TSMC’s Arizona Gambit: Etched’s Chip Challenge
TSMC’s Taiwan factories are the primary manufacturing hub for Etched, but the startup faces stiff competition for limited capacity. This mirrors what happened to AMD in 2019, when the company struggled to secure sufficient supply from TSMC, leading to a stock price dip.
Etched’s early investor, Copper Sky Capital, is banking on the chipmaker finding a solution to its manufacturing constraints by eventually producing chips at Arizona’s TSMC facility. The Arizona connection is crucial, as Copper Sky’s founder, Jack Selby, has ties to the local semiconductor industry.
The TSMC Arizona facility, also known as the GIGAFAB, is expected to play a significant role in bridging the gap between California-based hardware startups and the Arizona manufacturing ecosystem. This echoes the strategy employed by Intel in 2019, when it announced plans to expand its Arizona fabrication facility.
Copper Sky’s Etched Investment: A Calculated Risk
When Copper Sky invested in Etched’s $120 million Series A, Jack Selby secured an allocation by promising to help the startup eventually reshore its chip fabrication to Arizona. This move is characteristic of Selby’s investment thesis, which focuses on bridging the gap between coastal startups and the Arizona manufacturing ecosystem.
As a board member of the Arizona Commerce Authority, Selby is deeply involved in recruiting out-of-state businesses to set up manufacturing operations in the region. His influence in Arizona’s economy has been instrumental in securing investments for Copper Sky’s portfolio companies.
Copper Sky’s investment in Etched is a calculated risk, as the firm is betting on the startup’s ability to scale production and navigate the complexities of the semiconductor industry. This approach is reminiscent of Peter Thiel’s investment strategy, which often involves backing companies with a strong potential for growth and disruption.
Winners and Losers in the Semiconductor Shuffle
Etched’s success in scaling production will have a significant impact on the semiconductor industry, with potential winners including TSMC, Arizona-based manufacturing operations, and Copper Sky Capital. However, the increased competition for limited capacity at TSMC’s Taiwan factories may lead to challenges for other chip designers.
The Arizona connection is also expected to benefit the local economy, with the potential for job creation and increased investment in the region. This echoes the impact of Intel’s expansion in Arizona, which has led to significant economic growth and development in the region.
On the other hand, California-based hardware startups may face increased competition from Arizona-based companies, potentially leading to a shift in the balance of power in the semiconductor industry. This could have far-reaching implications for the industry as a whole.
The Skeptical Case: Can Etched Scale Production?
While Etched’s announcement has generated significant excitement, there are concerns about the startup’s ability to scale production. The company faces stiff competition for limited capacity at TSMC’s Taiwan factories, and the Arizona facility may not be able to meet demand.
This scenario is reminiscent of the challenges faced by GlobalFoundries in 2018, when the company struggled to scale production and meet demand for its clients. The consequences of failure could be severe, with potential implications for Etched’s investors and the wider semiconductor industry.
Signal to Watch: Copper Sky’s Second Fund
Copper Sky is currently raising a $300 million second fund, which will be used to invest in hardware companies, including those in the defense sector, that can set up manufacturing operations in Arizona. This development will be a key indicator of the firm’s ability to execute on its investment thesis and drive growth in the region.
The success of Copper Sky’s second fund will also be closely tied to the performance of Etched and other portfolio companies. If the firm is able to drive growth and returns for its investors, it could have a significant impact on the semiconductor industry and the wider venture capital landscape.
What’s your take on this? Drop your perspective in the comments below.
By Alex Mercer, Senior Tech Analyst at TrendFlashy
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