TSMC Discusses Production of Nvidia AI Chips in New Arizona Factory

Taiwan Semiconductor Manufacturing Company (TSMC) has commenced talks with AI chip maker Nvidia Corp to manufacture Blackwell chips at its new Arizona factory. TSMC is getting ready to commence operations in the new facility starting early next year as per Reuters.

If the deal goes through, production of Nvidia AI chips in Arizona will be among the first chips that TSMC will manufacture in the new facility.

Winning Customers

TSMC is already working to enlist US big techs as customers at the Arizona plant. Sources close to the company said the giant chip manufacturer has already bagged contracts from two leading chip companies – Advanced Micro Devices (AMD) and Apple. If TSMC finalizes the production deal with Nvidia, the manufacturer will have secured another important customer for its Arizona facility.

Both companies are yet to comment on the ongoing discussions with sources saying talks were still confidential. Nvidia unveiled Blackwell chips in March 2024. Since then, TSMC has been producing AI chips for the chip giant at its manufacturing facilities in Taiwan. Nvidia says its Blackwell chips are 30 times faster at completing AI-related tasks like providing answers through chatbots.

The chip manufacturer has experienced high demand for the chips from customers who are leveraging generative AI. These include big techs like Meta, Google, and Amazon.

Blackwell Production Struggles

Blackwell AI chip production hasn’t been a walk in the park for Nvidia. The process hit a snag in August 2024 after the company noticed design flaws on the chips. Nvidia announced that the flaw would cause a three or more months AI chip production delay that would affect customer orders. The company commenced mass production of the altered Blackwell Nvidia chips in late October 2024.

A month later, Nvidia was confronted by another challenge in its quest to meet rising demand for Blackwell chips. In November 2024, customers who received the new AI chips raised concerns regarding overheating of servers. There have been rumors that the overheating problem may be related to the design flaw that led Nvidia to delay Blackwell chip production in August 2024.

Overheating of the chips could significantly affect their performance. GPUs are heat generators. the more powerful they become, the more heat management becomes crucial. Since Nvidia’s Blackwell chips are highly advanced, engineers have had to alter them multiple times to fix thermal management.

Packaging in Taiwan

TSMC intends to undertake the entire front-end process of producing Nvidia AI chips in its Arizona factory. However, the company will have to ship the chips to Taiwan for packaging. This is because the new factory lacks chip-on-wafer-on-substrate (CoWoS) capabilities.
TSMC currently has these capabilities in its Taiwan factory. They are critical for production of Blackwell chips. TSMC’s Taiwan-based chip production facility is the largest in the world. The company has invested billions of dollars in construction of three facilities in the US.

Last month, TSMC finalized a $6.6 billion award from the US Department of Commerce under the Chips Act. Chips Act funding seeks to spur domestic production of semiconductors.