per month capacity, create over 1,600 high-tech professional jobs directly, and thousands of indirect jobs in the semiconductor ecosystem. Construction is planned to start in 2021 with production targeted to begin in 2024. TSMC’s total spending on this project, including capital expenditure, will be approximately US$12 billion from 2021 to 2029.”

This development is likely to be highly antagonistic to the Chinese government. Not only is the US already trying to restrict Chinese access to the US component ecosystem, Official Chinese policy insists Taiwan is part of China. Hence every move closer to the US Taiwan makes will be perceived as a strategic threat by the CCP. It will be interesting to see how TSMC deals with the political fallout from this announcement and it wouldn’t be surprising to see it announce an offsetting move there too.

US moves to expand domestic chip making capability

As global commercial Balkanisation ramps, countries are seeking to make themselves as self-sufficient as possible.

The coronavirus pandemic, and the consequent global shortage of things like personal protective equipment, has brought to a head how dangerous it is to be reliant on other countries for essential kit. The mounting hostility between the US and China, coupled with the fact that much of the world’s manufacturing takes place in China, has served to further stoke concern.

Now we have reports that the US government is in talks with two of the world’s biggest semiconductor manufacturers – Intel and TSMC – to build new fabs in the US. Intel has confirmed it’s in discussions with the Defense Department about improving domestic technology sources, while TSMC has confirmed it has been chatting to the Commerce Departments, but not what they discussed.

Intel has fabs in ten different locations, five of which are already in the US and only one of which is in China. As the name Taiwan Semiconductor Manufacturing Company implies, most of TSMC’s fabs are located in Taiwan, but it does have a couple in China and one in the US. In the case of Intel, the US government seems to want a fab that it can call upon to ensure supply of chips in the worst-case scenarios.

The TSMC angle is more intriguing. On a practical level it’s the world leader mobile chip manufacture, an area in which Intel has shown impressively consistent ineptitude. As smartphones have become the single most important smart device, a major interruption to their supply chain would be a significant blow to consumers, businesses and governments alike.

But the really juicy aspect concerns China’s relationship with Taiwan, which it insists is part of China. The Taiwanese people and government beg to differ and the country is a consequently key pawn in many of the geopolitical games China and the US like to play with each other. Persuading TSMC to significantly expand its presence in the US would be a major symbolic victory and seriously antagonise the Chinese Communist Party, which President Trump may consider to be reason enough alone.

The Balkanisation megatrend this would appear to be following raises at least a couple of major issues. Firstly a lot more redundancy looks set to be built into supply chains, as companies and countries wean themselves off just-in-time imports. Secondly the west seems set to adopt an ‘if you can’t beat em, join em’ approach with respect to Chinese subsidising of domestic companies to give them significant advantages over foreign ones.

While this will improve supply chain security, it will also raise prices as companies pass on the additional cost of having to make more stuff themselves and no longer being able to import wage deflation from China. It also seems to herald a permanent enlargement of the state through a greater involvement in the private economy. The cost of this ultimately has to be faced by taxpayers, so it looks like the cost of living is set to be significantly higher for the foreseeable future.