TSMC, the world's leading chipmaker, has begun producing chips for Apple at one of its semiconductor chip factories in Phoenix, two people familiar with the matter told Business Insider.

One of the people familiar with the matter said it is not yet at full capacity.

This marks a boost for the US's efforts to produce more semiconductor chips, which have encountered some challenges in the past few years.

Tim Culpan, an independent journalist covering technology in Taiwan, first reported the news last month.

Citing unnamed sources, Culpan said TSMC has begun producing Apple's A16 chips in "small but significant" quantities. The news marks a major development for TSMC, which announced plans in 2020 to invest billions of dollars and create thousands of jobs in Arizona.

In addition, two years ago, Apple CEO Tim Cook announced that Apple would become the "largest customer" of TSMC's first manufacturing plant in Arizona and use American-made chips for the first time in nearly a decade.

A TSMC spokesperson declined to comment on the company's work with Apple in the United States. When asked about the progress of the company's first chip factory, a spokesperson said the project is "on track" and the company expects to be fully operational in the first half of 2025.

Apple did not respond to a request for comment.

01 "A success story"

Dylan Patel, principal analyst at semiconductor research and consulting firm SemiAnalysis, said Apple's move to stateside chip production is a major milestone.

"Despite a lot of negative early reports, this shows that the fab is operating well and in line with expectations - it's a success story," he told Business Insider.

BI's sources did not specify what kind of chips are being produced at the Phoenix plant. Mark Muro, a senior fellow at the Brookings Institution, told Business Insider that the reported start of production of the A16 chip - which has been used in some recent iPhone models, but not the new iPhone 16 - is a very positive sign for Apple's partnership with TSMC.

"It shows that Apple is confident enough in the new U.S. factory to produce one of its most advanced mobile processors directly in the U.S.," he said, adding: "This is encouraging given that some observers have doubted that U.S. factories can meet TSMC's standards anytime soon."

TSMC's commitment to build three chip plants at its Phoenix campus is key to the Biden-Harris administration's push for U.S. production of chips that power everything from iPhones to washing machines. In 2022, President Biden signed the CHIPS Act, which provides $52.7 billion for U.S. semiconductor research, development, manufacturing, and workforce development. This includes $39 billion in manufacturing incentives to produce chips in the United States. In addition to creating American jobs, the administration also hopes to ensure supply chain security and reduce the United States' dependence on Taiwan's advanced chips.

02 TSMC faces construction slowdown, worker tensions in Arizona

TSMC's investment in Arizona has not been without its share of setbacks.

Last year, TSMC announced that the official start-up date of its first wafer fab in Arizona would be pushed back to 2025 from 2024. When the company announced plans to bring in technicians from Taiwan to train American workers, local unions in Arizona protested over concerns that American jobs would be threatened.

Management and safety issues have also led to frustration among TSMC's construction workers in Arizona. Workers previously told BI that management issues have exacerbated construction delays, and some have accused the company of violating safety regulations. TSMC previously told BI that it is committed to ensuring its working conditions are safe.

In 2022, TSMC founder and former CEO Morris Chang told the Brookings Institution that U.S. efforts to increase domestic chip production would be "wasteful, expensive and futile" due to labor and cost challenges.

Despite these issues, TSMC said in an April earnings call that progress on its first Arizona wafer fab was "going well."

SemiAnalysis' Patel said TSMC's production of Apple chips is good news for Americans who want to find jobs in the industry. That’s because TSMC’s early success suggests it will continue to invest in the U.S.

"This is driving job growth not only at TSMC, but across the entire ecosystem - fab construction, equipment suppliers, etc., all of which are necessary to support fab construction,” Patel said. “While modern fabs are not particularly labor-intensive, they require highly skilled workers and will operate for decades, which means that many high-quality, long-term jobs are being created."

TSMC said it will raise prices for chips produced outside Taiwan because of higher manufacturing costs. But Patel said he doesn’t expect the move to have a material impact on the price of Apple products.

"The U.S. government subsidies are intended to offset the difference in construction and other costs between Taiwan and the U.S. to enable TSMC to do business," he said, adding: "Neither Apple nor consumers should be concerned about the price difference for these U.S.-produced chips."

Looking ahead, chipmakers like TSMC will face another challenge once they are operating at full capacity: finding workers.

A report released last year by the Semiconductor Industry Association said that by 2030, the U.S. semiconductor industry will face a labor shortage of about 67,000 people, including technicians, computer scientists and engineers. However, Patel said he does not expect the labor shortage to have a significant impact on TSMC's production.

Muro is also optimistic. He said he believes TSMC's production of Apple chips is a good sign for the future.

"This is an important signal that the U.S. drive to reshore high-quality chip manufacturing is for good reason," he said.

Reference link: https://www.businessinsider.com/tsmc-making-apple-iphone-chips-helps-us-semiconductor-bet-2024-10

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