TSMC to Introduce Location Premium for Overseas Chip Production

[AleksandarK]

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.



View at TechPowerUp Main Site | Source

 

[Wirko]

This is just good customer support for customers who want a country-specific set of backdoors baked into their chips.

 

[Denver]

20-30% is a lot on top of already absurdly over priced wafers(U$17K).
We are ruined. It's a financial hit we(I) can't afford. Looks like we're joining the PS5 pro gamer master race.

 

[evernessince]

Was this cost increase ever disclosed prior to countries who's tax dollars they are taking? If not this seems like an extremely bad faith move in light of them receiving public funds.

20-30% is a lot as well. Building out of course costs money but it's something every business must deal with and most business do not jack up prices 20-30% every time they expand. That TSMC can force that cost onto it's customers just goes to show you how much power they have over the market.

 

[TheLostSwede]

20-30% is a lot on top of already absurdly over priced wafers(U$17K).
We are ruined. It's a financial hit we(I) can't afford. Looks like we're joining the PS5 pro gamer master race.

Well, labour is a lot more expensive outside of Taiwan...

 

[stimpy88]

And this kills it for consumer electronics and puts customers of these fabs as purely private corporate projects and military and government only. And our (public) tax money is what funded this in the first place.

I hope China reminds TSMC why we are paying to have them manufacture away from their death-grip.

I would be upset about this obvious bait & switch from TSMC if I was a non-corrupt senator that just agreed to pay $7 billion tax Dollars to get them to build there, too bad there's no such thing as a moral and honest politician.

 

[R0H1T]

Was this cost increase ever disclosed prior to countries who's tax dollars they are taking? If not this seems like an extremely bad faith move in light of them receiving public funds.

20-30% is a lot as well. Building out of course costs money but it's something every business must deal with and most business do not jack up prices 20-30% every time they expand. That TSMC can force that cost onto it's customers just goes to show you how much power they have over the market.

Pricing is always in the hands of the maker, we don't get cheap iPhones here just because Apple has to pay for lower wages or in China for that matter. Oh & capitalism greed says hi

Spoiler

And this kills it for consumer electronics and puts customers of these fabs as purely private corporate projects and military and government only. And our (public) tax money is what funded this in the first place.

I hope China reminds TSMC why we are paying to have them manufacture away from their death-grip.

You also paid for billions of dollars of endless (corporate) bailouts since 2007/08 so nothing new here!

 

[evernessince]

Well, labour is a lot more expensive outside of Taiwan...

Low skill labor is more expensive sure but fabs run on high skill labor. A class of which TSMC pays competitively regardless of whether the fab is in the US or Taiwan as that kind of talent is invaluable. Now they might pay skilled workers in the US more to offset the cost of living increase but does that increase account for 20-30% of the total cost of everything that goes into making a wafer? Almost certainly not.

I also feel it's important to point out the way TSMC is handling it's US operations thus far as many engineers have been complaing about the company and work culture. Here is once such account provided by AZ_Gorilla on reddit:

"Note: New account, don't want to get fired
I'm one of their engineers, a US hire originally from Arizona. When they say we are giant babies, they mean we whine and complain a lot. We complain about the lack of training programs, because there are none. We complained due to lack of English study material, because there is none. We complain about the toxic leadership skills of our supervisors who wish to call us human filth because we have not memorized a 200 page PowerPoint regarding the introduction to a tool utilized in Etch, who openly patronize us infront of others with labels of incompetence. We complain about the ever changing policies and procedures that our Human Resources team seems to implement on a weekly basis, confusing disorienting and causing more work and headaches for us. We complain because statistically, over the last two months (Oct-Nov), someone has either quit or been fired every three days. We complain about how there is a 45-minute commute to and from work every day, and our supervisors and bosses force us to stay late. We complain because our co-workers the "Taiwan Locals" refuse to trust us after having become proficient with our work after a year or two of being here, because it might affect their PMD (Performance Based Bonuses). We complain because some of us were only supposed to be here for a year and have had our contracts be completed and forced to stay here. We complain because some of our employees from other countries have not had their visas extended or approved for work in the US yet and may have to be deported 6 months after they get in the US due to the incompetence of our HR. We complain because the company thinks it can abuse our time, our health, and our safety because we are "on their home turf" now, and their rules only apply. We complain because our HR has the audacity to be condescending when describing their plans for the future. The US hires are tired of the rainbows, and being told how great this company is and how we are the #1 this and the top 1% that, but we don't like to brag... We complain about the leaked documents that show Taiwan managers how to avoid US laws when attempting to fire those who become handicap or disabled from on the job accidents.
We complain because these are legitimate problems, and once we get back to the US, all of those engineers you spent so much time abusing, will leave your company, and you will be left with no one to train your Overstaffed Temp Office on Dunlap Who are already complaining about the temp office being packed with people.. if only someone would call the Phoenix Fire Marshal to do an inspection on floor 4 and 6.
We are tired of complaining, but we are never heard. If that makes us giant babies, then so be it.
Oh and someone at the temp office tell Gale I said hi."

To me it seems TSMC has grown very arrogant. It's a good thing Intel has opened up their fabs, more competition is 100% needed.

Pricing is always in the hands of the maker, we don't get cheap iPhones here just because Apple has to pay for lower wages or in China for that matter. Oh & capitalism greed says hi

Spoiler

You also paid for billions of dollars of endless (corporate) bailouts since 2007/08 so nothing new here!

Yep, socialism for the rich and capitalism for the poor.

 

[stimpy88]

Well, labour is a lot more expensive outside of Taiwan...

And that's just the excuse they will use, now that the US government has already agreed to pay nearly $7billion, but we all know this is a lie, especially at the skill and expertise levels they will be hiring at. Doesn't matter if you're from one corner of the world or another, you will get paid the same for your knowledge and talent.

It makes me wonder if China had taken TSMC, would they have hiked prices so high?

 

[Space Lynx]

I don't blame them one bit, everyone else does it just in a different form factor, including Nvidia/Apple/ram/nvme makers, etc.

get that money baby then go to a Taiwan strip club and celebrate, well done TSMC

 

[LazyGamer]

I'll send a couple of ass-ass-ins your way, TSMC. Raul Ligma and David Johnson.

 

[stimpy88]

I don't blame them one bit, everyone else does it just in a different form factor, including Nvidia/Apple/ram/nvme makers, etc.

get that money baby then go to a Taiwan strip club and celebrate, well done TSMC

TSMC already have been jacking prices through the roof since covid.

 

[Space Lynx]

TSMC already have been jacking prices through the roof since covid.

Intel's Arrow Lake should be more competitive and keep costs from getting too crazy, at least on cpu side of things anyway.

 

[HisDivineOrder]

The point of the overseas facilities was they were subsidized to offset extra costs. They're having their cake and eating it, too. The CHIPS Act should be updated to take the money back if they pull fast ones like this. I guarantee they'd suddenly find a way to make it profitable at the same cost if the billions were being taken away.

 

[Denver]

Well, labour is a lot more expensive outside of Taiwan...

I understand, but labor expenses are just a fraction of the overall costs. I just assumed that billion-dollar subsidies would translate into "discounts". After all, why not reduce profit margins slightly for "mature" processes that no longer require substantial investments in research and development? It would make sense.

 

[Vayra86]

20-30% is a lot on top of already absurdly over priced wafers(U$17K).
We are ruined. It's a financial hit we(I) can't afford. Looks like we're joining the PS5 pro gamer master race.

Naaaaah.

PC gaming isn't ruined or dead. Expensive GPUs won't kill it and there is more content than ever.

Just turn off RT / turn on upscale. Done. Devs will do it for you, don't even worry. AMD isn't in a rush here and they've already moved to chiplet. Upscale is improving everywhere.

Also, we know what optimization can do for gaming and how its sorely lacking these days. We're really in a very comfortable place here, like it or not. There are so many ways to keep gaming on current or budget hardware.

Fár more expensive than a flat percentage is a volatile market and scarcity. We've seen what mining did to us.

 

[JasBC]

The point of the overseas facilities was they were subsidized to offset extra costs. They're having their cake and eating it, too. The CHIPS Act should be updated to take the money back if they pull fast ones like this. I guarantee they'd suddenly find a way to make it profitable at the same cost if the billions were being taken away.

. . . they'd price chips from these fabs even higher, and America will pay for it - you always do, always will.

I understand, but labor expenses are just a fraction of the overall costs. I just assumed that billion-dollar subsidies would translate into "discounts". After all, why not reduce profit margins slightly for "mature" processes that no longer require substantial investments in research and development? It would make sense.

TSMC knows Taiwan is not Israel and will be left to be torn apart by China if the US develops too much of its own manufacturing capacity.

It's also a public company and and giving US companies a collective rebate goes agsinst its very mission of making money - the "market" is biting the hand voluntarily throwing free meat at it.

 

[hsgawdsaefryjt]

This is just good customer support for customers who want a country-specific set of backdoors baked into their chips.

Everything is a backdoor, You always can and have been able breach everything on the hardware scale and then breach all the software locks.

 

[cvaldes]

20-30% is a lot on top of already absurdly over priced wafers(U$17K).
We are ruined. It's a financial hit we(I) can't afford. Looks like we're joining the PS5 pro gamer master race.

Once again we have a comment from someone who has clearly never worked for a Fortune 500 company, probably has never made anything before in his/her life.

There's a lot more in an integrated chip than just the wafer. And it's not just semiconductors, pretty much everything is like that.

It's like saying the price of blue jeans should come down because cotton futures prices dropped 5%. Same with wheat. Or crude oil.

Guess what? The gasoline you pump into your car (assuming you still have a fossil fuel powered vehicle) is not just crude oil. It takes resources to move that crude oil to a refinery. The refinery requires a lot of electricity and manpower to run. The finished gasoline is then transported elsewhere where it's finally put into delivery trucks (driven by human beings who have rent & bills to pay, kids to raise, etc.) and brought to refueling stations. And those pumps aren't free, they have software, need electricity, maintenance, etc.

The wafer itself is just a fraction of the total amount of the cost of an integrated circuit. It still takes an enormous amount of resources just to create the chips, electricity, water, EUV lithography machines from ASML, whatever. And all run by people who -- like fuel delivery truck drivers -- also have rent & bills to pay, kids to raise, etc.

And as some people pointed out, these costs aren't the same all over the world. With your observational skills you probably haven't noticed it, but gas isn't the same price everywhere.

Anyhow none of this surprises me in the slightest. Part of it is likely to prod governments to provide more subsidization in exchange for lower overseas premiums.

 

[LabRat 891]

I can't say i blame them but,
This 100% reminds me of US Telecomm/ISPs 'passing the buck' to customers for their FCC, etc. fines.

Already receive subsidies yet, insist on passing any costs that eat into that, onto customers...

 

[AnotherReader]

Once again we have a comment from someone who has clearly never worked for a Fortune 500 company, probably has never made anything before in his/her life.

There's a lot more in an integrated chip than just the wafer. And it's not just semiconductors, pretty much everything is like that.

It's like saying the price of blue jeans should come down because cotton futures prices dropped 5%. Same with wheat. Or crude oil.

Guess what? The gasoline you pump into your car (assuming you still have a fossil fuel powered vehicle) is not just crude oil. It takes resources to move that crude oil to a refinery. The refinery requires a lot of electricity and manpower to run. The finished gasoline is then transported elsewhere where it's finally put into delivery trucks (driven by human beings who have rent & bills to pay, kids to raise, etc.) and brought to refueling stations. And those pumps aren't free, they have software, need electricity, maintenance, etc.

The wafer itself is just a fraction of the total amount of the cost of an integrated circuit. It still takes an enormous amount of resources just to create the chips, electricity, water, EUV lithography machines from ASML, whatever. And all run by people who -- like fuel delivery truck drivers -- also have rent & bills to pay, kids to raise, etc.

And as some people pointed out, these costs aren't the same all over the world. With your observational skills you probably haven't noticed it, but gas isn't the same price everywhere.

Anyhow none of this surprises me in the slightest. Part of it is likely to prod governments to provide more subsidization in exchange for lower overseas premiums.

The wafer price includes almost everything that you talked about, but there are other big factors affecting the cost of chips: volume and design cost. If you sell 300 million CPUs in a year as opposed to 300,000 CPUs, then you can afford to spend more in design and still come out ahead in costs.

 

[tfp]

Low skill labor is more expensive sure but fabs run on high skill labor. A class of which TSMC pays competitively regardless of whether the fab is in the US or Taiwan as that kind of talent is invaluable. Now they might pay skilled workers in the US more to offset the cost of living increase but does that increase account for 20-30% of the total cost of everything that goes into making a wafer? Almost certainly not.

I also feel it's important to point out the way TSMC is handling it's US operations thus far as many engineers have been complaing about the company and work culture. Here is once such account provided by AZ_Gorilla on reddit:

"Note: New account, don't want to get fired
I'm one of their engineers, a US hire originally from Arizona. When they say we are giant babies, they mean we whine and complain a lot. We complain about the lack of training programs, because there are none. We complained due to lack of English study material, because there is none. We complain about the toxic leadership skills of our supervisors who wish to call us human filth because we have not memorized a 200 page PowerPoint regarding the introduction to a tool utilized in Etch, who openly patronize us infront of others with labels of incompetence. We complain about the ever changing policies and procedures that our Human Resources team seems to implement on a weekly basis, confusing disorienting and causing more work and headaches for us. We complain because statistically, over the last two months (Oct-Nov), someone has either quit or been fired every three days. We complain about how there is a 45-minute commute to and from work every day, and our supervisors and bosses force us to stay late. We complain because our co-workers the "Taiwan Locals" refuse to trust us after having become proficient with our work after a year or two of being here, because it might affect their PMD (Performance Based Bonuses). We complain because some of us were only supposed to be here for a year and have had our contracts be completed and forced to stay here. We complain because some of our employees from other countries have not had their visas extended or approved for work in the US yet and may have to be deported 6 months after they get in the US due to the incompetence of our HR. We complain because the company thinks it can abuse our time, our health, and our safety because we are "on their home turf" now, and their rules only apply. We complain because our HR has the audacity to be condescending when describing their plans for the future. The US hires are tired of the rainbows, and being told how great this company is and how we are the #1 this and the top 1% that, but we don't like to brag... We complain about the leaked documents that show Taiwan managers how to avoid US laws when attempting to fire those who become handicap or disabled from on the job accidents.
We complain because these are legitimate problems, and once we get back to the US, all of those engineers you spent so much time abusing, will leave your company, and you will be left with no one to train your Overstaffed Temp Office on Dunlap Who are already complaining about the temp office being packed with people.. if only someone would call the Phoenix Fire Marshal to do an inspection on floor 4 and 6.
We are tired of complaining, but we are never heard. If that makes us giant babies, then so be it.
Oh and someone at the temp office tell Gale I said hi."

To me it seems TSMC has grown very arrogant. It's a good thing Intel has opened up their fabs, more competition is 100% needed.



Yep, socialism for the rich and capitalism for the poor.

Any one who has worked with companies or teams in Asia should not be surprised. There is a reason people jump off of FoxCon buildings over there. TSMC is likely not as bad but this is not new. TSMC/AMD/Intel/Nvidia are not "good people" and will do what ever they want/what ever it takes to make a buck that fits with in their company culture.

 

[mechtech]

"This move aims to maintain TSMC's target gross margin of 53% amidst rising expenses such as inflation and elevated electricity costs."

classic

Imagine every single company on the planet did this.................set prices to maintain a gross margin target of 53%!?!

 

[cvaldes]

The wafer price includes almost everything that you talked about, but there are other big factors affecting the cost of chips: volume and design cost. If you sell 300 million CPUs in a year as opposed to 300,000 CPUs, then you can afford to spend more in design and still come out ahead in costs.

Nah, divide a wafer price (which is probably a spot price for a single wafer) by the number of dies. Following your logic, that should be close to the final price of the chip.

It's nowhere near that close.

Remember that the wafer is basically an intermediate resource, like flour is a loaf of bread. There are a lot of expenses that go between a bag of wheat seeds and the harvested wheat berries, more expenses turning it into flour, more into bread, more into getting that loaf into your hands.

Same exact thing with ICs. A wafer is just like that pound of flour.

Again, all this stuff escapes people who have never worked for a Fortune 500 company or have every made anything in their lives. If wheat futures drop 10% do I expect the cost of my cookies to come down dramatically? No, that would be silly. There are probably 50-60 other factors involved. The guy that drives the wheat berries to the wholesale flour mill still needs to get paid. A 10% reduction in wheat prices doesn't change the fact a ton of grain is a ton of grain and that trucks need to be fueled up the same way.

 

[AnotherReader]

Nah, divide a wafer price (which is probably a spot price for a single wafer) by the number of dies. Following your logic, that should be close to the final price of the chip.

It's nowhere near that close.

Remember that the wafer is basically an intermediate resource, like flour is a loaf of bread. There are a lot of expenses that go between a bag of wheat seeds and the harvested wheat berries, more expenses turning it into flour, more into bread, more into getting that loaf into your hands.

Same exact thing with ICs. A wafer is just like that pound of flour.

I believe you're misunderstanding my argument. I agree that there's a lot more to chip price than wafer price. However, EUV machines can't be counted twice; their cost to TSMC is built into the wafer price. After all, if prices were solely about wafer costs, then even with a gross margin of 50%, Ryzen 7950X would be only $40 more than a 7700X.