TSMC'S True Cost: Arizona versus Taiwan
Reading all the write-ups about TSMC’s $100B US investment, it was clear most pundits had no clue as to the actual cost difference. The cost portrayals seemed to put TSMC in a position of being waterboarded until it said yes. The worst case was double. Then there are 150%, 140%, and 120%... with Morris Chang’s comment that it would cost TSMC 150% more to build a new fab here. But 150% is a general rule of thumb for building the first fab at a new site with a new, unskilled, labor force… Pundits clearly didn’t understand the nuances of wafer costs…
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March 24, 2025
The counterfactual evidence is clear
If it were so expensive to make chips in the US, why do so many companies have fabs there? Especially if the additional costs are 200%, 150%, 140%, or even 120% more than fabbing wafers in Taiwan. Instead, it’s more reasonable to believe TSMC knows far more about its costs than pundits. Still, how to prove it with an apples-to-apples comparison, accounting for differences in many areas including labor, electricity, tools, materials, and depreciation schedules? Fortunately, TechInsights has a definitive answer: its Semiconductor Manufacturing Economics’ Strategic Cost and Price Model.
Developed by Scotten Jones and constantly updated, The Strategic Cost and Price Model has an amazing level of detail. It goes to individual tool and process step levels. Importantly, fabless and hyperscalers worldwide trust it to put their foundries to task about wafer prices...
The final answer was
It costs TSMC less than 10% more to process a 300mm wafer in Arizona than the same wafer made in Taiwan. Where most make their mistakes is with direct and indirect labor cost differences. While there is roughly a 200% difference between the US and Taiwan. This is a head fake because today’s fabs are so automated. Labor accounts for less than 2% of total costs. It’s equipment that levels the playing field. Well over two-thirds of wafer cost is in the equipment. That’s why the overall wafer cost difference between Arizona and Taiwan comes in at just under 10%. It’s also why TSMC’s $100B decision is so brilliant.
“Cost is important...value is decisive" — G. Dan Hutcheson
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Dan is Vice Chair of TechInsights Inc. He is a recognized authority on the semiconductor industry, winning SEMI’s Sales and Marketing Excellence Award in 2012 for “empowering executives with tremendous strategic and tactical marketing value" through his e-letter, The Chip Insider®; his book Maxims of Hi-Tech, and his many interviews of executives.
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