Analysts have debunked the myth that it is much more expensive to produce chips in the US than in Taiwan

TSMC founder Morris Chang’s recent claims that manufacturing chips in the US is not economically feasible due to the high costs of building factories in Arizona and higher operating costs have been debunked by analysts at TechInsights.

Image Source: TSMC

The cost of making chips at TSMC’s Fab 21 in Arizona is only 10% higher than the cost of making chips in Taiwan, according to the study. That’s far less than many had previously expected. And while it’s true that a factory in the U.S. is more expensive to build, TSMC’s costs were significantly higher than building a factory in Taiwan. That’s because it was the company’s first overseas factory in decades, built on a completely new site with new, often unskilled workers, writes Dan Hutcheson of TechInsights.

The main factor determining the cost of semiconductor production is the price of equipment, which accounts for more than two-thirds of the total cost of production. At the same time, equipment from manufacturers such as ASML, Applied Materials, KLA, Lam Research and Tokyo Electron costs the same in any country, which neutralizes the influence of local factors on cost.

Confusion also arises from labor costs. With U.S. wages roughly three times higher than Taiwan’s, many mistakenly believe that this is a significant factor in chip manufacturing. However, thanks to the high degree of automation in modern wafer factories, labor costs are less than 2% of the total cost, according to research from TechInsights.

Based on these findings, the overall difference in operating costs between a factory in Arizona and one in Taiwan should be minimal, despite significant differences in wages and other local costs. That is, automation and equipment costs play a much more important role than labor costs in determining the overall cost of producing chips.

It should also be noted that the wafers that TSMC currently processes at Fab 21 are sent back to Taiwan for slicing, testing, and packaging. Some of the chips are then sent to China or other countries to be installed in final devices, and some are returned to the U.S.

So the logistics of these U.S.-processed wafers are a bit more complicated than for regular wafers with chips made in Taiwan. But that’s unlikely to add much to the cost, analysts say, although TSMC is rumored to charge a 30% premium for U.S.-made chips.