Taiwan Semiconductor Manufacturing Co (NYSE:TSM) and Intel Corp (NASDAQ:INTC) have encountered unexpected hurdles in their efforts to fortify the American semiconductor supply chain. Recent reports indicate that construction delays from key suppliers in Arizona are hindering their ambitious plans.
Initially, at least five critical suppliers—LCY Chemical, Solvay, Chang Chun Group, KPPC Advanced Chemicals (Kanto-PPC), and Topco Scientific—had committed to establishing facilities in Arizona following the announcements of multi-billion-dollar investments by TSMC and Intel. However, these plans have either been delayed or significantly downscaled due to a combination of soaring construction costs, labor shortages, and operational challenges.
The decision to postpone or reduce these projects stems from various factors. Escalating expenses for materials and labor, a shortage of construction workers, and increased investment competition in Arizona have all contributed to a tightening construction sector. Moreover, the slower-than-expected expansion pace by Intel and TSMC has further affected suppliers’ timelines.
These setbacks underscore a broader challenge in ramping up the U.S. chip supply chain. The cost of establishing a plant in Arizona has reportedly surged to four or five times the cost in Asia, with some executives citing expenses as “several times” higher than initially projected. Consequently, companies like LCY Chemical are reconsidering the speed of their U.S. expansion, choosing to manage costs by initially importing chemicals from overseas rather than expediting local production facility construction.
The delays also reflect a cautious approach by suppliers, who are wary of overextending before demand solidifies. This caution is compounded by regulatory, environmental, and safety considerations unique to chemical plant construction.
Previous reports indicated that Nvidia Corp (NASDAQ:NVDA) suppliers TSMC and Samsung Electronics Co (OTC:SSNLF) are also grappling with challenges in setting up production facilities in the U.S., including skilled labor recruitment and higher production costs compared to their home countries.
In response to these challenges, TSMC is considering alternative expansion plans, including constructing fabs for 2-nanometer chips in Taiwan’s Hsinchu and Kaohsiung cities. Samsung has disclosed a significant investment in a semiconductor project near Seoul, focusing on advanced 2-nanometer chip technology.
However, TSMC has revised its production schedule in Arizona to commence in 2025 due to staffing and union issues, while Samsung has delayed mass production at its Texas facility to the same year.
Despite these setbacks, Taiwan Semiconductor stock has gained 52% over the past year, largely driven by the AI industry’s growth. Investors interested in gaining exposure to the stock can consider IShares Semiconductor ETF (NASDAQ:SOXX) and SPDR MSCI ACWI Ex-US ETF (NYSE:CWI).
