The US Commerce Department has finalised a $6.6 billion subsidy agreement with Taiwan Semiconductor Manufacturing Co. (TSMC) for its chip manufacturing operations in Phoenix, Arizona.
This deal is the first major allocation under the $52.7 billion Chips and Science Act introduced in 2022 to bolster domestic semiconductor production.
The contract, which follows a preliminary agreement announced in April, aims to produce the world’s most advanced chips on US soil.
TSMC’s expanded investment now totals $65 billion, ensuring that its Phoenix facility will host cutting-edge 2-nanometre technology by 2028.
$65 billion investment brings cutting-edge chips to Arizona
TSMC’s commitment to its Phoenix facility marks a significant leap forward for the US semiconductor industry.
The company, which originally planned a $40 billion investment, increased its funding by $25 billion to $65 billion earlier this year.
This expansion includes the addition of a third fabrication plant (fab) in Arizona by 2030.
The Phoenix facility will house TSMC’s 2-nanometre technology—the world’s most advanced chip manufacturing process.
Production is expected to commence in 2028, showcasing the US’s ambition to lead in semiconductor innovation.
TSMC will utilise its A16 chip-making technology, cementing Arizona’s role as a hub for advanced manufacturing.
Government loans and profit-sharing agreements shape the deal
The TSMC subsidy includes up to $5 billion in low-cost government loans.
Funds will be released in tranches tied to specific project milestones, with $1 billion expected to be disbursed by the end of the year.
As part of the agreement, TSMC has pledged to forgo stock buybacks for five years, except under certain conditions, and will share any excess profits with the US government under an “upside sharing agreement.”
Commerce Secretary Gina Raimondo emphasised the strategic significance of the deal, stating it reflects both offensive and defensive measures in the US’s approach to semiconductor dominance.
The subsidy also aligns with efforts to ensure domestic chip buyers prioritise US-made products, reinforcing national security objectives.
Chips Act
The Chips and Science Act, passed by Congress in 2022, aims to revitalise the US semiconductor industry, which currently lacks domestic production of leading-edge chips.
With $36 billion allocated for chip projects, the Act has attracted investments from global players.
This includes $6.4 billion for Samsung in Texas, $8.5 billion for Intel, and $6.1 billion for Micron Technology. Commerce officials are working to finalise these agreements before President Biden’s administration concludes in January.
The Chips Act underscores the importance of semiconductor technology for national security and economic resilience.
Beyond TSMC, these investments aim to establish a robust domestic supply chain and reduce reliance on foreign production.
Export controls and national security concerns over China
TSMC’s subsidy comes amid rising geopolitical tensions, particularly regarding chip exports to China.
While the Commerce Department has reportedly instructed TSMC to halt shipments of advanced chips to Chinese customers, no official confirmation has been made.
Raimondo highlighted that ensuring no subsidised company violates US export controls is a key aspect of the government’s semiconductor strategy.
To Raimondo states national security concerns remain a priority stating,
Investing in TSMC to expand here is offence—defence is making sure that neither TSMC nor any other company sells our most sophisticated technology to China.
Transforming the US semiconductor landscape
TSMC’s investment represents a monumental shift in the US semiconductor landscape.
By 2030, the Phoenix facility will not only produce cutting-edge chips but also serve as a critical component of a broader strategy to secure domestic supply chains.
The deal underscores the intersection of technology, economics, and geopolitics, as the US seeks to assert dominance in a sector vital to future innovation.
The subsidy marks a turning point for the semiconductor industry, signalling a shift towards regional self-sufficiency and technological leadership.
With ongoing investments under the Chips Act, the US is positioning itself to compete in an increasingly fragmented global semiconductor market.
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