TSMC to charge more for U.S. made chips?

[ta152h]

TSMC to Charge up to 30% More for Chips Made in the U.S.

TSMC is ready to produce chips in the U.S., but are its American customers willing to pay extra?

www.tomshardware.com

According to this article, TSMC will be charging 30% for chips made in the U.S. But, it's based on a Digitimes article, and they are far from perfect.

I hope this is true, especially the part about NVIDIA using Intel fabs. But, 30% seems excessive. I'm curious what people closer to the business think.

 

[tonyget]

Morris Chang said the cost of chip productions in the US is at least 50% more expensive than TW，TSMC charge 30% more for US made chip seems quite reasonable. If Americans cares about supply chain security more than cost/efficiency，prepare to pay the price.

 

[nghanayem]

Not to belittle MC as he is one of the larger than life industry greats, but he is an old man now and is stuck in his ways with his outdated views. Additionally as ta152h mentions digitimes has the creditability of a celebrity gossip magazine. But let's be conservative with the cost analysis Scotten Jones has done and say that after taking into account the much higher shell costs, much stricter environmental requirements, TSMC's inexperience with US operations, the need to build up from 0, and the small impact labor cost inflicts upon operating expenses that TSMC AZ costs 15-20% more than an equivalently sized greenfield site in the ROC. I still think a 30% price hike is a fair price. Customers seem to view the western capacity as a value add, so why can't/shouldn't TSMC charge for the extra value they are creating with this whole new from the ground up venture? This also serves as a litmus test for how much customers really care. If nobody is willing to pay extra then that tells TSMC that their customers don't really care about/need the service. If customers line up in droves then TSMC knows that it might make sense to continue expansions outside of the ROC as there is lots of uncaptured revenue and margin to be had.

If true this is a brilliant move from CC Wei and the TSMC leadership team if I do say so myself.

 

[Barnsley]

Not to belittle MC as he is one of the larger than life industry greats, but he is an old man now and is stuck in his ways with his outdated views. Additionally as ta152h mentions digitimes has the creditability of a celebrity gossip magazine. But let's be conservative with the cost analysis Scotten Jones has done and say that after taking into account the much higher shell costs, much stricter environmental requirements, TSMC's inexperience with US operations, the need to build up from 0, and the small impact labor cost inflicts upon operating expenses that TSMC AZ costs 15-20% more than an equivalently sized greenfield site in the ROC. I still think a 30% price hike is a fair price. Customers seem to view the western capacity as a value add, so why can't/shouldn't TSMC charge for the extra value they are creating with this whole new from the ground up venture? This also serves as a litmus test for how much customers really care. If nobody is willing to pay extra then that tells TSMC that their customers don't really care about/need the service. If customers line up in droves then TSMC knows that it might make sense to continue expansions outside of the ROC as there is lots of uncaptured revenue and margin to be had.

If true this is a brilliant move from CC Wei and the TSMC leadership team if I do say so myself.

Talk say 50% , reality 30% so already got price reduction of 20%.

Giving their product away!!!

 

[Daniel Nenni]

What a scammer:

"TSMC to Charge up to 30% More for Chips Made in the U.S.
By Anton Shilov"

"Since the information comes from an unofficial source, it should be taken with a grain of salt. Furthermore, actual production terms are confidential, depend on multiple factors, and vary from customer to customer, so it is close to impossible to make guesses about possible production shifts from TSMC because of the costs."

Zero credibility. This whole article is a joke.

 

[nghanayem]

What a scammer:

"TSMC to Charge up to 30% More for Chips Made in the U.S.
By Anton Shilov"

"Since the information comes from an unofficial source, it should be taken with a grain of salt. Furthermore, actual production terms are confidential, depend on multiple factors, and vary from customer to customer, so it is close to impossible to make guesses about possible production shifts from TSMC because of the costs."

Zero credibility. This whole article is a joke.

Agreed I wouldn’t bet a single dime that a rumor out of digitimes is real. My comment was more so that I thought it would be reasonable for TSMC to change a larger premium over ROC wafers then what the cost adder for US wafers was. My rational being that we seem to be in an era where many fables companies to have an interest in on-shoring some of (or in the case of DoD customers probably all of) their production. Charging a premium would also serve to gauge the real demand for US based production, as opposed to people just saying “we’d like it” without putting their money where their mouths are.

 

[Daniel Nenni]

"TSMC has started discussions with customers about orders and pricing for both overseas plants, which are set to begin commercial production in late 2024."

I can assure you TSMC started discussions with customers before the ground breaking ceremony. TSMC does not build fabs in hopes customers will come (like IDM fabs), TSMC builds fabs based on customer commitments and some even pre pay. Complete fabrication here.

The fab cost in AZ may be higher but you have to factor in the contributions by AZ. No way did it cost TSMC 50% more to build in AZ. The actual wafer cost is a different matter completely. The numbers I have seen indicate a single digit cost difference and yes US customers will pay that difference so TSMC can maintain corporate margins. But I can assure you this was all negotiated prior to the AZ fab build.

I don't know if the "Made in the USA" label will carry any weight in the coming years. US customers have historically gone for lower pricing even sacrificing quality. Just look at how many products in your household are made in China. I would say the majority?

 

[jms_embedded]

US customers have historically gone for lower pricing even sacrificing quality. Just look at how many products in your household are made in China. I would say the majority?

Hmm... but US consumers aren't the ones requesting chips made in TSMC's AZ fab.

 

[Daniel Nenni]

Hmm... but US consumers aren't the ones requesting chips made in TSMC's AZ fab.

How about the US consumers that couldn’t get a car or other electronics due to supply chain issues?

 

[TICin852]

How about the US consumers that couldn’t get a car or other electronics due to supply chain issues?

shouldn't they just get mad at the automotive industry for being so short-sighted and cancelling their orders for, say, 25 wafers? The whole way that the just-in-time manufacturing supply chain works means it is vulnerable to shortages and if key components are delayed the whole thing won't work!

Focus: Chip makers have a message for car makers: Your turn to pay

“War room operations” to manage chip shortages are becoming embedded features of vehicle development, say executives.

www.reuters.com

And I quote from this article:
“In the past two years they call me and behave like my best friend,” he told a laughing crowd of TSMC partners and customers in Silicon Valley recently. One automaker called to urgently request 25 wafers, said Wei, who is used to fielding orders for 25,000 wafers. “No wonder you cannot get the support.”

This doesn't seem like automotive is able to provide nearly enough demand, though I do agree that US consumers did want cars and wanted the chips to be made in USA because of the supply issues. The question is whether they'll care about what's inside. I think that all products enabled by the CHIPS act funding should come with an obligatory "Freedom Inside" sticker to remind consumers and make them care.

 

[Daniel Nenni]

shouldn't they just get mad at the automotive industry for being so short-sighted and cancelling their orders for, say, 25 wafers? The whole way that the just-in-time manufacturing supply chain works means it is vulnerable to shortages and if key components are delayed the whole thing won't work!

Focus: Chip makers have a message for car makers: Your turn to pay

“War room operations” to manage chip shortages are becoming embedded features of vehicle development, say executives.

www.reuters.com

And I quote from this article:
“In the past two years they call me and behave like my best friend,” he told a laughing crowd of TSMC partners and customers in Silicon Valley recently. One automaker called to urgently request 25 wafers, said Wei, who is used to fielding orders for 25,000 wafers. “No wonder you cannot get the support.”

This doesn't seem like automotive is able to provide nearly enough demand, though I do agree that US consumers did want cars and wanted the chips to be made in USA because of the supply issues. The question is whether they'll care about what's inside. I think that all products enabled by the CHIPS act funding should come with an obligatory "Freedom Inside" sticker to remind consumers and make them care.

The pandemic shortage was a reminder of how important semiconductors are and how fragile the supply chain is. If China blocks the Taiwan Strait, which is a real possibility, then the shortages will be back with a vengeance. Unless of course we have manufacturing elsewhere. Or if North Korea bombs South Korea destroying 80% of the memory supply.

C.C. Wei joked about all of the car maker CEOs being his best friend at the symposium last week. Of course there is truth to it but it was a joke. Here is how I imagine that conversation went:

Auto CEO: I need more chips please ASAP.
TSMC: Why did you cancel your orders?
Auto CEO: The person who did that no longer works here.
TSMC: Let me explain how pre paying works.
(Canned laughter)

Back to the original question: Will consumers pay more for locally manufactured semiconductors? Only if they have to, my opinion.

 

[jms_embedded]

US customers have historically gone for lower pricing even sacrificing quality. Just look at how many products in your household are made in China. I would say the majority?

How about the US consumers that couldn’t get a car or other electronics due to supply chain issues?

OK, so which is it? lower price? reliability of supply? If we can't have both, I don't know that the US consumer is giving a clear indication of what is preferable. Anyway I still think that is a moot point because consumers aren't TSMC's customers. The companies buying chips from TSMC are the ones making those decisions based on information they have. Or is the decision of which fab to use something that TSMC itself decides?

Any idea whether the processes (N5 N4? I forget the names) aimed at TSMC's AZ fab are "portable" between the equivalent fab(s) in Taiwan? In other words, if a customer contracts with TSMC to fabricate wafers using a specific process, does it matter which fab is used? Or can the design be produced in either fab?

When I buy gasoline, I don't specify whether it comes from oil produced in Texas or Saudi Arabia or the North Sea or fracked shale in North Dakota, and I have no way of knowing. The supply market has certain geopolitical factors that push suppliers in different directions, in addition to price, and I'm not sure it's that much different in the TSMC situation.

 

[Daniel Nenni]

Any idea whether the processes (N5 N4? I forget the names) aimed at TSMC's AZ fab are "portable" between the equivalent fab(s) in Taiwan? In other words, if a customer contracts with TSMC to fabricate wafers using a specific process, does it matter which fab is used? Or can the design be produced in either fab?

AZ is N4/N3 and yes it is the same PDK as Taiwan N4/N3 so you can move chips to different fabs.

 

[MKWVentures]

AZ is N4/N3 and yes it is the same PDK so you can move chips to different fabs.

Do most foundry customers decide what fab they are going into? or does TSMC decide that?
Side note: Daniel: is Intel 4/3 and Intel 20/18 essentially same base node? is it more like two versions of the same node or not? 4 is processor only and 3 is general purpose?

 

[Daniel Nenni]

Do most foundry customers decide what fab they are going into? or does TSMC decide that?
Side note: Daniel: is Intel 4/3 and Intel 20/18 essentially same base node? is it more like two versions of the same node or not? 4 is processor only and 3 is general purpose?

No, TSMC customers do not currently decide because all fabs are in Taiwan. When AZ opens up that may change.

Intel 4 is CPU chiplets only. Intel 3 is a full node for foundry customers. Intel 3 is optimized so no it is not the same PDK as Intel 4. Same with TSMC 5/4, they are not the same PDKs.

 

[hist78]

"TSMC has started discussions with customers about orders and pricing for both overseas plants, which are set to begin commercial production in late 2024."

I can assure you TSMC started discussions with customers before the ground breaking ceremony. TSMC does not build fabs in hopes customers will come (like IDM fabs), TSMC builds fabs based on customer commitments and some even pre pay. Complete fabrication here.

The fab cost in AZ may be higher but you have to factor in the contributions by AZ. No way did it cost TSMC 50% more to build in AZ. The actual wafer cost is a different matter completely. The numbers I have seen indicate a single digit cost difference and yes US customers will pay that difference so TSMC can maintain corporate margins. But I can assure you this was all negotiated prior to the AZ fab build.

I don't know if the "Made in the USA" label will carry any weight in the coming years. US customers have historically gone for lower pricing even sacrificing quality. Just look at how many products in your household are made in China. I would say the majority?

I believe among many factors, there are two things had been set before TSMC Arizona fab construction started:

1. The monthly wafer output quantity committed by those major TSMC's customers. Apple, AMD, Nvidia, and Qualcomm need to make sue the higher cost is manageable because it affects both TSMC's and TSMC's customers' profit and competitiveness.

Both TSMC and its customers need to know in advance that the unavoidable higher cost is manageable. For example, Apple sold about 323 million units of iPhones, iPads, and Macs in 2022. Apple's higher cost due to the wafer commitment to TSMC Arizona fab muse be small enough to be absorbed by Apple worldwide volume. TSMC Arizona fab initial wafer output is 20,000 units per month. It is relatively a small quantity and easier for TSMC and TSMC's customers to fully utilize it without damaging their profit margin.

2. US government (DoD, DOE, etc.), Congress, and major defense companies must agree to accept higher cost for parts related to TSMC Arizona fab and used in the national security/military related systems. This is because the volume is much smaller in the national security/military field than the consumer market (like iPhones or Ryzen CPUs). There is no way to ask AMD to shoulder the higher cost alone for a FPGA used on a F-35 fighter jet. Lockheed Martin produces no more than 160 F-35 per year.

 

[MKWVentures]

I believe among many factors, there are two things had been set before TSMC Arizona fab construction started:

1. The monthly wafer output quantity committed by those major TSMC's customers. Apple, AMD, Nvidia, and Qualcomm need to make sue the higher cost is manageable because it affects both TSMC's and TSMC's customers' profit and competitiveness.

Both TSMC and its customers need to know in advance that the unavoidable higher cost is manageable. For example, Apple sold about 323 million units of iPhones, iPads, and Macs in 2022. Apple's higher cost due to the wafer commitment to TSMC Arizona fab muse be small enough to be absorbed by Apple worldwide volume. TSMC Arizona fab initial wafer output is 20,000 units per month. It is relatively a small quantity and easier for TSMC and TSMC's customers to fully utilize it without damaging their profit margin.

2. US government (DoD, DOE, etc.), Congress, and major defense companies must agree to accept higher cost for parts related to TSMC Arizona fab and used in the national security/military related systems. This is because the volume is much smaller in the national security/military field than the consumer market (like iPhones or Ryzen CPUs). There is no way to ask AMD to shoulder the higher cost alone for a FPGA used on a F-35 fighter jet. Lockheed Martin produces no more than 160 F-35 per year.

I dont think we will see 5nm fighter jet FPGA parts coming from TSMC Arizona..... That said, TSMC could 10x the cost in Arizona and it would still be cheaper than what DOD is paying today LOL.

 

[hist78]

I dont think we will see 5nm fighter jet FPGA parts coming from TSMC Arizona..... That said, TSMC could 10x the cost in Arizona and it would still be cheaper than what DOD is paying today LOL.

What's stopping them to do that?

 

[MKWVentures]

What's stopping them to do that?

• fighter jets use mature technology from DOD approved fabs. and TSMC hates low volume products. Are Fighter Jets using <=7nm or TSMC today?

 

[Markwrob]

Military and space applications typically require radiation hardening. Either by fab technology (Silicon on Insulator for example) or design (triple voting circuits, e.g.). Many time, both. There is always a premium for this, and a premium for small batches.

There used to be several fabs in the US catering to these customers (Honeywell, Harris, IBM, others). Nowadays how many are left? Part of the CHIPS act is meant to address these needs.

But there is no doubt US fabs are more expensive to run than overseas ones. Otherwise, we would still have many more here. Folks should expect to pay more for US made chips and I'm sure TSM's big US customers are prepared to do so. For them it is cheap insurance (cheap because the relative volumes are low). Over time they are hoping fab learning here will allow the pricing to come down while more shells are filled. Just in case things change in Asia.