Apple's made-in-the-USA chips signal a turnaround for the US's big semiconductor bet

• TSMC has begun producing chips for Apple at its Phoenix site, people familiar with the matter said.
• It bodes well for the US chip industry's future, to which the Biden administration pledged $52 billion.
• It's also a key step for TSMC, which faced several staffing and construction challenges in Arizona.

TSMC, the world's leading chipmaker, has begun producing A16 chips for Apple at one of its Phoenix semiconductor chip factories , two people familiar with the matter told Business Insider.

One of the people said that full production levels had not yet been reached. Their identities are known to BI.

It signals a boost for the US's efforts to produce more semiconductor chips , which have encountered some challenges over the past few years.

Tim Culpan , an independent journalist in Taiwan who covers technology, first reported the news last month.

The chips, which Culpan said were being produced in "small, but significant, numbers," mark a major development for the company, which announced plans in 2020 to invest billions of dollars in Arizona and create thousands of jobs.

Additionally, it comes two years after Tim Cook, the CEO of Apple, announced that the company would be the " largest customer " of TSMC's first Arizona fabrication plant and use US-made chips for the first time in nearly a decade.

A TSMC spokesperson declined to comment on the company's US work with Apple. When asked about the progress on the company's first chip fab, the spokesperson said the project was "proceeding as planned with good progression" and that the company is on track to be fully operational in the first half of 2025.

Apple didn't respond to a request for comment.

'A success story'

Dylan Patel, the chief analyst at the semiconductor-research and -consulting firm SemiAnalysis, said stateside chip production for Apple was a key milestone.

"Despite many negative stories early on, this shows the fabs are on track and operating as expected — a success story," he told BI.

Mark Muro, a senior fellow at the Brookings Institution, told BI that the start of production of A16 chips — which have been used in some recent iPhone models , though not the new iPhone 16 — was a very positive signal for the Apple-TSMC partnership.

"It suggests Apple has enough belief in the new US facility to dive right in with US production of one its most advanced mobile processors," he said, adding: "This is encouraging given some observers' skepticism US sites could reach TSMC standards anytime soon."

TSMC's commitment to building three chip fabs on its Phoenix campus is key to the Biden-Harris administration's efforts to boost the US's production of the chips that power everything from iPhones to washing machines. In 2022, President Joe Biden signed the CHIPS Act into law, which provided $52.7 billion for American semiconductor research, development, manufacturing, and workforce development. This included $39 billion in manufacturing incentives for chip production in the US. In addition to creating US jobs, the administration hopes to secure supply chains and make the US less reliant on advanced chips from Taiwan.

TSMC faced construction slowdowns and worker tensions in Arizona

TSMC's investment in Arizona hasn't always been smooth.

Last year, TSMC announced that the official opening of its first Arizona fab would be pushed back from 2024 to 2025. And when the company announced plans to bring in technicians from Taiwan to train US workers, a local Arizona labor union protested over concerns that American jobs would be threatened.

Management and safety concerns have also led to some frustrations among TSMC's construction workforce in Arizona. Workers previously told BI that managerial challenges had fueled construction delays, and some have accused the company of safety violations . TSMC previously told BI that it's committed to ensuring its working conditions are safe.

In 2022, TSMC's founder and former CEO, Morris Chang, told the Brookings Institution that the US's efforts to boost domestic chip production would be "a wasteful, expensive exercise in futility," citing labor-force and cost challenges.

Despite these hiccups, TSMC said in April during an earnings call that the progress on its first Arizona fab was " well on track ."

TSMC's production of Apple chips is good news for Americans hoping to land jobs in the industry, SemiAnalysis' Patel said. That's because TSMC's early success suggests it will continue to invest in the US.

"This drives job growth not just at TSMC but for the entire ecosystem — fab construction, equipment vendors, etc. that are all needed to support the fab," Patel said. "While modern fabs are not especially labor-intensive, they require highly skilled workers and will operate for decades, meaning many high-quality, long-term jobs are being created."

TSMC has said that it will charge customers more for chips made outside Taiwan because of higher manufacturing costs. But Patel said he didn't expect this to have a material impact on the prices of Apple's products.

"US government subsidies were meant to offset differences in construction and other costs between Taiwan and the US to make the business viable for TSMC," he said, adding: "Neither Apple nor consumers should expect a price difference for these US-produced chips."

Going forward, chipmakers such as TSMC will face another challenge once they're operating at full capacity: finding workers .

A report published last year by the Semiconductor Industry Association said the US semiconductor industry would face an estimated worker shortage of 67,000 by 2030, including technicians, computer scientists, and engineers. However, Patel said that he didn't expect labor-force challenges to materially affect production at TSMC, specifically.

Muro was also optimistic. He said he thought TSMC's production of Apple chips would bode well for the future.

"This is an important signal that the American drive to reshore high-quality chipmaking is well founded," he said.

Do you work in the semiconductor industry and have a story to tell? Reach out to this reporter at jzinkula@businessinsider.com .