Early last month, TSMC announced plans to spend another $100 billion to expand its U.S. manufacturing capacity, but experts say the company had planned on spending that much from the start. And the move could be costly, both literally and figuratively.
Image Source: TSMC
In fact, TSMC did not explain when and what exactly the specified amount would be spent on. Considering that even under Biden, TSMC promised to build three factories in the United States to produce chips using advanced technologies for a total cost of $65 billion, then taking into account additional expenses, the total amount of expenses could reach $165 billion. Moreover, this is not the first time that TSMC has increased the amount of investment; at the end of 2022, it was only about $40 billion in expenses for the construction of factories in the United States.
The latest version of TSMC’s plan only mentions building three additional wafer processing facilities and two chip packaging facilities in the U.S. However, TSMC already secured land in Arizona in 2020 that was suitable for building six wafer processing facilities, so the only truly new thing is the announcement of building two chip packaging facilities.
The current plan does not envisage any significant development of TSMC’s technology development capabilities in the US. Arizona will house only a research center, whose tasks will include only minor improvements to existing technologies, rather than developing new ones. According to Bain representatives, this trend is generally typical for chip manufacturers, since they protect critical developments from being exported outside of their controlled territory.
Some sources thus agree that the announced $100 billion in additional investment was part of TSMC’s plans from the start, and that the disclosure of such information in a ceremonial setting was intended only to better suit the political situation of the moment. At the same time, some industry participants fear that the positive effect of TSMC’s announcements about investments in the US will not be too long-lasting in terms of its impact on the country’s authorities, and therefore, under Trump, increased import duties on semiconductor products will still be introduced.
According to Bernstein experts, even if TSMC builds all of its planned factories in the US by the beginning of the next decade, they will be able to provide no more than a third of the company’s total revenue on the global market. In the advanced lithography segment, TSMC will produce 23 to 28 percent of all of its advanced chips in the US by the end of 2026, as noted by Bank of America representatives. However, this forecast would be fair provided that the entire investment volume of $165 billion is realized by the end of 2026. Since the investments will be made more slowly, the proportion of American products in the structure of TSMC’s output will be lower. At the very least, no company in the world would be able to simultaneously build and commission six large factories, especially in the US, where there are problems with skilled labor.
Image Source: Intel
The operating costs of TSMC’s US plants will inevitably be higher, so it will be in the company’s interests to stretch out their construction over several years. According to Bernstein analysts, in order to maintain TSMC’s overall profit margin at 53%, the company’s Arizona plants will need to operate at a profit margin of at least 40% by the beginning of the next decade, and they are currently essentially unprofitable.
In the longer term, TSMC will inevitably have to develop new territories outside Taiwan, since the island simply lacks land, energy and human resources. If all six TSMC plants in Arizona start working at full capacity, this will allow the company to achieve the same production efficiency indicators as in Taiwan. However, this will happen after Trump’s second presidential term expires, and no one can predict what his successor’s policy will be regarding foreign investment in production. There is also a risk that administrative levers of pressure on TSMC’s business in the United States will be used, since under the pretext of antitrust regulation of the industry, American authorities can simply force the company to transfer its local assets under the control of local investors.