Taiwan Semiconductor Manufacturing Company (TSMC) is grappling with significantly higher operational costs at its Arizona chip plant. According to Macquarie Bank, these expenses may exceed those at its Taiwan facilities by up to 30%, primarily due to challenges in establishing a robust chemical supply chain in the U.S.

The Arizona facility was launched as part of a collaboration with the U.S. government under the CHIPS and Science Act. However, the cost disparity could erode TSMC’s profit margins by 1% to 2% for its advanced 4-nanometer manufacturing process, as highlighted by Macquarie.

“Chemical supply is crucial for semiconductor manufacturing, and the lack of a local supply chain in the U.S. is a key driver of these costs,” the bank noted. Taiwanese suppliers, such as Shiny Chemical Industrial Co., dominate the global market and are hesitant to invest in the U.S. due to concerns over economies of scale.

When TSMC began production in Arizona, it faced difficulties finding qualified U.S.-based suppliers for critical chemicals. As a result, the company had to import materials like sulfuric acid from Taiwan, with transportation costs surpassing the chemical's value.

TSMC’s founder, Dr. Morris Chang, has long cautioned about the economic inefficiencies of U.S.-based manufacturing. In 2021, he predicted that American chipmaking costs would remain higher than Taiwan’s, with government subsidies offering only temporary relief.

Macquarie’s analysis also compared TSMC’s U.S. and Japanese operations. While its Japanese facilities produce chips at a cost premium of about 10% compared to Taiwan, the local supply chain infrastructure there reduces dependency on imports.

Despite these challenges, TSMC’s Arizona plant is a pivotal step in diversifying its manufacturing footprint and aligning with geopolitical strategies. However, as Macquarie warned, long-term sustainability will require significant improvements in supply chain logistics and cost management.

By establishing global operations, TSMC aims to strengthen its resilience. Yet, its experience in Arizona underscores the difficulties of balancing innovation with cost efficiency in the semiconductor industry’s evolving landscape.

WCCFTECH