Along Interstate 17, between Phoenix and the satellite community of Anthem, Arizona, a gleaming construction site stretches across 1,100 acres of open desert. Here, the Taiwan Semiconductor Manufacturing Company (TSMC) is building a factory that will produce some of the world’s most advanced semiconductors — hardware essential to U.S. national security and most modern technology.
Chris Camacho, president and CEO of the Greater Phoenix Economic Council, spoke enthusiastically about the project’s potential. “We’re at the forefront of the next 30 years of massive transformation,” he said. “Energy, climate tech, batteries, EVs, quantum computing, health-care diagnostics — at the center of all of this are (semiconductor) chips.”
Semiconductors, or microchips, help computers process and store information. Until the early 1980s, the U.S. dominated global microchip production, but as manufacturing shifted overseas, the technology advanced and began to require more specialized expertise and equipment to produce. Today, the U.S. depends on other countries for the key components necessary for cutting-edge chips, making the industry uniquely vulnerable to supply shocks, such as those caused by the pandemic. That’s why a bipartisan coalition in Congress passed the 2022 CHIPS and Science Act, which unlocked billions of dollars to boost domestic production, much of which will flow directly to cities in the Western U.S.
In 2022, the U.S. produced 10% of the world’s semiconductors. Now, it aims to make 20% of the world’s most advanced chips by the end of the decade. As of mid-June, the Biden administration has signed preliminary deals with 10 foreign and domestic chipmakers totaling $29.5 billion in federal funding from the CHIPS Act. In the West, up to $6.6 billion will go to three new TSMC plants, while another $8.5 billion is earmarked for the American chipmaker Intel’s operations in Oregon, New Mexico, Arizona and elsewhere.
“It’s exciting,” said Wayne Johnson, county manager of Sandoval County, New Mexico, where Intel plans to use public funds to upgrade its manufacturing facilities. “It creates opportunity, it creates jobs, it creates the ability for us to provide better (municipal) services.”
Those economic opportunities, however, will be accompanied by resource demands. Semiconductor manufacturing is notoriously water- and energy-intensive, and the more advanced the semiconductor, the more water is typically required. One industry report commissioned by the Arizona Commerce Authority estimated that to produce 16% of the world’s semiconductors, the U.S. would need an additional 46 billion gallons of water and 38 million megawatt-hours of power per year.
Across Arizona, water resources remain tight. Roughly 40% of the state’s water comes from the Colorado River, and drought and rising temperatures have reduced that supply, forcing officials to cut the amount of water available for agriculture. In 2023, Arizona declared a moratorium on new housing developments that rely solely on groundwater and lack an assured long-term water supply.
The first of the three Phoenix-area TSMC factories will use an estimated 4.75 million gallons of water a day, approximately enough to supply 2% of the city’s housing units, according to The Arizona Republic. The company said it plans to reclaim most of the water it uses; the new site is expected to meet 65% of its water demand with an in-house recycling system.
Phoenix draws most of its water from the Colorado and other rivers. To meet future needs, including anticipated demand from TSMC, city water resources management advisor Cynthia Campbell said Phoenix plans to increase conservation measures and build an advanced water purification plant that could generate 50 million to 80 million gallons of potable water per day. The city also supports the expansion of a dam on the Verde River, a project that would require Congressional approval.
The three TSMC factories are projected to create 6,000 permanent jobs and anchor a new economic corridor in northern Phoenix, generating significant property and sales tax as well as rate revenue for utilities. Sarah Porter, director of the Kyl Center for Water Policy at Arizona State University, said the economic boost will make it easier for the city to develop the water purification plant, which she called “a major project that will enable the city to, in the end, have much more flexibility with respect to the Colorado River.”
On the outskirts of Phoenix and Chandler, Arizona, where Intel is expanding its own semiconductor operations, cities and towns that have a greater reliance on groundwater may have a harder time securing additional water sources. If they hope to cash in on the anticipated boom, they will need to invest in a wider variety of water solutions, such as leasing river water from tribes.
Several hundred miles northeast, in Sandoval County, New Mexico, county officials are more concerned with housing than water supplies. According to the Semiconductor Industry Association, chip manufacturing boasts a job multiplier of 6.7, meaning that every job in the industry indirectly supports 5.7 other jobs. If, as anticipated, the CHIPS Act helps create 700 new jobs at Intel facilities in the city of Rio Rancho, those positions could generate roughly 4,000 jobs in other sectors. Even if the company hires a significant number of local workers, as it has in the recent past, housing demand is likely to grow.
The average home value in New Mexico rose nearly 50% between the start of 2020 and April 2024, according to Zillow. In Sandoval County, the increase was closer to 60%, from $228,000 to $359,000. The county is partnering with developers to boost its supply of affordable housing, including a new 240-unit apartment block along Highway 550.
County Manager Johnson hopes that Intel’s expansion will attract more technology manufacturers to the county. “(Intel) has, in many ways, made Rio Rancho possible,” Johnson said. “The CHIPS Act just makes that a little bit easier for us going forward to remain competitive in the global market.”
Elsewhere in the West, the semiconductor manufacturer Micron plans to spend $15 billion on a new memory chip facility in Boise, Idaho. That private investment, the largest in the state’s history, will be bolstered by the $6.1 billion the company received from the CHIPS Act. Another chipmaker, Microchip Technology, has signed a preliminary agreement with the U.S. Department of Commerce that would provide $162 million in federal funds for the expansion of its manufacturing sites in Oregon and Colorado.
The process of deciding where to allocate CHIPS Act funding began in early 2023. White House officials evaluated proposals for their commercial viability, workforce development plans and potential to meet national security objectives. They also examined companies’ plans to conserve water and maximize clean energy use, though all projects will need to undergo a full environmental impact review.
TSMC may face a rocky road in the Phoenix area: The company reportedly clashed with an Arizona construction union and struggled with cultural differences between its Taiwanese management and American employees. In January, TSMC pushed back the opening of its second factory to 2027 or 2028; its first will begin production in 2025. But local institutions ranging from community college training programs to Mandarin language schools have mobilized to support the new arrivals.
“There’s pride in us resurrecting an industry that has been in Arizona really since our inception, post-World War II,” Camacho said. “Now we’re back as semiconductor central.”
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