Taiwanese chip-making giant TSMC gets $6.6 billion for Arizona project

TSMC, as the company is commonly called, will invest more than $65 billion in total and add a third chip factory to the manufacturing complex it started building in 2021, U.S. officials said. The company, the world’s largest contract chip maker, will also make currently cutting-edge 2-nanometer chips at one of the factories there.

“It’s a national security problem that we don’t manufacture any of the world’s most sophisticated chips in the United States," Commerce Secretary Gina Raimondo said in a briefing with reporters. She described chips as drivers of artificial intelligence and necessary components of technologies that underpin the economy.

TSMC, which makes chips for the likes of Apple and Nvidia, will get the funding in stages as its projects reach negotiated milestones. The money is also contingent on due diligence by the Commerce Department, which is overseeing the grant under 2022’s Chips Act.

That act is the centerpiece of a bipartisan effort supported by the Biden administration to bring chip-making back to the U.S. It outlined $53 billion of grants, research funding and other incentives to reverse the chip industry’s flight overseas in the past three decades. The U.S. share of chip manufacturing fell to 12% in 2020 from 37% in 1990.

With projects such as TSMC’s, the U.S. is on track to make about 20% of the world’s cutting-edge chips by 2030, the Commerce Department said. It called the project the largest foreign direct investment in a new project in U.S. history.

TSMC was one of the earliest companies to latch on to the push to do more within the U.S., although it has said it has been slowed by labor challenges. TSMC initially planned to start mass-producing chips in Arizona this year, but pushed that timetable to 2025 in July last year, citing a shortage of skilled workers. In January, it also delayed the schedule for production at a second factory being built on the Arizona site.

Intel, which received $8.5 billion under the Chips Act last month, has pushed back the construction timeline on its plant in Ohio, one of several large projects funded under the grant program.

The TSMC award is the third major one under the Chips Act after GlobalFoundries, another contract chip maker, and Intel. Further large grants are expected, including for Micron, a memory manufacturer building a chip plant in New York, and Samsung Electronics, which has been growing its ambitions at a factory complex in Texas.

Chip companies have requested far more money than is available under the Chips Act for cutting-edge manufacturing, with requests of more than $70 billion compared with about $28 billion available, Raimondo said in February. That gap led to “tough conversations" with companies as she pushed them to do more with less money.

For TSMC, the project in Arizona is a break from a footprint centered in Taiwan. The simmering threat of a Chinese invasion and the emergence of chip manufacturing as a geopolitical priority have pushed it to become more geographically spread out.

Arizona is also not susceptible to earthquakes such as the one that hit Taiwan last week. Taiwan suffered its worst quake in 25 years on Wednesday, although TSMC said none of its most critical equipment was affected.

The first factory TSMC built in Arizona is expected to start production in the first half of next year, according to the Commerce statement. Its second—which is set to produce 2-nanometer chips—is targeted to start production in 2027 or 2028, the company’s chairman said in January. The third is to be built before the end of the decade, Commerce said.

TSMC is expected to start mass-producing 2-nanometer chips next year, and it’s unclear whether they will remain at the cutting edge by the time the second plant goes into production in several years.

With the addition of the third factory and the production of more advanced chips in Arizona, the company raised the value of its overall investment to above $65 billion from a previous figure of $40 billion.

In addition to the $6.6 billion of grants, TSMC is to have access to up to $5 billion in government loans for its project, the Commerce Department said. The award also includes $50 million of workforce-development funding.

The project is expected to create more than 20,000 construction jobs and 6,000 permanent jobs, and has brought in more than a dozen suppliers to TSMC, the department said.

Write to Asa Fitch at asa.fitch@wsj.com