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TSMC Plans $12 Billion Arizona Plant, Will Create 1,600 Jobs In Latest U.S.-China Tech Skirmish

One year on from Foxconn's much-touted plans to create 13,000 jobs in Wisconsin, Taiwan chipmaking giant TSMC says it's ready to invest $12 billion in a new high-tech factory in Arizona.

Taiwan Semiconductor Mfg. Co. Ltd.,  (TSM) - Get Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR Report the world's biggest contract chipmaker and a lead supplier for Apple Inc.  (AAPL) - Get Apple Inc. (AAPL) Report iPhones, said Friday that it will build a $12 billion manufacturing facility in Arizona in a move that will create around 1,600 jobs while adding to tensions between Washington and Beijing.

TSMC said construction on the site will begin next year, with operations targeted for a start date in 2024. The group will use the facility to build advanced semiconductors using its 5-nanometer fabrication technology, and plans to have a capacity of 20,000 chips per month. The $12 billion spend is likely to be spread over several years, however, and the capacity is less than half that of its main base in Taiwan.

"This U.S. facility not only enables us to better support our customers and partners, it also gives us more opportunities to attract global talents," the company said in a statement. 

"This project is of critical, strategic importance to a vibrant and competitive U.S. semiconductor ecosystem that enables leading U.S. companies to fabricate their cutting-edge semiconductor products within the United States and benefit from the proximity of a world-class semiconductor foundry and ecosystem," TSMC added.

TSMC's U.S.-listed shares were marked 1.13% higher in Friday following the announcement to indicate an opening bell price of $52.69 each.

TSMC's decision follows last year's announcement from domestic rival Hon Hai Precision, also known as Foxconn, to invest around $1.4 billion in a liquid crystal display manufacturing plant in Wisconsin, although plans for the facility have stalled amid a row over state tax incentives and allegations of broken job creation promises.   

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U.S. Secretary of State Mike Pompeo said TSMC's decision to build in Arizona "comes at a critical juncture, when China is competing to dominate cutting-edge technology and control critical industries" adding it will "increase U.S. economic independence."

It may also stoke further tensions between Washington and Beijing, given China's insistence that it has sovereignty over Taiwan -- which it calls Chinese Taipei -- and its irritation that the U.S. has supported the island's independence.

President Donald Trump said yesterday during a Fox Business Network interview that he isn't interested in speaking with China's President, Xi Jinping and repeated his criticism of China's handling of the coronavirus outbreak.

He has also threatened to "terminate" the recently-agreed phase 1 trade deal and yesterday said he could "cut off the whole relationship".

Severing economic ties with China, which does around $660 billion in annual trade with the United States, is not a viable option for the President, but enticing the return of supply chains, especially in the tech sector, certainly mitigates some of the risks associated in running a persistent trade deficit with the world's second-largest economy.

"We view this as a goodwill step from TSMC -- potentially to alleviate the impact of US/China tech tensions on the company -- as the capacity mentioned is not huge (5nm capacity planned this year in Taiwan will already reach 50-55k WPM) and it will only start production in 2024," said China Renaissance Securities analyst Szeho Ng in Hong Kong.

"It is unknown whether the US government and its US-based major customers will offer any form of subsidy (e.g. free land and tax incentives) or other commitment to this project, and we see TSMC as unlikely to be willing to assume extra financial burdens by itself for this US fab build, given the fiduciary responsibility it has to its shareholders," he added.