Globalization is Dead and No One is Listening
This is the end of the beginning.
The “tool-in” ceremony of TSMC’s new fab in Arizona drew a lot of attention last week. CEOs from Apple, Nvidia, and AMD attended and spoke. President Biden, along with a coterie of cabinet officials, congresspeople, and local Arizona politicians, came to rally, celebrate, and claim (as we will see, a premature) victory.
Amidst all the pomp and circumstance was a short, but powerful and sobering speech by Morris Chang, the now-91-years-old founder of TSMC. He shared his dream of building a fab in the US, the hard-earned lessons from TSMC’s first time building a fab in America 25 years ago, his perspective that globalization and free trade is almost dead, and why this event is just the “end of the beginning”.
It was the only speech that gave a real sense of what America's semiconductor future would really look like. Yet no one listened. No American, or any Western media outlet for that matter, bothered to cover this speech. Only Nikkei and a handful of Taiwanese outlets wrote about it. Not even C-Span carried footage of the speech. (And C-Span carries everything!)
Here are some of my top takeaways from this speech. (You can read my own, non-official transcription of the speech at the end of this post.)
Globalization is (Almost) Dead
The most powerful, and somewhat uncomfortable, part of Chang’s speech is his declaration that:
“Globalization is almost dead. Free trade is almost dead. And a lot of people still wish they would come back, but I really don’t think they will be back for a while.”
TSMC is arguably the one company that most epitomizes all the forces of globalization – free trade, hyper specialization, cross-border supply chain, and the assumption of geopolitical stability that lets all these forces interact and interconnect. In this world, TSMC, and manufacturers like it, would build factories wherever it deems to make the most economic sense, without needing to worry about adverse political consequences.
Chang no doubt reflected on the core nature of globalization and free trade, of which he and TSMC are beneficiaries. Witnessing TSMC’s newest fab being built in Arizona, a location TSMC would have never chosen if globalization were alive and well (a point he has made many times in the past), it is only appropriate for Chang to somberly proclaim the death of globalization (though he still hedged a bit with “almost”).
The unfortunate second-order effect of the death of globalization that no one likes to talk about is the rising cost of all kinds of goods and products – a future that may make persistent inflation even worse. Tim Cook announced to much fanfare at the same event that Apple will use chips made from TSMC Arizona. What he did not say is whether that will make the pricey iPhones and MacBooks even pricier to buy.
In Morris Chang’s own estimation, the chips produced from TSMC Arizona may cost “at least 50% more” than the chips from TSMC Taiwan. Will TSMC pass on that cost to Apple or let it eat into its margins? Will Apple pass on that cost to consumers or let it eat into its margins? No one knows right now, but as TSMC Arizona starts churning out wafers, we will know soon enough.
To be clear, this is not a critique of TSMC’s decision to build fabs in America. Given the reality of the world, it is probably the right thing to do. Morris Chang, who may be reluctant but is ultimately a pragmatist, gave his blessing by being at the ceremony. But he did not let the bigger lesson go unspoken.
“Offshoring” is out of fashion, and “onshoring” and “friendshoring” is the new black. Any wishful thinking that globalization will continue in its previous form is naive.
Made in America (in Taiwan)
The other uncomfortable yet thought-provoking part of Chang’s speech is this:
“...We hired almost 600 engineers here a year and a half ago, we sent them to Taiwan, and they were under training in Taiwan for one year to a year and a half. In the meantime, about the same number of Taiwan engineers underwent training in Taiwan also.
So before we see a single wafer, we have about more than a thousand people being trained. This, I think, is a very good sign that we are prepared.”
If you read between the lines, what Chang is really saying is TSMC cannot find enough qualified American talent to do the jobs TSMC needs to operate. So it must spend extra money (more cost) to send every new hire in America to Taiwan to get trained. Furthermore, due to this talent shortage, additional engineers from Taiwan must be hired, trained, and deployed to America to make TSMC Arizona function (with doubled salaries and extra benefits to boot). These trainings are not some two-to-four week corporate offsites, but up to one and a half years long!
Yet, despite all this extra cost and personnel hassle, Chang believes this is a “very good sign” and the right thing to do. That’s because these are the “people problems” and “cultural problems” that he learned the hard way 25 years ago when trying to open TSMC’s first American fab, located in Camas, Washington – an experience he called “a dream fulfilled became a nightmare fulfilled”. TSMC Arizona is now investing up front to avoid the same mistakes.
Beyond the talent shortage problem, there is also an equipment shortage and supplier shortage problem, so much so that TSMC has been shipping as many tools and equipment as possible, directly from Taiwan to Arizona. TSMC has voiced these and other concerns in a letter last month, sent to the NIST bureau of the Commerce Department (an agency I happened to have served in during the Obama administration). Of course, you wouldn’t hear about any of this if you only listen to Gina Raimondo.
The wafers that TSMC Arizona will produce – and be proudly labeled “Made in America” – are looking very “Taiwanese”.
End of the Beginning
The last part of Morris Chang’s speech that I want to highlight is his earnest explanation of the difference between a first “tool-in” and an “opening ceremony”:
“Incidentally, this ceremony was called the first ‘tool-in’. Nobody outside Taiwan understood what that meant, so now it’s called ‘opening ceremony’.
It is a Taiwan custom. I did not understand what the name meant at first, but now, I’ve heard it so many times, I’ve been at first ‘tool-in’ ceremonies so many times, I now understand what it means. Basically it means, the end of the beginning.
The romance of the beginning is gone! The initial excitement is gone! A lot of hard work remains…” [Bolded emphasis is mine]
In essence, even calling this event an “opening ceremony” is a minor compromise and a bit of a spin to make it more celebratory and palatable to an American audience, who always wants to see a “win”. Don’t get me wrong, as a former political comms staffer, I’m always in the mood for a “victory speech”. But normally, when a business hosts an “opening ceremony”, the implication is it is “open for business”. If this were the “opening ceremony” of a sandwich shop, you would expect real sandwiches to be made. Of course, that’s not the case here.
Calling the event a “tool-in”, in accordance with the Taiwanese semiconductor industry’s custom, is a more measured, pragmatic, and grounded framing. All a “first tool-in” ceremony signals is: “Hey, we now have a facility to roll-in and install the tools and equipment to finally start making chips. We haven't made any chips yet. Let’s go make chips!” Without Morris Chang’s sobering explanation, none of us would know the difference.
Hopes are high for TSMC’s Arizona fabs to deliver. Whether it will make chips in five nanometers, three nanometers, or “nano no-no”, a lot of engineers and managers (and their families) will be uprooted from Taiwan in the coming years to make this venture work, somehow.
No one knows for sure how all this will turn out, for either TSMC or America. But now that the “end of the beginning” is done, to help make this “beginning” eventually end well, only one thing is for sure: the boba scene in Phoenix will have to get a lot better to keep the talent America needs.
(See links to more of my previous writings on TSMC, open source hardware, and the semiconductor industry.)
Below is my own, non-official transcription of Morris Chang’s speech at the TSMC Arizona fab “tool-in” ceremony:
When I started TSMC back in 1987, I had a dream. Probably because of my background, which up to that point, was primarily America. Probably because of my background, my dream was to build fabs in the United States.
So, eight years from our start up, we started in 1987, and in 1995, we broke ground in a town called Camas, which is in the state of Washington, just on the border of Oregon, In fact, it's very close to Portland, Oregon.
We called it Wafertech. It was a well-conceived semiconductor factory. Its technology was completely up to date at that time. It was, I thought, a dream fulfilled. However, we ran into cost problems. We ran into people problems. We ran into cultural problems. And before long, the dream fulfilled became a nightmare fulfilled. [nervous laughter from the crowd]
It took up several years to untangle ourselves from the nightmare. And I decided that I needed to postpone the dream, just postpone, just postpone it…
25 years passed and we have a new chairman, Mark Liu. And he happens to share my dream! Now you see a partial, not yet fulfilled, but progress of this dream. Incidentally, this ceremony was called the first “tool-in”. Nobody outside Taiwan understood what that meant, so now it’s called “opening ceremony”.
It is a Taiwan custom. I did not understand what the name meant at first, but now, I’ve heard it so many times, I’ve been at “first tool-in” ceremonies so many times, I now understand what it means.
Basically it means, the end of the beginning…the end of the beginning…for a factory. For a semiconductor factory. The romance of the beginning is gone! The initial excitement is gone! A lot of hard work remains, a lot of hard work…
The twenty-some years in the past have witnessed a big change in the world. A big geopolitical situation, a new situation. Globalization is almost dead. Free trade is almost dead. And a lot of people still wish they would come back, but I really don’t think they will be back for a while.
In the meantime, because of the change in political situation, the new dream, well…it’s the old dream revived, has the help of the US government, the federal government, the state government, the local government. Not only that, we did learn from our experience earlier, and we are far more prepared now.
Mark made the decision to build a modern fab here two and a half years ago. And we hired almost 600 engineers here a year and a half ago, we sent them to Taiwan, and they were under training in Taiwan for one year to a year and a half. In the meantime, about the same number of Taiwan engineers underwent training in Taiwan also.
So before we see a single wafer, we have about more than a thousand people being trained. This I think is a very good sign that we are prepared. It’s a very good sign that my dream of 25 years ago will now be fulfilled by Mark.
Anyway I came here specifically to see the end of the beginning and to wish TSMC the best, in the full expectation that we are going to have success. And it will be a very meaningful success as Mark has just said.
And my dream lives. Thank you very much. /END
The diversification of TSMC in the U S. Likely puts Taiwan in more danger of a forced invasion.
This is great and going into my What I'm Reading List this week. Thank you for a top read and a copy of a speech I otherwise would not have seen.