At its quarterly earnings call yesterday, TSMC management confirmed that TSMC began mass production of 4nm products at its first facility in Arizona last quarter. At another event, the head of the company managed to explain what obstacles the organization of production of advanced chips in the United States faces, expressing confidence that Taiwan will always be ahead of American production from a technological point of view.
Image Source: TSMC
First, TSMC CEO C.C. Wei explained that the company took twice as much to build the new facility in the United States as compared to a comparable facility in Taiwan. Each step, he said, required the company on American soil to obtain separate approval from the authorities, but even after receiving approval from officials, the project took at least twice as long as in Taiwan. Largely because of this, the United States will never be able to overtake Taiwan in the novelty of TSMC technologies used, according to the head of the company. It should also not be forgotten that current legislation prohibits Taiwanese companies from exporting cutting-edge technology to other countries. The US lag in terms of TSMC’s activities will continue for this reason.
The company plans to spend about $65 billion by the end of the decade on the construction of three enterprises in the United States, where within the specified time frame it is planned to master the mass production of chips using technologies thinner than 2 nm. However, as CC Wei explained, the second and third TSMC enterprises in Arizona will begin producing relevant products no earlier than 2028 and 2030, respectively. Installation of equipment at the second plant has already begun, and the first began producing 4nm chips last quarter.
This year, the need to expand outside of Taiwan will force TSMC to say goodbye to one percentage point of profit margin, since chip production in the United States is still more expensive than in Taiwan. Over the next five years, TSMC’s American operations will operate at lower (2-3 percentage points) profit margins than its Taiwanese counterparts. First of all, American sites are smaller in scale, logistics are also more expensive here and the ecosystem of suppliers is not as developed. For example, TSMC is forced to ship a number of chemicals to Arizona from Taiwan because local suppliers are five times more expensive.
TSMC’s construction operations in Arizona are also facing labor shortages. Half the workers had to be imported from Texas, which predictably increased construction costs. But TSMC management has no doubt that the quality of products from its American enterprises will not be inferior to those in Taiwan. Additional costs had to be incurred to create the necessary regulatory environment. TSMC spent $35 million to develop 18,000 rules and regulations, inviting a group of experts to do this, which interacted with American authorities. Although plant construction in Arizona was slower than in Taiwan, it was still ahead of the official schedule.