TSMC’s Plan to Move Its Production Units Out of Taiwan Seems Impossible

• TSMC is planning to move its fabrication plants out of Taiwan amidst growing aggression from China.
• Such a move seems impossible considering 80%-90% of the company's production capacity is in Taiwan.
• Industry experts say that although there are issues with China, there's no immediate danger to Taiwan, especially its AI industry.

Taiwan-based chipmaker TSMC is planning to move its fabrication plants out of the country amidst growing tensions with China.

On Tuesday, the company held talks with some of its customers about the fate of the company. Although the names of the customers involved in that talk weren't revealed, we do know that companies like OpenAI and Apple are TSMC's clients.

Instability across the Taiwan Straits is indeed a consideration for the supply chain, but I want to say that we certainly do not want wars to happen' - C.C. Wei

However, Chairman C.C. Wei said after the company's annual shareholder meeting that moving out of the country would be next to impossible.

After all, almost 80%-90% of the company's production capacity is in Taiwan. It would be really difficult to move that many production units.

What Is the Issue between China and Taiwan?

The main issue is that China sees Taiwan as a part of its territory but Taiwan views itself as a distinct, independent country. This conflict has been going on for many years.

However, after the inauguration of Taiwan President Lai Ching-te, aggression from Beijing has increased. Ching-te wants Taiwan to remain a separate country which obviously irks the Chinese government. So much so that Beijing has labeled Ching-te as a separatist".

In the latest update, the Taiwanese defense ministry on Tuesday said that it had detected another Chinese joint combat readiness patrol" which includes 23 warplanes and a few warships, all of which are operating near Taiwan.

Is There Any Reason for Immediate Concern?

It's hard to say. On one hand, it's no secret that China can get very aggressive with its enemies. And given Taiwan is much smaller in every way, it will probably not stand a chance if the two go to war.

The growing friction between the two countries was also a major topic of discussion at the annual Computex technology trade show this week in Taipei.

On the other hand, Frank Huang, chairman of Powerchip Semiconductor Manufacturing, was asked by the reporters at Computex 2024 if they were facing any pressure from international clients against producing in Taiwan. He said that nobody is worried about this yet.

Frank added that there might be some disruptions in the form of military activity and showdowns but at the end of the day, even China knows how important Taiwan is to the AI industry. It will not do anything to cause material damage to Taiwanese firms.

How Are Things for TSMC outside Taiwan?

Considering the company is talking about moving out of the country (even though that seems to be impossible for now), it's important to take a look at how it's doing in the global market. And honestly, it doesn't seem good.

It started off well for the company. The Biden administration literally courted TSMC with investment incentives to expand to the US. Soon after, three fabrication plants were inaugurated in Arizona.

The investment created 6,000 unique jobs, 20,000 accumulated unique construction jobs plus tens of thousands of indirect supplier jobs.

Now, here are the challenges faced by TSMC:

• Industry experts feel that the US doesn't have the capacity to fill out so many skilled roles.
• There have been several reports of on-site cultural clashes between the unionized US workforce and TSMC managers. The work culture is very different in the two countries.
• When hiring locally failed and the company tried to bring in Taiwanese workers, the company was accused of cutting costs by importing cheap labor.
• TSMC also feels that the STEM education level in the US lags behind that of Taiwan and other Asian countries which makes it difficult to fill high-level, complex roles with US citizens.

All of these challenges may force TSMC to shift its focus away from the US for future investments.

But even then, the pressure to expand globally remains. According to reports, Apple has been pressuring the company to diversify its production units so that aggression from China, a proneness to drought (the chips industry requires vast amounts of water) and earthquakes don't hamper its supply chain.

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