Will there be a new giant wafer fab in the world? TSMC is rumored to build a factory in the Middle East

According to foreign media reports, TSMC and Samsung, two chip manufacturing giants, have discussed building a large factory complex in the United Arab Emirates, which could transform the industry in the coming years and become the cornerstone of artificial intelligence investment in the Middle East.

Executives from Taiwan Semiconductor Manufacturing Co., the world’s largest chipmaker, recently visited the United Arab Emirates and talked about a factory complex comparable to some of the company’s largest and most advanced plants in Taiwan, according to people familiar with the matter.

Samsung Electronics is also considering setting up a major new chipmaking operation in the country in the coming years, according to other people familiar with Samsung's strategy. They said top leaders from the South Korean company recently visited the UAE and discussed the possibility.

The discussions are still at an early stage and face technical and other hurdles that mean they may not succeed. Under preliminary terms being discussed, the projects would be funded by the UAE, with a central role for Abu Dhabi-based sovereign development company Mubadala, which is eager to develop a domestic tech industry. The broader goal, some say, is to increase global chip production and help lower chip prices without hurting chipmakers’ profitability.

A Mubadala spokesman said MGX, a state-owned company that is leading some of Abu Dhabi’s most notable AI investments, has made semiconductor manufacturing a pillar of its strategy and is “in regular dialogue with partners around the world,” though there are no concrete plans to set up a factory in the UAE.

The talks with TSMC and Samsung reflect the UAE’s growing technological ambitions and global efforts to fund the expansion of chip production, in large part to meet the needs of the artificial intelligence boom. Costs have ballooned in recent years to the point where a cutting-edge chip factory might cost $20 billion. Projects of the scale being discussed in the UAE involve complexes that could include numerous factories, with a total cost of more than $100 billion.

Abu Dhabi has one of the world's largest sovereign wealth funds, with Mubadala saying its portfolio was worth about $300 billion as of last year.

Government officials and industry executives say huge technical and political hurdles remain. One concern is that chipmaking requires large quantities of ultra-clean water for uses such as rinsing silicon wafers etched with microcircuits. Most of the UAE’s water is produced through desalination, which requires extensive purification.

There are also concerns about whether there will be enough engineering talent to staff large new factories far from company headquarters in a country without much existing chipmaking supply chain.

If TSMC and Samsung go ahead, the projects could spark the next wave of industry expansion, following manufacturing growth in the United States, Europe and East Asia driven by government subsidies.

Under the CHIPS Act of 2022, the U.S. would provide $39 billion in subsidies to domestic chip manufacturing, along with tax breaks worth even more. European leaders have already crafted their own incentive packages, attracting companies including Intel and TSMC.

As they consider the new project in the UAE, TSMC and Samsung have held discussions with U.S. government officials who are concerned that advanced artificial intelligence chips are being shipped to China, the UAE’s trading partner. Both have spoken with Biden administration officials about having the U.S. oversee the production and shipment of chips from any UAE facility, though details have yet to be worked out.

"We have worked extensively with the UAE on advanced technologies over the past two years, and this partnership is moving in the right direction," said a spokesman for the National Security Council.

Chipmakers don’t expect U.S. concerns about China to be resolved quickly, and construction of the factory will likely not begin until the issues are resolved, according to people involved in the discussions.

The UAE is a member of OPEC and its capital, Abu Dhabi, is a major producer of oil and gas. Like other natural resource powers in the region, Abu Dhabi has sought to diversify its economy in recent decades, using its oil wealth to invest in industries such as aluminum production.

The UAE has recently made progress in its efforts to become a player in advanced technology. The Wall Street Journal reported in February that OpenAI CEO Sam Altman has discussed with investors in the UAE and elsewhere a major expansion in the production of chips, electricity and other essential inputs for developing artificial intelligence — efforts that could ultimately require as much as $5 trillion to $7 trillion in investment.

UAE entities have established ties to other large AI companies, including a nearly $500 million stake in startup Anthropic and recent talks to participate in Altman’s OpenAI’s latest funding round. The country’s leading AI company, G42, received a $1.5 billion investment from Microsoft this year.

MGX has also partnered with companies such as BlackRock and Microsoft to set up a fund that announced this month that it will invest up to $100 billion to expand and build artificial intelligence data centers.

Abu Dhabi has invested in the chip industry before, taking control of Advanced Micro Devices' former manufacturing business as part of a spin-off in 2008. There were discussions at the time about building a chip factory in the UAE, but it never came to fruition. The spin-off, called GlobalFoundries, went public in a U.S. IPO in 2021.

Recommended Reading