Bank Warns TSMC’s US Chipmaking Costs May Increase by 30% Due to Chemical Supply Chain Issues

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Recent research by Macquarie Bank reveals that the operational costs of the Taiwan Semiconductor Manufacturing Company’s (TSMC) chip facility in Arizona may surpass those of its Taiwanese counterpart by as much as 30%. This increase in expenses is largely attributed to TSMC’s partnership with the US government under the CHIPS and Science Act, aimed at bolstering domestic semiconductor production. Concerns about the financial feasibility of US-based operations have persisted, with TSMC’s founder, Dr. Morris Chang, previously highlighting that manufacturing costs in the US would be notably higher than in Taiwan.

The Impact of Chemical Supply Chains on TSMC’s Arizona Costs

The semiconductor manufacturing process is notoriously intricate, demanding precision in equipment calibration and a thorough sourcing of various chemicals to maintain product integrity. TSMC, as a leading producer, relies heavily on a reliable supply chain to secure these chemical resources. Macquarie Bank emphasizes that the challenge of establishing a consistent chemical supply in the US could further escalate operational costs at TSMC’s Arizona facility, potentially impacting profit margins from its cutting-edge 4-nanometer chip production by 1% to 2%.

Central to this issue is the reluctance of major chemical suppliers to set up manufacturing plants in the US due to insufficient economies of scale. Taiwan, along with neighboring countries like Japan and South Korea, dominates the semiconductor landscape, allowing chemical companies to optimize shipment volumes and profitability by producing and supplying from close proximity.

Macquarie notes that Taiwanese firms, such as Shiny Chemical Industrial Co., Ltd, control a significant portion of the market, making it difficult for new competitors to penetrate. These established players remain cautious about entering the US market, fearing they won’t reach the necessary volumes for efficient operations. Additionally, as TSMC readied its Arizona site for 4-nanometer chip production, it faced challenges in sourcing qualified chemical suppliers domestically. Consequently, the company has resorted to importing essential chemicals from Taiwan, leading to exorbitant shipping costs that can exceed the price of the chemicals themselves.

Notably, the high operating costs are exclusive to TSMC’s US establishments, as per Macquarie’s insights. In contrast, TSMC has also expanded its global footprint by opening factories in Japan, which—while accommodating older 22-nanometer processes—have access to more competitive local raw material supplies. Nevertheless, these Japanese operations also incur costs approximately 10% higher than those in Taiwan, a situation likely exacerbated by the utilization of older technologies.

This isn’t the first occasion that the topic of elevated manufacturing expenses in the US has arisen. Dr. Chang previously asserted that the trend of higher production costs is expected to persist, regardless of US subsidies, which may only provide temporary relief. He remains confident that Taiwan’s inherent advantages in terms of cost and labor will maintain its leadership position in the semiconductor sector well into the future.

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