Taiwan Semi and Intel Hit Roadblocks in Arizona - High Costs and Labor Shortages Challenge Chip Supply Ambitions

Taiwan Semiconductor Manufacturing Co TSM and Intel Corp INTC have encountered unexpected hurdles to bolster the American semiconductor supply chain, as evidenced by construction delays from at least five critical suppliers in Arizona. 

These suppliers, namely LCY Chemical, Solvay, Chang Chun Group, KPPC Advanced Chemicals (Kanto-PPC), and Topco Scientific, had initially committed to establishing facilities in the state following TSMC’s and Intel’s announcement of multi-billion-dollar investments. 

However, their plans have been paused or significantly downscaled due to soaring construction costs, labor shortages, and other operational challenges, Nikkei Asia reports.

Also Read: Nvidia Supplier Taiwan Semi Rides AI Wave to Record Rally, Sidestepping Geopolitical Concerns

The decision to delay or scale back these projects is multifaceted. Surging expenses for materials and labor, a general scarcity of construction workers, and a broader influx of investment into Arizona have all contributed to a tightening building sector. 

Additionally, the pace of expansion by Intel and TSMC has been slower than anticipated, further influencing suppliers’ timelines.

These setbacks are not isolated incidents but indicative of a more significant, structural challenge in ramping up the U.S. chip supply chain. 

The cost of establishing a plant in Arizona has reportedly increased to four or five times what it would be in Asia, with some executives stating expenses are “several times” higher than initially expected. 

This has led companies like LCY Chemical to reconsider the speed of their U.S. expansion, opting to manage costs by initially shipping chemicals from overseas rather than rushing the construction of local production facilities.

The delays also reflect a cautious approach by suppliers wary of overextending before demand solidifies. 

This cautiousness is compounded by regulatory, environmental, and safety considerations unique to chemical plant construction. 

Previous reports indicated Nvidia Corp NVDA suppliers TSMC and Samsung Electronics Co SSNLF are tackling the challenges of setting up production facilities in the U.S., including the recruitment of skilled workers and higher production costs compared to their respective home countries.

Therefore, TSMC looks to construct fabs for 2-nanometer chips in Taiwan’s Hsinchu and Kaohsiung cities. Samsung disclosed a significant investment in a semiconductor project near Seoul, focusing on advanced 2-nanometer chip technology.

TSMC is considering a second plant in Kumamoto, Japan, with a potential investment of $13.5 billion. The company’s Japanese expansion plans feature an $8.6 billion wafer factory and a possible $20 billion plant for 3nm chips.

Due to issues with staffing and unions, TSMC has revised its production schedule in Arizona, moving the start date to 2025. Similarly, Samsung has delayed the commencement of mass production at its Texas facility to 2025.

Taiwan Semiconductor stock has gained 52% last year thanks to the AI frenzy. Investors can gain exposure to the stock via IShares Semiconductor ETF SOXX and SPDR MSCI ACWI Ex-US ETF CWI.

Price Action: TSM shares traded lower by 0.30% at $136.23 premarket on the last check Tuesday.

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.

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