TSMC Faces 30% Higher Chipmaking Costs in Arizona Due to Chemical Supply Chain Challenges

The Taiwan Semiconductor Manufacturing Company (TSMC) is grappling with significantly higher operational costs at its Arizona chip manufacturing facility, potentially up to 30% higher than its Taiwan-based operations. This revelation comes from a recent report by Macquarie Bank, which pinpoints the key driver behind this disparity: the challenges of establishing a robust chemical supply chain in the U.S.

Chemicals: The Hidden Cost of Semiconductor Manufacturing

Semiconductor fabrication is a highly intricate process requiring precise chemical applications to transform raw materials into advanced chips. In Taiwan, TSMC benefits from a well-established local supply chain, with chemical suppliers like Shiny Chemical Industrial Co., Ltd. leading the market. These suppliers can operate at scale, keeping costs low.

However, in Arizona, the story is different. U.S.-based chemical suppliers have been hesitant to establish local operations due to concerns over economies of scale in the nascent American chipmaking industry. This hesitancy has forced TSMC to rely on imports from Taiwan, dramatically increasing costs. For example, the transportation of chemicals like sulfuric acid has sometimes cost more than the chemicals themselves.

Macquarie Bank estimates that the elevated costs could reduce TSMC's profits on its cutting-edge 4-nanometer manufacturing process by 1% to 2%. These challenges highlight the broader difficulties of creating a self-sufficient semiconductor ecosystem in the U.S., even with government incentives like the CHIPS and Science Act.

While TSMC’s U.S. operations are particularly costly, similar issues exist in other international ventures. For instance, TSMC’s factories in Japan, which produce older 22-nanometer chips, face a 10% cost increase compared to Taiwan. However, Japan's well-developed local supply chain mitigates some of the logistical challenges seen in the U.S.

TSMC’s founder, Dr. Morris Chang, has long warned about the challenges of chipmaking in the U.S. In 2021, he stated that American manufacturing costs would outpace those in Taiwan, making long-term competitiveness difficult despite short-term subsidies. The current findings from Macquarie Bank validate his concerns, suggesting that while U.S. government support can alleviate some initial hurdles, the structural challenges of supply chains and labor costs remain a significant barrier.

What’s your take on the high costs of U.S. semiconductor manufacturing? Is the CHIPS Act enough to overcome these hurdles, or does Taiwan's dominance remain unshakable? Share your thoughts in the comments below!