TSMC’s US Chipmaking Costs Can Be 30% Higher Due To Chemical Supply Chain Warns Bank

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The Taiwan Semiconductor Manufacturing Company’s (TSMC) Arizona chip manufacturing facility can be as much as 30% more expensive to operate than its Taiwan facilities, according to research from Macquarie Bank. TSMC’s Arizona plant is a result of its collaboration with the US government through the CHIPS and Science Act. High costs of running the site have been an industry concern for quite some time, with TSMC founder Dr. Morris Chang warning in 2021 that the unit costs at the American site will be higher than in Taiwan.

Manufacturing Process Chemicals Will Be Key Driver Behind TSMC Arizona’s Costs Believes Macquarie Bank

Semiconductor fabrication is one of the most technically complex processes in the world. It requires careful calibration of tools and many chemicals to ensure product purity and material transformation throughout the journey of a grain of sand to a chip inside a smartphone or a computer. Consequently, large-scale manufacturers such as TSMC need a robust supply chain to ensure a steady supply of chemicals in sufficient quantities to ensure high margins.

On this front, Macquarie Bank believes that the difficulties of establishing a chemical supply chain in the US carries the risk of increasing costs at TSMC’s Arizona site by as much as 30% when compared to costs at the Taiwnaese facilities. Consequently, the bank outlines that the high costs could dilute TSMC’s 4-nanometer manufacturing process profits by between 1% to 2%.

The high costs are due to TSMC’s primary chemical suppliers unsure of establishing facilities in the US due to a lack of economies of scale. TSMC’s home region, Taiwan, and nearby nations, Japan and South Korea, are at the epicenter of global semiconductor fabrication. By operating there, chemical companies can ship products in high volume and eke out precious margins in the process.

According to Macquarie, since Taiwanese chemical suppliers such as Shiny Chemical Industrial Co., Ltd command the lion’s share of the market, competitors often find it hard to break into the industry. The bank shares that these firms are hesitant to move to the US since they fear that the American chip manufacturing industry lacks sufficient volumes to enable economies of scale.

It points out that when TSMC started preparing its Arizona facility to manufacture 4-nanometer chips, it could not find qualified US-based chemical suppliers. Consequently, the firm had to ship chemicals from Taiwan through a costly process that led to the transportation costs of chemicals such as sulfuric acid being higher than the cost of the chemical itself.

The high costs are specific only to TSMC’s US operations, shares Macquarie. The Taiwanese fab has also expanded its global manufacturing base by opening new factories in Japan. While these plants produce older nodes, such as the 22-nanometer process, local firms are able to supply TSMC with the required raw materials. Despite this, Macquarie reveals that the cost of making chips is 10% higher in Japan than in Taiwan – a fact that might also be influenced by the involvement of older process technologies.

Macquarie’s report isn’t the first time high manufacturing costs in the US have surfaced. TSMC founder Dr. Morris Chang stated in 2021 that not only would the costs of manufacturing chips in America be higher than in Taiwan, but he also added that US subsidies would only offer short-term relief as Taiwan would lead in the long-term through its cost and labor advantages.