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Protocol Index: TSMC’s Arizona move

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Good morning! This Friday, what's going on with TSMC's Arizona investment, a new U.S. block on Huawei, and why tech salaries might start to fall. Want Index in your inbox each morning? Subscribe here.

What Matters Today

  • Just now: JD.com reported first-quarter revenue up 21% year-on-year, above expectations. Its stock jumped in pre-market trading.
  • 5:30 a.m. PDT: U.S. retail sales data for April is expected to show a significant deterioration from March. The 6.2% year-on-year decline posted then pales in comparison to the 16.3% YoY drop that Trading Economics expects to be announced today. But "non-store sales," which are largely made up of ecommerce transactions, may have seen a boost.

Layoff Watch

A MESSAGE FROM NASDAQ

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Today's News

As of 5 a.m. PDT: Nasdaq Futures: -1.51% | Euro 600: 0.29% | Nikkei: 0.62% | Hang Seng: -0.14%

OPPORTUNITIES

THREATS

  • USPS is reportedly considering higher fees for Amazon and other customers, seemingly under pressure from the White House.
  • Foxconn's profit was down 90% year-on-year last quarter, hitting its lowest level since 2000. It said it would "stabilize in the second quarter."
  • Rakuten said its 5G launch will be delayed by three months.
  • Domino's Pizza asked the U.K. Competition and Markets Authority to reconsider its approval of Amazon's Deliveroo investment.
  • France said its digital tax will come in this year, after previously saying it would wait for an OECD agreement.

DEALS

Everyone's Thinking About

TSMC is coming to Arizona

Yesterday, Taiwanese chipmaker TSMC announced that it would build a new fab in Arizona. It plans to spend $12 billion over nine years on the factory — a big coup for America. Coupled with new U.S. rules this morning on supplying Huawei, it marks a seismic change in the U.S.-China relationship.

  • The Trump administration has fretted for years about U.S. reliance on Asian supply chains. Today on Protocol, Republican Rep. Greg Walden told Emily Birnbaum that "it is essential for our own national security that we incentivize innovation and manufacturing to occur onshore, not offshore."
  • And a 2019 Pentagon report said Taiwan was a "single point-of-failure" for the U.S.'s most important tech companies. Apple, AMD, Broadcom, Nvidia and Qualcomm all use TSMC to manufacture their chips.
  • Given Taiwan's fraught relationship with China, that's particularly concerning for U.S. officials.

And so they've tried to fix that. Earlier this week, The Wall Street Journal reported that the government was in talks with both Intel and TSMC about building new commercial foundries in the U.S.

  • The "commercial" bit is key. Intel already manufactures chips in the U.S., but its business is largely focused on producing its own designs. TSMC, meanwhile, handles the manufacturing for other chip designers, which has proven to be a much more popular business model in recent years.
  • And now TSMC has agreed. It's seemingly tempted by government incentives, which TSMC's announcement alluded to — and perhaps a desire to remain friendly with the U.S.
  • That's more important than ever. This morning, the U.S. Commerce Department said chipmakers that use U.S. equipment will need a U.S. license to supply Huawei. Huawei is a major TSMC customer, so TSMC really needs a license. And while the company said this Arizona investment is completely separate from any discussion on export controls, Wedbush analysts speculated that there might be some link.

Some questions remain, though. For a start, is this just a token investment?

  • The new plant will produce 20,000 wafers per month, versus the 100,000 per month targeted for its latest Fab 18 in Taiwan, the Journal reports. And it's less than the 40,000 per month currently produced by TSMC's Washington fab, according to TrendForce research.
  • And while the new fab will use cutting-edge 5nm process technology, Bernstein analysts point out that by the time the factory starts producing in 2024, that tech will be dated.

Still — this is a big move. And with "over 1,600 high-tech professional jobs" set to be created, it's good news for tech workers, too.

Overheard

  • "We are literally watching each other get sick every day and it's not slowing down … If we are putting our lives at risk to pack and deliver Amazon packages, we deserve to be paid for it." — Amazon worker Monica Moody wants the company to extend hazard pay for the length of the pandemic.
  • "Is WeWork the Nokia of the office world, and an Apple product is just around the corner?" — Schroders' Hugo Machin thinks the pandemic might force other landlords to become more like WeWork.
  • "There are more opportunities available to us now, as companies need a new home and other sources of financing may be drying up … The aperture of the lens is the widest it's ever been." — Glenn Schiffman, CFO of IAC, says the company's hunting for acquisitions.
  • "In our opinion, Uber could target cutting between $300 million and $400 million of cost savings in the first year … which could accelerate the Uber Eats business to profitability potentially a year ahead of schedule." — Wedbush analysts think a Grubhub acquisition would be great news for Uber.
  • "He leans into the numbers, he leans into the issues, and he leans into you. In a deal, when there can be a lot of emotion going on, he can snap out of all that, which is a great asset." — Former Expedia exec Rob Greyber told Bloomberg that Dara Khosrowshahi is an expert negotiator.

Closing Bell

Can you move and keep the same salary?

There's been a lot of chatter recently about how tech workers are going to escape the high rents of San Francisco, fleeing to the countryside to live a life of luxury instead. But as my colleague Mike Murphy points out, that life of luxury might be a bit ambitious. Would companies really pay the same salaries if your cost of living is lower? Opening up the hiring pool to the entire country — or even the entire world — will likely put immense downward pressure on wages, especially when unemployment is so high. Tech workers who want to leave the Valley should be careful what they wish for.

Thoughts/feedback/tips? Email me — shakeel@protocol.com — or anonymously contact Protocol. And subscribe to get Index in your inbox each morning. Thanks to my editors, Tim Grieve and Jamie Condliffe, for all their help with Index, and to everyone else at Protocol for giving me interesting things to write about. And thank you for reading! Have a great weekend — see you Monday.

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