Friday, April 19th 2024
TSMC to Introduce Location Premium for Overseas Chip Production
As a part of its Q1 earnings call discussion, one of the largest semiconductor manufacturers, TSMC, has unveiled a strategic move to charge a premium for chips manufactured at its newly established overseas fabrication plants. During an earnings call, TSMC's CEO, C.C. Wei, announced that the company will impose higher pricing for chips produced outside Taiwan to offset the higher operational costs associated with these international locations. This move aims to maintain TSMC's target gross margin of 53% amidst rising expenses such as inflation and elevated electricity costs. This decision comes as TSMC expands its global footprint with new facilities in the United States, Germany, and Japan (JAMS) to meet the increasing demand for semiconductor chips worldwide. The company's new US-based Arizona facility, known as Fab 21, has faced delays due to equipment installation issues and labor negotiations.
Chips produced at this site, utilizing TSMC's advanced N5 and N4 nodes, could cost between 20% to 30% more than those manufactured in Taiwan. TSMC's strategy to manage the cost disparities across different geographic locations involves strategic pricing, securing government support, and leveraging its manufacturing technology leadership. This approach reflects the company's commitment to maintaining its competitive edge while navigating the complexities of global semiconductor manufacturing in today's fragmented market. Introducing a location premium is expected to impact American semiconductor designers, who may need to pass these costs on to specific market segments, particularly those with lower price sensitivity, such as government-related projects. Despite these challenges, TSMC's overseas expansion underscores its adaptive strategies in the face of global economic pressures and industry demands, ensuring its continued position as a leading player in the semiconductor industry.
Source:
via Tom's Hardware
Chips produced at this site, utilizing TSMC's advanced N5 and N4 nodes, could cost between 20% to 30% more than those manufactured in Taiwan. TSMC's strategy to manage the cost disparities across different geographic locations involves strategic pricing, securing government support, and leveraging its manufacturing technology leadership. This approach reflects the company's commitment to maintaining its competitive edge while navigating the complexities of global semiconductor manufacturing in today's fragmented market. Introducing a location premium is expected to impact American semiconductor designers, who may need to pass these costs on to specific market segments, particularly those with lower price sensitivity, such as government-related projects. Despite these challenges, TSMC's overseas expansion underscores its adaptive strategies in the face of global economic pressures and industry demands, ensuring its continued position as a leading player in the semiconductor industry.
34 Comments on TSMC to Introduce Location Premium for Overseas Chip Production
The more immediate problem is the number of chip foundries.
Most have bowed out. About 10-15 years ago there were a dozen. Now we can count high-end cutting edge semiconductor foundry companies on one hand.
As cvaldes points out, the 'state of the art' fabs have consolidated into (less than a) handful of options.
On the other side of this coin:
www.tomshardware.com/tech-industry/semiconductors/us-sanctions-transform-china-into-legacy-chip-production-juggernaut-production-jumped-40-in-q1-2024
The 'competition' could be in 'commodity' and 'legacy' chips. But now, one party is on its way to a de facto monopoly.
This is happening on a more increasing basis here at TPU (and elsewhere) which doesn't benefit anyone.
Funny, cus PC gaming was totally owning console gaming for quite a while. Now, tides are turning once again. Stores are full of GPU's, and PS5 are sold even before they are shipped to my country. That's what people care about i guess. Not me... of course. I'll buy a 5080 even if its, 2300 euro. I don't enjoy console gaming with a controller, thank god most PS5 games are coming to the PC. I do understand why consoles are hyper popular, i get it. In fact, more power to it. People are smarter than me, they ignore the BS prices of Nvidia/AMD, they go for the reasonable thing. Nvidia won't care even if PC gaming died, that much is obvious now. Their main income comes from other places now. Console makers are the only ones that seem to care at all. Im sure TSMC will raise prices even more in 2025/26. There is little backlash to them doing it now, which probably might make them more ballsie in the future.
The market is way too optimistic on "AI" for the medium and long term, and there's few use cases outside of that that actually need newer chips. In a poor economic environment, upgrade cycles will lengthen out and the market for new chips will collapse.
Most importantly, for "AI" demand to even remotely meet expectations, you need a front end application people will actually pay big money for. When I see sysadmins laughing about how crap CoPilot is, that is not very encouraging!
A 30% increase in the price per wafer can have a significant impact, especially when considering the cumulative effect of profit margins at each stage of the supply chain, from AMD/Nvidia to AIBs to shoppers/importers/suppliers plus taxes.
TSMC is getting subsidies everywhere they operate, including Taiwan. If it wasn't a publicly traded company, profit margins wouldn't matter as much, as for one there wouldn't be people like Warren Buffet who dumped his entire investment in TSMC a while back, which caused their stock price to crash temporarily. Not having to care about shareholders is a freedom few big companies enjoy.
The equipment cost isn't that different for 7 nm compared to 4 nm, at least not enough that it would make a huge difference in price for what you get out at the other end of the process. Right now, all the materials used have also gone up in price, especially as there often aren't more than one supplier for some parts, like this Japanese company, whcih in all fairness hasn't increased their pricing www.japantimes.co.jp/business/2023/12/04/tech/fuso-chemical-chip-materials-prices/
Then we have the likes of silicon wafer manufacturers that can deliver good enough wafers quality as an example. Ok, there are actually a handful companies that are good enough and can deliver 300 mm wafers, but prices have gone up on their side as well.
Lots of things would make sense from an outside perspective, but the reality is that it might not be as easy as we think it should be.