Here's why Arizona is becoming the hub of chip manufacturing – Deseret News
Anything with an on-off switch needs a microchip to work.
“It could be the light switch on the wall, could be your phone, certainly your computer, most of what’s now in your car,” said Kyle Squires, the dean of Arizona State University’s Ira A. Fulton Schools of Engineering. “Just think about every single thing you interact with all day long. Semiconductors and microelectronic devices are in all of those things.”
Microchips were originally developed in the U.S., but over the span of several decades, their manufacture moved to foreign countries. American consumers paid the price when the pandemic disrupted global supply chains, leading to car dealerships with empty lots, a lag in iPhone shipments, and even a tight inventory of lightbulbs.
Former Utah state Sen. Scott Howell, who worked at IBM for more than a decade, told the Deseret News the lack of microchip production in the U.S. is “really a safety and security issue.” Not only is this technology an important component in cars, but it is also used in defense technology like the F-35 fighter jet.
Now, there is an effort to bring back domestic production of chips, and states like Arizona are paving the way.
Congress passed the $280 billion Creating Helpful Incentives to Produce Semiconductors, or “CHIPS” and Science Act in August 2022, in an attempt to build a more resilient industrial supply chain. Micron, a Boise-based chip producer, received $6.14 billion from this bill to build facilities in Idaho and New York. The legislation also provides a 25% tax credit for companies that invest in chip plants in the U.S., as the Deseret News previously reported. This encouraged Texas Instruments to expand its existing presence in Utah.
The Biden administration signaled it will allocate $39 billion in grants by the year’s end, some of which will be spent in the Western U.S.
“We will enable advanced semiconductor manufacturing to make a comeback here in America after 40 years,” said President Joe Biden during his March visit to Phoenix, Arizona, where he announced this latest round of funding that could also be a source of new jobs. “It’s going to transform the semiconductor industry and create entirely new ecosystems.”
Intel will receive $8.5 billion to invest in Arizona, New Mexico, Ohio and Oregon, and will receive $11 billion in loans under the CHIPS Act. This company also announced plans to invest more than $100 billion in the semiconductor industry in the U.S. over five years. Taiwan Semiconductor Manufacturing Co. will receive up to $6.6 billion for its biggest projects in Phoenix, as CNBC News reported.
This focus on Arizona begs the question: Can the Valley of the Sun emerge as the hub of semiconductor manufacturing in the U.S.?
Arizona already has a workforce pipeline that partners with local universities, colleges and vocational schools for “reskilling and upskilling programs,” said Chris Camacho, Greater Phoenix Economic Council’s president and CEO, in an email. He pointed to Maricopa County Community College’s “quick start program” that gets students job-ready through a two-week semiconductor training. Arizona State University’s engineering program, the largest in the nation, is also bolstering the labor pool, he added.
Squires, the program’s dean, said the school has transformed into “ground zero” for chip generation and innovation. But despite the school’s output of talent, Squires said the needs are daunting “when you look at the rate of expansion, the new technologies that are coming online, when you look at data.”
Squires said Phoenix not only wants to position itself as a leader in semiconductor innovation and manufacturing, but also gain visibility globally. “The ingredients are all there now. We just have to get it done,” he added.
Another one of the “ingredients” is an existing semiconductor industry in Arizona. The Grand Canyon State has led in the microchip industry with companies like Motorola and Intel, two companies that moved to the state in the 1950s and 1980s, respectively — long before the passage of the CHIPS Act, Squires said. This cluster also includes Onsemi, established in 1999, and Microchip Technology, founded more than three decades ago with a headquarters in Phoenix.
The White House’s recent moves are also attracting investments from other companies with deep pockets, like Amkor, which has signed on to build a $2 billion semiconductor testing campus.
Now, Taiwan Semiconductor Manufacturing Co. is setting up its new facility over 1,100 acres. Taiwan produces 60% of semiconductors, shipped out to the rest of the world, and TCMC is a leading manufacturer. The company says its facility in Arizona will be “the most advanced on U.S. soil with a more than 20,000 chips wafer-per-month production capacity.” Wafers are the key components in chip-making.
Geoffrey Gertz, Center for a New American Security senior fellow, who considers the CHIPS Act “the landmark policy on U.S. production capacity,” told the Deseret News an “over-concentrated” Taiwanese supply chain is risky.
“For TSMC, it’s interesting for them to want to diversify their factories. It also makes sense for the U.S. to have TSMC involved in the supply chain that we’re building here,” said Gertz. This also gives the U.S. a chance to assert its leadership in this space, he added.
The Grand Canyon State’s attempts at reshoring manufacturing haven’t all been smooth sailing. Both Intel and Taiwan Semiconductor Manufacturing Co. have signaled delays as construction was either put on hold or scaled back. According to news site Nikkei Asia, the issue is a surging cost in building materials and labor, and a shortage of construction workers, created because of the large investments Arizona has received as of late that have heightened demand.
“Obviously, TSMC has more experience in this field than anyone else, but it’s still always going to be kind of a big lift to get a new factory off the ground,” Gertz said.
Intel, in a statement to the Deseret News, said, “The industry is facing labor challenges and we’re not immune.”
“Construction is booming everywhere — The greater Phoenix Metropolitan Area has more than 58 million square feet of industrial space under construction, the most in the nation,” Intel said.
It doesn’t help that “the equipment for producing these chips is extremely complicated, extremely large and expensive,” Gertz said.
This equipment is plugged into giant machines laid out in rows within the factory. Because this is a complex endeavor, changes to the timeline are expected, he said. But, Gertz added, the delay announcements he’s seen don’t seem to suggest the construction has fundamentally gone off track.
“I do think, the delay announcements that we’ve seen, I don’t think this necessarily suggests that this is off track in any fundamental way,” Gertz said.
Since it is a globally connected industry, the CHIPS Act sets aside $500 million to fund factory expansions in the Philippines, Indonesia, Costa Rica and Panama to diversify the demand-supply pipeline and the workforce pool.
The idea is to rebuild the lost American manufacturing capacity, “but that we should be going about it in a way that is not seeking pure self-sufficiency input,” said Gertz. Instead, it’s about building a buoyant supply chain, he said.