Tuesday, March 25th 2025
TSMC Arizona Operations Only 10% More Expensive Than Taiwanese Fab Operations
A recent study by TechInsights is reshaping the narrative around the cost of semiconductor manufacturing in the United States. According to the survey, processing a 300 mm wafer at TSMC's Fab 21 in Phoenix, Arizona, is only about 10% more expensive than similar operations in Taiwan. This insight challenges earlier assumptions based on TSMC founder Morris Chang's comments, which suggested that high fab-building expenses in Arizona made US chip production financially impractical. G. Dan Hutcheson of TechInsights highlighted that the observed cost difference largely reflects the expenses associated with establishing a brand-new facility. "It costs TSMC less than 10% more to process a 300 mm wafer in Arizona than the same wafer made in Taiwan," he explained. The initial higher costs stem from constructing a fab in an unfamiliar market with a new, sometimes unskilled workforce—a scenario not typical for mature manufacturing sites.
A significant portion of the wafer production cost is driven by equipment, which accounts for well over two-thirds of the total expenses. Leading equipment providers like ASML, Applied Materials, and Lam Research charge similar prices globally, effectively neutralizing geographic disparities. Although US labor costs are higher than in Taiwan, the heavy automation in modern fabs means that labor represents less than 2% of the overall cost. Additional logistics for Fab 21, including the return of wafers to Taiwan for dicing, testing, and packaging, add complexity but only minimally affect the overall expense. With plans to expand domestic packaging capabilities, TSMC's approach is proving to be strategically sound. This fresh perspective suggests that the apparent high cost of US fab construction has been exaggerated. TSMC's $100B investment in American semiconductor manufacturing reflects a calculated decision informed by detailed cost analysis—demonstrating that location-based differences become less significant when the equipment dominates expenses.
Sources:
TechInsights, via Tom's Hardware
A significant portion of the wafer production cost is driven by equipment, which accounts for well over two-thirds of the total expenses. Leading equipment providers like ASML, Applied Materials, and Lam Research charge similar prices globally, effectively neutralizing geographic disparities. Although US labor costs are higher than in Taiwan, the heavy automation in modern fabs means that labor represents less than 2% of the overall cost. Additional logistics for Fab 21, including the return of wafers to Taiwan for dicing, testing, and packaging, add complexity but only minimally affect the overall expense. With plans to expand domestic packaging capabilities, TSMC's approach is proving to be strategically sound. This fresh perspective suggests that the apparent high cost of US fab construction has been exaggerated. TSMC's $100B investment in American semiconductor manufacturing reflects a calculated decision informed by detailed cost analysis—demonstrating that location-based differences become less significant when the equipment dominates expenses.
55 Comments on TSMC Arizona Operations Only 10% More Expensive Than Taiwanese Fab Operations
A question relevant to the actual topic is: will the increase costs be absorbed by TSMC, or passed on to the consumer?
that is the current US policy statement when it comes to product. TSMC will price it as they see fit.
keep in mind this is just manufacturing of the chips. people overlook the other aspects of semiconductor manufacturing such as packaging, finished goods production, etc.
it just means the actual chips themselves will be made in USA at a ~10% price increase. if we want to have a discussion about final cost to consumers then short answer is it will be passed to consumers, and long story is it will depend on how many loopholes/exemptions can be added to ensure this isn't tariffed.
I read two things into that. One, future US based TSMC fabs likely won't have anywhere near the same cost penalty.
Two, since it's mostly up-front cost, how much extra it costs will be a function of the useful life of the fab.
Their main problem right now is likely the packaging processes that have to be done in Taiwan. This is where scale comes in. The extra transport and handling / paperwork involved is likely a rounding error if say, 50,000 wafers with 2.5M dies are being sent all at once. But if it is smaller, say 500 wafers with 25,000 dies, then it's likely prohibitive.
So this fab is probably only cost-effective for large contracts, not smaller ones. This is probably all built into the prices offered to clients. i.e. like energy, the first 500 cost you X, the next 5000 you get a 10% discount, the next 50,000 you get a 20% discount etc. Oversimplified I'm sure, but I'd bet it works similar to that if not using that exact method.
So to the query, I think the scale problem (transport cost) is passed on to the buyer and the consumer. The up-front capital cost, I don't think TSMC will pass that cost on to anyone. They paid that to learn a new skill, how to build a fab in the US.