US semiconductor equipment projects could lose TSMC

TSMC founder Morris Chang has repeatedly stated that producing chips in the US will be one and a half times more expensive than in Taiwan. Increasing costs for the company to build new facilities in Arizona, coupled with inflation, may render this entire project unprofitable, according to the lithographic equipment suppliers cited by DigiTimes.

Image source: SMIC

According to the source, TSMC is behind schedule at its Arizona facilities due to labor shortages now and in the future, and the installation of chip fabrication facilities will be delayed. In fact, sources say it’s unlikely that TSMC will be able to mass-produce products in Arizona before the end of 2024.

Another concern is the profitability of this project, as TSMC is unlikely to be able to fully pass on the cost increase to its contractors and customers. The company has had to raise prices for its services by 6% since the beginning of the year, and if US companies continue to increase production costs, TSMC will find it difficult to attract customers who are not related to the local defense industry to its American companies. Government subsidies for the construction of new companies are riddled with conditions that are not the best for TSMC. Their procurement blocks the ability to invest in the Chinese economy and the excess profits must be shared with US authorities. If the project does not achieve the specified key figures, the funding must be repaid in full.

Recall that TSMC expects to establish contract manufacturing of 5nm and 4nm products in Arizona by the end of 2024 and to begin production of 3nm products by 2026. Both phases of the project will require $40 billion for their implementation, and even the priority distribution of subsidies by the US authorities will not be able to justify the additional costs incurred by TSMC in connection with the localization of the production of advanced chips in Arizona. The company needs to maintain line utilization of 70% to 80% to maintain the desired profitability of its Arizona operations, but high costs are unlikely to be fully offset by high prices for its services. However, the management of TSMC expresses confidence that even the implementation of the American project will allow it to keep the profit margin at 53% in the long term.