One of the biggest concerns when discussing the production of chips in the US is the sustainability of this process, given that for companies like TSMC, manufacturing in America results in a significant reduction in gross margins.
TSMC Sees a Huge Rise in Operating Costs With US Fabs, But the Production Shift Holds a Far Larger Purpose
The Trump administration has given special attention to the "Made in USA" narrative, with a key focus on semiconductors. As a result, companies like TSMC and Samsung have ramped up their investments to build a resilient supply chain in America. The Taiwan chip giant plans to scale up its commitments to the US supply chain by up to $300 billion, which includes a fab network in Arizona, advanced packaging, and R&D facilities. However, when it comes to producing chips in the US, TSMC needs to take a significant hit on its profit margins, according to statistics shared by analyst Jukan on X and compiled by SemiAnalysis.
The above statistics suggest that operating fabs in the US is a costly venture for TSMC, and upon examining the elements that contribute to its expense, labor costs and depreciation per wafer are the primary culprits. Here's how the percentage increase pans out when you factor in items mentioned above, and this really does show us the broader picture:
Depreciation is one of the primary reasons why TSMC's gross margins take a hit. For those unfamiliar with this concept, it represents the total fab production and its equipment over their useful life. For example, if a facility in the US produces wafers of the same process technology but four times fewer in quantity compared to a Taiwanese fab, this means that the US wafers would ultimately carry a 'mortgage payment'.
This is one of the reasons why wafer depreciation is four times higher in the US. When you factor in construction bills and operating costs, American fabs need a lot more to offset their expenses. More importantly, another significant element in this situation is labor costs, which is a huge issue for the US right now. To staff a US fab, TSMC has two options: either opt for an American employee or recruit one from Taiwan. When considering the cost per employee, the latter option proves to be significantly more viable.
If it breaks down at 1 in the morning, in the U.S. it will be fixed the next morning, but in Taiwan, it will be fixed at 2 a.m. If an engineer gets a call when he is asleep, he will wake up and start dressing… This is the work culture.
- TSMC's Morris Chang
To ensure that TSMC remains committed to its US venture, the company must prioritize gross margins and cater to fabless manufacturers in the region. This is one of the reasons why the Arizona fab recently reported its largest quarterly profit decline, as mounting operating costs are a factor that hinders the sustainability of manufacturing in nations other than Taiwan.
Despite such problems, TSMC's expansion serves a far larger purpose: to ensure that geopolitical matters don't influence its customers. Consequently, companies like NVIDIA are in constant support of the Taiwan chip giant pivoting towards the US. Building a resilient supply chain in America is an effort that may take decades, but ultimately, for the world's most important chip producer, it is crucial to have a diversified supply chain. This is why the US expansion will continue with aggressive momentum.
About the author: Muhammad Zuhair is a hardware and technology reporter for Wccftech, specializing in the semiconductor industry and the complex interplay between technology, manufacturing, and geopolitics. His coverage focuses on the corporate strategies and technological roadmaps of industry giants like TSMC, NVIDIA, Samsung, and Intel. Zuhair's expertise lies in deconstructing complex topics such as fabrication nodes (e.g., 2nm process), the economic impact of policies like the CHIPS Act, and the strategic development of AI infrastructure from NVIDIA, AMD and Intel.
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