The United States has for years lost out in the tech manufacturing race, and a surprising change is now afoot.
Semiconductor manufacturers, including Taiwan Semiconductor (TSM 1.26%), Intel (INTC -9.20%), Samsung, Texas Instruments, and others have announced plans to open massive factories in the United States. Those moves represent a major victory for both the U.S. economy and the federal government, with the CHIPS Act helping to encourage domestic chip manufacturing.
However, those plans hit a significant speed bump last week, when Taiwan Semiconductor, which had pledged to invest around $40 billion in two plants in Arizona, said it would delay the opening of its first new factory, which was expected to open in late 2024.
Now, Taiwan Semi says the new factory won't open until 2025, primarily because there is a shortage of American workers with the needed expertise. On the company's recent earnings call, Chairman Mark Liu said, "We are encountering certain challenges, as there is an insufficient amount of skilled workers with the specialized expertise required for equipment installation in a semiconductor-grade facility."
Taiwan Semi said it planned to move some employees from Taiwan to Arizona to fill the needed roles and train new employees, but the commentary underscores a key challenge with bringing chip production back to the United States.
Image source: Getty Images.
Steve Jobs' prescient words
At a conference in 2011, President Obama famously asked Apple co-founder and longtime CEO Steve Jobs how the U.S. could make iPhones domestically. Jobs' answer was blunt, telling the president, "Those jobs aren't coming back."
The point Jobs was making is that beyond lower wages, China and Taiwan, where much of Apple's chips and devices are manufactured and assembled, offer entire ecosystems geared around industries like semiconductor and smartphone manufacturing to make it easy to produce them and to make changes as needed.
For example, a plant in China was able to immediately adjust to a redesign in the iPhone screen, and after four days it was producing 10,000 iPhones daily. Along with parts, plants, and the culture necessary to produce such products at a rapid rate is the technical expertise required, which seems to have left the U.S. along with the tech manufacturing base.
What it means for the chip industry
Taiwan Semi's comments about the state of the American employee base carry implications not just for itself but also for other chip manufacturers attempting to diversify their production bases.
Perhaps no other chip stock is more vulnerable than Intel. Best known for making chips for PCs, Intel has been struggling for years, losing market share to Advanced Micro Devices and other "fabless" chip companies, meaning companies that just design semiconductors, rather than produce them.
Intel is planning to invest more than $20 billion in the construction of two new facilities in Ohio that are expected to open in 2025. Intel currently has several fab production sites inside and outside the U.S., but the company could face similar challenges to Taiwan Semi as it attempts to scale up with its new advanced semiconductor manufacturing plants.
Both Intel and Taiwan Semi shares fell along with the broader semiconductor industry following its earnings report, which also included a lowering of Taiwan Semi's full-year revenue guidance. A delay in the construction of new plants isn't just a setback for Taiwan Semi and other foundries for the industry itself. Companies including Apple, Nvidia, AMD, and others rely on them to make their chips.
With a number of semiconductor stocks already carrying frothy valuations on hopes for an AI revolution, investors may want to step back and heed the words of Steve Jobs. Creating a whole new chip manufacturing industry in the U.S. will be more challenging and more expensive than expected. Don't be surprised if more delays come down the road.
