TSMC to Charge up to 30% More for Chips Made in the U.S.

TSMC
(Image credit: TSMC)

TSMC has complained a number of times that building fabs outside of Taiwan is significantly more expensive than building fabs at home. As it turns out, the foundry is prepping to pass those extra costs on to its customers -- meaning clients in the U.S. will have to pay up to 30% more for chips made in America than for chips made in Taiwan, according to a DigiTimes story.

TSMC has started discussions with customers about orders and pricing for both overseas plants, which are set to begin commercial production in late 2024. Industry insiders believe that prices of chips produced on TSMC's N4 and N5 process technologies in the U.S. will be 20% - 30% higher than those in Taiwan, while older process chips produced in Japan's Kumamoto facility on N28/N22 as well as N16/N12 nodes may cost 10% - 15% more than similar chips fabbed in Taiwan.

While American chip designers certainly won't appreciate higher costs on chip production in the U.S., it is likely that they will make chips aimed at government and less price-sensitive applications in Arizona. Therefore, they should be able to pass those extra costs on to their customers without risking their competitive positions.

Given the high construction and operational costs of fabs in Japan and the U.S., TSMC is going to pass those extra expenses on to customers to maintain its gross margin target of 53%. TSMC's negotiations with Japanese customers went smoothly, primarily due to substantial financial support from the local government for the Kumamoto facility. But many U.S. customers are continuing to negotiate prices with TSMC. In fact, some of them are mulling shifting some orders to Samsung Foundry to be more flexible with their costs.

For example, AMD and Qualcomm are said to be considering Samsung Foundry, while Nvidia may turn to Intel Foundry Services to make chips on one of its gate-all-around transistors-based technologies, such as Intel's 18A and 20A. Despite these rumors, TSMC remains committed to its principle of increasing, not decreasing, foundry quotes due to high manufacturing costs. Furthermore, since chip designs are getting costlier, it will be problematic for AMD, Qualcomm, and Nvidia to adopt a dual-source strategy and make similar chips both at TSMC and at Samsung Foundry or Intel. Therefore, TSMC's fab will be fully utilized even if its rivals get some orders from its loyal customers.

Meanwhile, TSMC has reportedly maintained a 20% - 30% discount for Apple, its largest customer, contributing to 25% of its revenue. This is attributed to their close partnership in advancing process migration and technological breakthrough as Apple tends to be the first to adopt TSMC's leading-edge nodes and is willing to both pay extra and take additional risks.

Since the information comes from an unofficial source, it should be taken with a grain of salt. Furthermore, actual production terms are confidential, depend on multiple factors, and vary from customer to customer, so it is close to impossible to make guesses about possible production shifts from TSMC because of the costs. 

Anton Shilov
Contributing Writer

Anton Shilov is a contributing writer at Tom’s Hardware. Over the past couple of decades, he has covered everything from CPUs and GPUs to supercomputers and from modern process technologies and latest fab tools to high-tech industry trends.

  • TechieTwo
    If TSMC gets too greedy they could cut their own throat.
    Reply
  • helper800
    TechieTwo said:
    If TSMC gets too greedy they could cut their own throat.
    Yeah, like building multi billion dollar fabs in the US and EU but not having any customers for their fabs...
    Reply
  • TerryLaze
    TechieTwo said:
    If TSMC gets too greedy they could cut their own throat.
    They get government support in taiwan which is why they can be cheaper there.
    Reply
  • setx
    This sounds reasonable. Final costs is obvious reason why companies don't want to produce chips in US.

    helper800 said:
    Yeah, like building multi billion dollar fabs in the US and EU but not having any customers for their fabs...
    If the fabs cost is covered by US/EU I don't see any drawback for TSMC in such case.
    Reply
  • bit_user
    Since labor is supposedly not a major cost component of high-tech manufacturing, I wonder where the added costs are coming from. I'd love to see details.

    I wonder if it might have anything to do with the way they do accounting for building initial production lines vs. follow-on ones. The later a production line is built, the shorter its useful lifespan, which means less time to amortize the fixed costs. Plus, you might have some R&D writeoffs you can do for the initial production lines.
    Reply
  • Giroro
    TSMC needs that extra profit to pay for all that equipment that US taxpayers are going into bankruptcy to buy for this foreign company.
    Reply
  • DavidLejdar
    That sort of stuff happens with protectionism... Something I could talk more about, such as in regard whether it is economically really beneficial when many a company is facing higher procurement costs for their business and products (i.e. cars Made in USA also end up costing more, and therefore less likely to be exported, and therefore possibly less jobs after all). But that would be a bit of a political topic, which as far as I know is not welcome to be talked about here - so I'll just grab me some popcorn I suppose. :)
    bit_user said:
    Since labor is supposedly not a major cost component of high-tech manufacturing, I wonder where the added costs are coming from. I'd love to see details.

    I wonder if it might have anything to do with the way they do accounting for building initial production lines vs. follow-on ones. The later a production line is built, the shorter its useful lifespan, which means less time to amortize the fixed costs. Plus, you might have some R&D writeoffs you can do for the initial production lines.
    “The major reason for the cost gap is the construction costs of building and facilities, which can be four to five times greater for a U.S. fab versus a fab in Taiwan,” Huang said. “The high costs of construction includes labor costs, costs of permits, cost of occupational safety and health regulations, inflationary costs in recent years, and people and learning curve costs.”
    https://www.cnbc.com/2023/03/09/why-manufacturing-chips-in-us-may-make-smartphones-more-expensive.html
    Reply
  • JamesJones44
    DavidLejdar said:
    That sort of stuff happens with protectionism... Something I could talk more about, such as in regard whether it is economically really beneficial when many a company is facing higher procurement costs for their business and products (i.e. cars Made in USA also end up costing more, and therefore less likely to be exported, and therefore possibly less jobs after all). But that would be a bit of a political topic, which as far as I know is not welcome to be talked about here - so I'll just grab me some popcorn I suppose. :)

    “The major reason for the cost gap is the construction costs of building and facilities, which can be four to five times greater for a U.S. fab versus a fab in Taiwan,” Huang said. “The high costs of construction includes labor costs, costs of permits, cost of occupational safety and health regulations, inflationary costs in recent years, and people and learning curve costs.”
    https://www.cnbc.com/2023/03/09/why-manufacturing-chips-in-us-may-make-smartphones-more-expensive.html


    Since you brought it up... The other major issue here is peoples willingness to buy the cheapest possible product (aka exporting inflation). Unless you make all things equal somehow, developed countries are always going to be at a disadvantage to lesser developed countries when it comes to goods manufacturing.
    Reply
  • I am also wondering if there is some accounting magic going on.
    Reply
  • pointa2b
    Moores Law Is Dead had a guest on earlier today, and he talked about this a bit. Aside from the things mentioned, environmental regulations play a large role in the cheaper costs overseas as well. Compliance to tighter regulations drives up overhead substantially.
    Reply