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No matter what happens with TSMC's high-profile facility in Phoenix, many cutting-edge chips it produces for Apple, Nvidia, AMD and Tesla will still require assembly in Taiwan

In December last year, Apple CEO Tim Cook traveled to Phoenix, stood with President Joe Biden in front of a high-profile factory Taiwan Semiconductor Manufacturing Co. was constructing and said the facility would produce chips for the iPhone maker. The comments seemed to commit Apple to aid Biden’s goal of lessening reliance on foreign chipmaking facilities—namely in Taiwan, which has been under threat of a takeover or blockade by China.

But Cook avoided speaking an uncomfortable truth: The Arizona factory—which has been a focal point of the Biden plan and will cost $40 billion to build—will do little to make the U.S. self-reliant in chips. That’s because many advanced chips made in Arizona for Apple or other customers such as Nvidia, AMD and Tesla will still require assembly in Taiwan in a process known as packaging, according to interviews with multiple TSMC engineers and former Apple employees.

THE TAKEAWAY

• High-profile plant in Arizona won’t change Apple’s dependency on Taiwan

• iPhone and Nvidia H100 chips depend on Taiwan for final assembly

• TSMC has no plans to build an advanced packaging facility in the U.S.

TSMC has no plans to build a packaging facility in Arizona or elsewhere in the U.S., mainly due to the high costs associated with such a project, the TSMC employees said.

The revelation shows how TSMC’s Arizona facility—which will employ 4,500 people across two factories when it begins mass production in 2025—may serve to score political points but doesn’t reduce America’s reliance on Taiwan.

“The TSMC Arizona fab is effectively a paperweight in any geopolitical tension or war [with China over Taiwan] due to the fact that it still requires sending the chips back to Taiwan for packaging,” said Dylan Patel, chief analyst at SemiAnalysis, a semiconductor research firm.

TSMC’s inability to fully assemble chips for Apple and others in the U.S. shows how difficult it will be for Biden to bring chip manufacturing to the U.S. without completely reshaping the entire supply chain for semiconductors, which is heavily concentrated in Asia. Taiwan occupies an especially important position in the field and is a major reason the West is concerned about China’s repeated threats to take over or blockade the island territory, which has long operated independently.

Cook has said Apple would be TSMC’s largest customer at the Arizona facility but hasn’t specified which chips would be made there or how many. Packaging for the companies’ less important chips, including those for the iPad and MacBooks, could be handled outside Taiwan.

Nvidia, AMD and Tesla also plan to use the Arizona facility to make chips, though they haven’t indicated which ones either. But their most advanced chips for artificial intelligence—including Nvidia’s coveted H100 chip—still rely on packaging techniques that TSMC only does in Taiwan, TSMC employees say. TSMC is spending billions of dollars to expand its capacity for packaging these chips in Taiwan in response to exploding demand for AI computing.

Spokespeople for Apple, Nvidia and TSMC declined to comment. Tesla CEO Elon Musk didn’t respond to a request for comment.

‘Huge Expenditure’

When or whether TSMC will bring cutting-edge chip packaging to the U.S. is a matter that depends on cost. TSMC’s factories in Arizona won’t produce enough chips to justify the price of building an advanced packaging facility there, said Paul Triolo, senior vice president for China at consultancy DGA-Albright Stonebridge Group.

“Building this type of facility is a huge expenditure of [capital], time, and effort, and it does not seem likely that TSMC will want to do this anytime soon in the desert in Arizona, particularly given all the problems the firm has encountered with construction, costs and personnel so far,” he said.

Those problems prompted TSMC to push back the start date by a year, to 2025, after it said in July it was struggling to find enough skilled workers to construct the facility.

Chip analysts such as Triolo, as well as industry groups such as the Institute of Printed Circuits, have said Washington hasn’t done enough to encourage companies involved in packaging to move operations to the U.S., where only 3% of the world’s advanced packaging occurs.

The U.S. government is aware of the advanced packaging gap. The Creating Helpful Incentives to Produce Semiconductors and Science Act, a law the U.S. passed last year to earmark roughly $52 billion in subsidies for chip firms that build factories in the U.S., called for the creation of a National Advanced Packaging Manufacturing Program. That program will receive at least $2.5 billion in funding from the CHIPS Act this year, which IPC said showed that packaging is “not being clearly prioritized.”

A spokesperson for the U.S. Department of Commerce, which played a key role in creating the CHIPS Act, wouldn’t comment on potential applicants seeking funding for advanced packaging facilities but pointed to a February speech by Secretary Gina Raimondo in which she said the U.S. will develop multiple high-volume advanced packaging facilities and become a global leader in the field.

But without considerably more subsidies, it isn’t clear how advanced packaging firms would be able to justify the high costs of building facilities in the U.S. versus in Asia, Triolo said.

Chip packaging involves encapsulating the die in protective materials and placing a chip’s components as close together as possible to reduce the distance signals must travel between them. Cutting-edge packaging has become important for boosting a chip’s performance as the industry bumps up against the physical limits of how many transistors can be etched on a chip wafer. TSMC and another Taiwanese company, ASE Group, handle a lot of the world’s most advanced packaging on the island, while Samsung Electronics has important facilities in South Korea, and Intel—a pioneer of the field—is setting up a large advanced packaging facility in Malaysia.

But the other companies can’t hold a candle to TSMC in this area. The firm initially developed the advanced packaging used by the iPhone for another customer, Qualcomm, which ultimately didn’t use the technology, according to current and former TSMC employees. Instead, Apple has been using it for the main chip in the iPhone since as early as 2016.

Today, the iPhone’s main chip still uses the advanced packaging method developed by TSMC, called Integrated Fan-out Package on Package, also referred to as InFO_PoP. The method places the iPhone’s memory on top of its processor, making the overall chip smaller and thinner to improve its power efficiency and performance.

Aerial photos of the TSMC construction site in July. Photos via YouTube/Precision Aerial Solutions

Apple’s Discount

Former Apple and TSMC employees said Apple pays a lot to use TSMC’s advanced packaging and Apple is the only customer using TSMC’s method at high volumes. (The Information previously reported that Google plans to use the same TSMC advanced packaging method for its Pixel phone chips starting in 2025.)

Still, Apple gets a significant discount on TSMC’s packaging, as it’s bundled with a commercial contract with TSMC to make processor dies, which gives Apple uniquely favorable terms, The Information previously reported. Apple also uses TSMC’s advanced packaging for the Apple Watch and its most advanced Mac desktops.

As chip packaging gets more advanced, TSMC customers such as Apple and Nvidia will find it harder to disentangle themselves from facilities in Taiwan, said Patel of SemiAnalysis. That’s because TSMC always develops its newest manufacturing and packaging processes close to home, where costs are lower and talent is easier to find.

That means TSMC’s future advanced packaging methods, which Apple is considering using, will almost certainly be offered only in Taiwan. One method Apple is evaluating for future MacBooks and Macs, Small Outline Integrated Circuit, breaks up processor dies into even smaller pieces and stacks them on top of one another, making the overall chip smaller while also increasing its performance, according to a TSMC employee with direct knowledge of the matter.

Defense Minister Yoav Gallant says the airport, which is less than 20 kilometers from Israel, is part of Tehran's plans to 'act against citizens of Israel'

Israeli Defense Minister Yoav Gallant revealed on Monday that Iran is building an airport in southern Lebanon, 13 miles (roughly 21 kilometers) from the border with Israel. According to Gallant, the Iranians are using this airport for terrorism.

Gallant made the revelation during a conference held in Israel's Reichman University. The defense minister showed pictures of the airfield in the vicinity of Jabal Qalaat Jabbour, adding that "you can see the flag of Iran [near] the runways, from which the Ayatollah's regime plans to act against citizens of Israel."

"Today, Iran is the biggest threat against the State of Israel, regional stability and the world order" Gallant said, "Iran is striving to attain military nuclear capabilities and is closer than ever."

Pricing could land towards the top end of the initial price range of $47-$51 a share

The banks underwriting Arm’s $50bn listing will close orders for shares a day earlier than planned owing to strong demand for the biggest initial public offering in nearly two years.

People familiar with the matter said the IPO for the UK-based chip designer, which is more than five times oversubscribed, will close on Tuesday, instead of Wednesday as previously intended.

They added that shares in Arm were still expected to be priced on Wednesday, and could land towards the top end of the initial range of $47-$51 a share or even higher than that.

At the top end of the current range, the IPO would raise $4.9bn for Arm’s parent SoftBank and value the company at $54.5bn, on a fully diluted basis. The people cautioned on Monday that the price was still to be set.

Arm declined to comment.

Strong demand from investors for Arm’s listing has helped to crack open the window for listings in the US after a dearth of such deals this year, encouraging other companies to pursue a public offering.

On Monday, the San Francisco-based ecommerce company Instacart announced its price range for an IPO that would raise up to $616mn. On a fully diluted basis, if all stock options and other rights are exercised, the IPO would value Instacart at up to $9.3bn, less than a quarter of its private valuation two years ago.

Marketing automation company Klaviyo also announced its IPO pricing on Monday. It said it would sell 19.2mn shares at a range of $25 to $27 a share. This would value the company at up to $6.3bn. It was last valued at $9.5bn.

Arm’s current owner, SoftBank, plans to sell about 10 per cent of its stake in the company via a Nasdaq listing. It had originally hoped the deal would value Arm at as much as $70bn.

Despite reporting flat sales in its most recent financial year, Cambridge-based Arm has forecast accelerating revenue growth boosted by the artificial intelligence boom.

Demand for its shares has held up in spite of some investors’ concerns about a drop in profits in Arm’s most recent quarter and the company’s exposure to multiple risks in China.

Arm’s core market of smartphone chips has stagnated this year but it is hoping for growth from artificial intelligence and data centre customers, despite playing only a peripheral role in the technology required to build the kinds of large language models that power ChatGPT and other generative AI systems.

“AI is going to be everywhere and it all runs on Arm,” Rene Haas, the SoftBank-owned chip designer’s chief executive, told prospective investors in a pitch video seen by the Financial Times.

Agreement comes as Apple has been trying to build its own modem chips to stop using Qualcomm’s

Qualcomm QCOM 3.40%increase; green up pointing triangle reached a three-year deal with Apple AAPL -0.04%decrease; red down pointing triangle to supply the iPhone maker with 5G communications chips, the latest sign that Apple’s effort to make them in-house has yet to bear fruit.

The deal might indicate that Apple’s long-running effort to develop its own modems isn’t making its way into the company’s flagship phones any time soon. Apple bought Intel’s smartphone-modem business in 2019 for $1 billion, bringing on some 2,200 staff members and a portfolio of patents. Intel also had struggled to develop 5G modems and had been losing around $1 billion a year on the operation.

Qualcomm said Monday it would supply Apple with the modem chips for smartphone launches in 2024, 2025 and 2026, in a deal with terms similar to a previous arrangement between the companies.

Qualcomm shares rose 4.1% to $110.52 in early trading. Prior to Monday, the company’s stock had fallen by 20% in the past year amid dropping demand for smartphones. Qualcomm didn’t say how much its newest deal with Apple was worth. Apple shares were up 47 cents to $178.61 in early trading Monday.

Past supply deals have been lucrative for Qualcomm and expensive for Apple. Sales of modems to Apple were about $7.26 billion in Qualcomm’s last fiscal year, or about 16% of its overall revenue, according to a UBS estimate from last month.

Apple has a long record of developing its own technology and reducing its reliance on outside chip vendors. In 2010, it launched its first processing chip for its iPad and iPhone products. Over the years, these internally built mobile chips have helped Apple gain an edge over its Android phone rivals in performance and battery life. Android phones mostly rely on the same third-party chip vendors such as Qualcomm and Taiwan-based MediaTek.

In 2020, Apple began producing its own laptop processors, pushing out longtime Mac chip partner Intel. The processing speed boost and long battery life provided by the Apple chips rebooted its flagging Mac business and helped it gain share over Microsoft Windows-based PCs.

Communications chips that capture real-world signals and translate them into data and voice calls at superfast speeds are notoriously difficult to develop, and there are only a handful of companies in the world able to make them. They include Qualcomm, MediaTek and Samsung.

Qualcomm and Apple have had an uneasy relationship in the past decade, including an extended legal fight over Qualcomm’s supply of chips to Apple. Apple alleged that Qualcomm required it to pay excessive patent-royalty fees to purchase the essential chips.

The companies settled their differences in 2019, reaching a long-term patent-licensing deal and a supply agreement. The licensing deal, which lasts through April 2025 and is extendible for another two years, isn’t changed by the companies’ new supply agreement, Qualcomm said.

Following the 2019 deal with Apple, Qualcomm assumed that it would supply only 20% of the modems in Apple smartphones launching this year as Apple worked on its replacement.

In November of last year, however, Qualcomm chief financial officer Akash Palkhiwala said it expected the “vast majority” of the 2023 phones would contain its chips.

With the new deal, Qualcomm is making a similar assumption that sales to Apple will tail off. It is expecting it will supply only 20% of the modem chips for Apple’s phones in 2026.

Deal comes hours before the first ‘Monday Night Football’ of the NFL season is to air on ESPN

Disney DIS 2.12%increase; green up pointing triangle and Charter Communications CHTR 2.06%increase; green up pointing triangle have reached an agreement that will restore popular channels including ESPN and ABC to the cable operator’s nearly 15 million subscribers, people familiar with the matter said, ending a blackout that lasted for more than a week.

The media glitz of top car shows has faded, but the format has staying power as a marketing event for consumers with cash to spend

“International” car shows have a more national flavor these days, but that doesn’t mean the format is dying.

The North American International Auto Show launches this week in Detroit, hot on the heels of IAA Mobility in Germany last week. These were traditionally among the “big five” global car shows alongside those in Paris, Geneva and Tokyo, before the pandemic broke a tradition already under strain. IAA relocated from Frankfurt to Munich in 2021 with a broader pitch around “mobility” to appease the anti-car lobby, while there hasn’t been an auto show in Geneva since the lockdowns.

Car shows can only really rely on their home team to show up these days, let alone create a buzz with new models. Volkswagen, BMW and Mercedes-Benz attended IAA in force, taking over the squares of central Munich and showcasing their flagship projects. But most American and Japanese car brands, and even some other European ones, stayed away. Only Chinese vehicles were there in greater force: The likes of BYD are new to the European market and need to make a splash.

The home bias will be even more pronounced in Detroit. Of the 15 brands due to host their own displays, just five originated overseas: Toyota, Lexus, Kia, Fiat and Volkswagen. Europe’s luxury names will be represented by dealers, and in BMW’s case also on an indoor electric-vehicle test track.

Toyota is saving its big reveals for the Tokyo show, which starts in October. Underlining the role of national champions in keeping big shows alive, the Geneva event has struggled to bounce back because Switzerland doesn’t have a car industry. In commerce as in war, the country’s unique selling point was that it was neutral territory.

Perhaps the most international show this year was Shanghai in April, not one of the traditional big five. The rapid advances China has made with electric vehicles were one reason executives turned up from all over the world. Less repeatable, though, was the timing of China’s post-Covid reopening: Foreign executives had spent the previous three years trying to understand the world’s largest car market through a computer.

“We even had virtual test drives—people driving vehicles for us and I was watching it on the screen,” said Mercedes-Benz Chief Executive Ola Källenius, recalling the challenges of the pandemic era.

The sheer physicality of cars will ensure a future for auto shows: The digital experience isn’t enough. As manufacturers look for savings wherever they can to fund their transition to electric vehicles, though, it will likely be a more modest future. Following the pandemic, brands seem to be focusing limited budgets on their home show and countries where they have big growth plans.

In the U.S., this could take the show back to its roots as a forum for potential buyers to check out new models in their local city. This consumer side of the car-show business was steady before the pandemic, even as companies were already questioning the high cost of competing for glamour at media-focused international events.

Foresight Research, which collects data on U.S. car shows, estimates that about 6.5 million households—one in 20—attended them in the last full season before the lockdowns. The season that ran through the spring of 2023 was still affected by health concerns, with just 4.7 million homes attending. Yet three-quarters of those households intended to buy a car within the next year, according to Foresight co-founder Chris Stommel, making it a powerful marketing channel.

To improve their margins, traditional automakers increasingly want to follow Tesla’s lead in selling cars directly online. If it takes off, this trend could magnify the importance of car shows, where consumers and their social-media influencers have a rare opportunity to sit inside a variety of vehicles all in one place.

As it moves into the mass market, Tesla itself is attending the Detroit show this year for the first time since 2015, by participating in the EV test track and offering street rides. This might be a sign of where things are headed.

In a more digital, budget-conscious auto industry, the car show will go on—just in a lower key.

Tax agency turns to enforcement after burst of hiring for customer service jobs

WASHINGTON—The Internal Revenue Service this month will begin auditing 75 large partnerships, including hedge funds and real-estate firms, as the tax agency tries to build its case for keeping what is left of a pot of money Congress gave it last year.

IRS Commissioner Danny Werfel said the agency used artificial intelligence to help select the companies, which it can’t name publicly. They average $10 billion in assets and will receive formal notice of the audits in the coming weeks.

The IRS has long had difficulty auditing large multitiered partnerships and is planning to use the new money from Congress to reverse that trend.

“We’ve been overwhelmed in this area for years,” Werfel said. “These new tools are helping us see patterns and trends that we couldn’t see before.”

When Democrats had full control of the government last year, lawmakers gave the IRS $80 billion to beef up enforcement and improve technology and taxpayer service. But House Republicans, who opposed the expansion, already got President Biden to agree to take back more than $20 billion of it in a deal to raise the debt ceiling this year.

GOP lawmakers want to peel back even more during the federal-spending discussions that will dominate Congress’s calendar in September. They say ramped-up IRS enforcement will end up hurting small businesses and American taxpayers.

The IRS, meanwhile, has been trying to show the public and lawmakers that it is putting the extra money to good use. The $80 billion was supposed to provide the agency with the ability to implement long-range plans with the knowledge that it would have long-term funding, but a year later, the IRS budget is right back in the center of political fights.

Even though most of the money was designated for enforcement, the IRS focused first on taxpayer service, where it could make a faster, more visible difference on a bipartisan priority. That effort hired thousands of workers, helped clear tax-refund backlogs, shorten telephone waiting times and staff in-person assistance centers.

The IRS answered three million more taxpayer calls during this year’s tax filing season compared with 2022, added more features to taxpayers’ online accounts and accelerated its use of scanning to digitize tax returns instead of having workers input numbers by hand.

But the IRS barely got started on hiring enforcement staff, according to an inspector general’s report this week. That was partly because hiring customer-service representatives tied up the agency’s human-resources office and because of a dispute with the Office of Personnel Management over hiring procedures, according to the report.

The result: For the first half of fiscal 2023, the IRS’s large-business and small-business divisions actually lost revenue agents because attrition outpaced hiring, the report said. The IRS didn’t have updated data available this week.

Even once the IRS hires auditors, it will take time to train them and even longer for their cases to yield revenue.

In addition to large partnerships, the IRS plans to pursue cryptocurrency owners and construction contractors making payments to shell companies. It also seeks to increase collections efforts on 1,600 high-income people with tax debts. A similar earlier campaign led to $38 million in revenue.

Meanwhile, the long-term funding that the IRS received last year doesn’t look so secure. A bipartisan Senate bill would hold the agency’s annual budget at $12.3 billion for fiscal 2024, with no adjustment for inflation. The House’s spending bills would reduce the agency’s regular operating budget and would take back tens of billions of dollars of the extra funding approved last year.

“The IRS must work for Americans, not against them, and this bill makes sure that happens,” Rep. Steve Womack (R., Ark.), who oversees the IRS budget legislation, said earlier this year.

Werfel said cuts to the annual budget would force the IRS to dip into the long-term funding for regular operations.

“We’ll be able to keep the lights on next year, but we will have drained critical modernization resources,” he said.

Sweden to boost defence spending next year by almost 30%

Stockholm rapidly increases budget to meet Nato’s 2% of GDP target

Sweden will increase its defence spending next year by more than a quarter to meet Nato’s target of 2 per cent of gross domestic product even as the Scandinavian country struggles to overcome Turkish opposition to it joining the western military alliance.

Pål Jonson, Sweden’s defence minister, said on Monday that defence spending would increase by almost 30 per cent to SKr119bn ($11bn) next year in response to Russia’s full-scale invasion of Ukraine.

“Sweden finds itself in the most serious security situation since the end of the second world war, which requires Sweden to have a defence that is ready to protect Swedish territory,” said the agreement between the centre-right government and the nationalist Sweden Democrats.

Sweden has promised Ukraine military support amounting to SKr19bn in total, and said other big investments for next year included new artillery systems, transport planes as well as continued purchases of fighter jets and submarines.

Sweden and neighbouring Finland responded to Russia’s invasion by seeking to join Nato and its promise of collective defence. While Finland became Nato’s 31st member in April, Sweden’s membership application has been held up by Turkey.

Turkish president Recep Tayyip Erdoğan promised in July that his country’s parliament would examine it in the autumn and that he would “work closely with the assembly to ensure ratification”.

But Erdoğan has sharply criticised a series of Koran burnings in Sweden and Denmark — including in front of the Turkish embassies — and has hinted at further delays in the ratification, which has been pending for more than a year.

Turkey’s president lashed out at his US counterpart Joe Biden at the weekend at the G20 meeting in India. He said that Biden’s attempts to link a sale of F-16 fighter jets to Turkey with Ankara’s ratification of Sweden’s Nato bid “seriously upsets us”.

Sweden’s centre-right government has sought to mollify Turkey by passing a new anti-terror law and looking at ways to limit the Koran burnings.

Sweden took advantage of the “peace dividend” following the end of the cold war to cut its defence spending while Finland, which neighbours Russia, did not. Sweden has doubled its defence budget since 2020 under both left- and right-wing governments, which originally included reaching 1.5 per cent of GDP by 2025 and 2 per cent by 2030.

The new coalition in Stockholm has sped up those plans significantly as well as strengthened bilateral ties to Finland and the US alongside its focus on the Nato bid following Russia’s aggression.

Jonson said that the increased spending was due to Sweden’s pending Nato membership and the changes that would require; boosting its own total defence capabilities; and increased military support to Ukraine.

“We are facing historic tasks in defence policy. We will intensify the work on the biggest build-up of total defence since the 1950s,” he added.