Surely somewhere in the midwest would be more geologically stable and have plenty of access to water. Not sure the proximity to Silicon Valley makes any difference. It's not like factory workers are going to commute from California to Arizona.
Phoenix has long been a hub for semiconductor manufacturing, so it makes sense from the perspective of there is an existing skilled worker pool and supplier base. Motorola had large sites there, and Intel has a bunch of fabs and is building more in the area.
I believe the primary reason was tax-related, but the secondary reason is that there is already substantial personnel in the area who are experts in chip design and fabrication (Intel), with a strong pipeline for new talent from local universities for those skills.
Surprisingly, the area is also one of the largest Taiwanese communities in the U.S., which is a bonus for the engineers and their families who will be relocated from the "mothership".
Also, it's actually quite common for high-level Intel staff to fly back and forth from Portland and Phoenix. I am not sure if the same would be said about Taiwan and Arizona, but if they have staff in SV it wouldn't be too far-fetched.
