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

[Admin]

TSMC's quotes for U.S. and Japan-made chips will be higher than for chips produces in Taiwan.

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

 

[TechieTwo]

If TSMC gets too greedy they could cut their own throat.

 

[helper800]

If TSMC gets too greedy they could cut their own throat.

Yeah, like building multi billion dollar fabs in the US and EU but not having any customers for their fabs...

 

[TerryLaze]

If TSMC gets too greedy they could cut their own throat.

They get government support in taiwan which is why they can be cheaper there.

 

[setx]

This sounds reasonable. Final costs is obvious reason why companies don't want to produce chips in US.

Yeah, like building multi billion dollar fabs in the US and EU but not having any customers for their fabs...

If the fabs cost is covered by US/EU I don't see any drawback for TSMC in such case.

 

[bit_user]

Since labor is supposedly not a major cost component of high-tech manufacturing, I wonder where the added costs are coming from. I'd love to see details.

I wonder if it might have anything to do with the way they do accounting for building initial production lines vs. follow-on ones. The later a production line is built, the shorter its useful lifespan, which means less time to amortize the fixed costs. Plus, you might have some R&D writeoffs you can do for the initial production lines.

 

[Giroro]

TSMC needs that extra profit to pay for all that equipment that US taxpayers are going into bankruptcy to buy for this foreign company.

 

[DavidLejdar]

That sort of stuff happens with protectionism... Something I could talk more about, such as in regard whether it is economically really beneficial when many a company is facing higher procurement costs for their business and products (i.e. cars Made in USA also end up costing more, and therefore less likely to be exported, and therefore possibly less jobs after all). But that would be a bit of a political topic, which as far as I know is not welcome to be talked about here - so I'll just grab me some popcorn I suppose.

Since labor is supposedly not a major cost component of high-tech manufacturing, I wonder where the added costs are coming from. I'd love to see details.

I wonder if it might have anything to do with the way they do accounting for building initial production lines vs. follow-on ones. The later a production line is built, the shorter its useful lifespan, which means less time to amortize the fixed costs. Plus, you might have some R&D writeoffs you can do for the initial production lines.

“The major reason for the cost gap is the construction costs of building and facilities, which can be four to five times greater for a U.S. fab versus a fab in Taiwan,” Huang said. “The high costs of construction includes labor costs, costs of permits, cost of occupational safety and health regulations, inflationary costs in recent years, and people and learning curve costs.”

https://www.cnbc.com/2023/03/09/why...n-us-may-make-smartphones-more-expensive.html

 

[JamesJones44]

That sort of stuff happens with protectionism... Something I could talk more about, such as in regard whether it is economically really beneficial when many a company is facing higher procurement costs for their business and products (i.e. cars Made in USA also end up costing more, and therefore less likely to be exported, and therefore possibly less jobs after all). But that would be a bit of a political topic, which as far as I know is not welcome to be talked about here - so I'll just grab me some popcorn I suppose.

“The major reason for the cost gap is the construction costs of building and facilities, which can be four to five times greater for a U.S. fab versus a fab in Taiwan,” Huang said. “The high costs of construction includes labor costs, costs of permits, cost of occupational safety and health regulations, inflationary costs in recent years, and people and learning curve costs.”

https://www.cnbc.com/2023/03/09/why...n-us-may-make-smartphones-more-expensive.html

Since you brought it up... The other major issue here is peoples willingness to buy the cheapest possible product (aka exporting inflation). Unless you make all things equal somehow, developed countries are always going to be at a disadvantage to lesser developed countries when it comes to goods manufacturing.

 

[Deleted member 14196]

I am also wondering if there is some accounting magic going on.

 

[pointa2b]

Moores Law Is Dead had a guest on earlier today, and he talked about this a bit. Aside from the things mentioned, environmental regulations play a large role in the cheaper costs overseas as well. Compliance to tighter regulations drives up overhead substantially.

 

[bluvg]

it is likely that they will make chips aimed at government

When it comes to selling to the US Govt, "Anyone who would pay $50... would certainly pay $75."

 

[bit_user]

TSMC needs that extra profit to pay for all that equipment that US taxpayers are going into bankruptcy to buy for this foreign company.

This comment is in bad faith. I would ask you please not to spread misinformation.

1. The AZ fab mentioned in the article was planned and started well before the CHIPS Act.
2. TSMC has yet to agree to accept any CHIPS funding. AFAIK, they're still trying to negotiate the terms.
3. The CHIPS Act allocates $110 B over 5 years. That's an average of $22 B per year, compared with the US' annual non-defense discretionary spending is about $610 B. So, CHIPS accounts for just 3.6% of what's only 15% of overall US Government spending. Or, to put it another way, a mere 0.54% of total annual spend.
4. Looking only at the up-front cost of CHIPS misses the resulting revenues from the business activity it stimulates, not to mention the profit-sharing provisions to directly recover any windfall profits that it contributes towards.
5. Supporting domestic semiconductor research & manufacturing provides secondary benefits to related industries & fields. The US government has chronically under-invested in basic science, relative to our peers. This only partially makes up the difference.

No, we're not going bankrupt over CHIPS. Not only that, but if you look at the impact to the US economy that it's designed to mitigate against (i.e. Taiwan being cut off or similar sorts of semiconductor supply chain disruptions), it's a small price to pay!

Lastly, it's not as if the money disappears down a hole. A lot of it goes to US workers and companies, which helps stimulate domestic economic growth, over and above the addition of vital production capacity.

 

[sitehostplus]

If TSMC gets too greedy they could cut their own throat.

You do realize the US and Japan are two of the most expensive places to do business on planet earth right?

 

[Kamen Rider Blade]

Most of the US Customers will probably come from Government Contract on CPU's/IC's that need to be made in-house for defense reasons

 

[bit_user]

You do realize the US and Japan are two of the most expensive places to do business on planet earth right?

Not necessarily, depending on what you mean by "the most". If you mean two of the top 25 countries, then I could see that. However, low effective tax rate for corporations makes the US a lot more favorable than most countries in the EU, for instance. Then, there are lots of poor countries, with rampant corruption or security problems, that make it impractical to do business there. What's left is a relatively short list of places that decent infrastructure and a reasonably well-educated population.

We should also distinguish between labor-intensive businesses and those which aren't. That can make a big difference in the US' cost-competitiveness.

 

[sitehostplus]

Not necessarily, depending on what you mean by "the most". If you mean two of the top 25 countries, then I could see that. However, low effective tax rate for corporations makes the US a lot more favorable than most countries in the EU, for instance. Then, there are lots of poor countries, with rampant corruption or security problems, that make it impractical to do business there. What's left is a relatively short list of places that decent infrastructure and a reasonably well-educated population.

We should also distinguish between labor-intensive businesses and those which aren't. That can make a big difference in the US' cost-competitiveness.

Taxes are not the only problem.

The late Paul Otelini, one time CEO of Intel explains it way better than I can.

 

[evdjj3j]

This should be covered by the tax breaks they received from the US government. Maybe we should revisit that deal.

 

[bit_user]

Taxes are not the only problem.

The late Paul Otelini, one time CEO of Intel explains it way better than I can.

That article from 12+ years ago is flat wrong about taxes, when it's been repeatedly shown that the US has among the lowest effective tax rates, in the developed world.

His next point is about environmental regulations. In the western US, their water shortage has been extremely well-documented, as I'm sure you must be aware. This makes hydrology a very sensitive issue. You need to be careful both about how much a factory consumes and any effluent it produces, because there are lots of downstream consumers of any river or aquifer it might sit on.

The H1B visa problem has long been an issue, and not only have there been shortages of visas for people who should get them, but the program has also been abused by outsourcing firms which use the visas to send their remote IT staff to the US on short-term contracts or for training on a job which is then moved offshore. A proper fix needs to close the loopholes used for offshoring jobs, while ensuring the visa program doesn't make it impossible for US tech workers to find employment at a decent wage. Remember: the goal of these CEO's is to hire as few employees as possible and pay them the least amount they'll accept. Something to keep in mind, when they complain about labor shortages.

Something he doesn't touch upon is benefits, and for pretty obvious reasons - especially if you remember the political climate, back in 2010. In other developed countries, they don't saddle employers with the cost of providing employees and their families with healthcare. That's a fact.

 

[Co BIY]

Since you brought it up... The other major issue here is peoples willingness to buy the cheapest possible product (aka exporting inflation). Unless you make all things equal somehow, developed countries are always going to be at a disadvantage to lesser developed countries when it comes to goods manufacturing.

If the "lesser developed" country can produce at the same level for less cost then perhaps it's not really "less developed". In the case of TSMC they have serious competitive advantages.

The case here may be closer to an electronics engineer deciding to change the oil in his own car himself (for the feeling of independence or accomplishment) rather than hiring and paying the mechanic. He may do it just as well but if he tries to value his time at his normal rates it will clearly not be cheaper.

Please explain to me what you mean by "exporting inflation".

 

[JamesJones44]

If the "lesser developed" country can produce at the same level for less cost then perhaps it's not really "less developed". In the case of TSMC they have serious competitive advantages.

The case here may be closer to an electronics engineer deciding to change the oil in his own car himself (for the feeling of independence or accomplishment) rather than hiring and paying the mechanic. He may do it just as well but if he tries to value his time at his normal rates it will clearly not be cheaper.

Please explain to me what you mean by "exporting inflation".

Your missing what is refereed to as "lesser developed". "lesser developed" usually means a country that does not have the same level of living standards or the overall development of the country is not as robust (more of the population living in rural communities, larger farming population than city, my not have consistent power in all regions, etc.). It doesn't mean they don't have the "know how", just that it's not be realized to other countries standards.

Exporting inflation is simple. A country produces it's own goods closest to where they are needed until it becomes too expensive. They then export the production out to other countries where the cost of shipment + labor is less than producing that close to where the items are needed. This is why consumer electronic prices have hardly moved in 30 years comparative to other produces like cars, houses, food and other domestically produced items. They simply move the production to cheaper locations to keep inflation from pushing prices up domestically. However, this does push prices up in producing country be paying higher wages than would otherwise be earned, causing their domestic products to cost more.

Both of these are economic terms, not things I've made up.

 

[Co BIY]

Exporting inflation is simple. A country produces it's own goods closest to where they are needed until it becomes too expensive. They then export the production out to other countries where the cost of shipment + labor is less than producing that close to where the items are needed. This is why consumer electronic prices have hardly moved in 30 years comparative to other produces like cars, houses, food and other domestically produced items. They simply move the production to cheaper locations to keep inflation from pushing prices up domestically. However, this does push prices up in producing country be paying higher wages than would otherwise be earned, causing their domestic products to cost more.

Both of these are economic terms, not things I've made up.

I agree that what you are describing has happened and is happening but don't think it has anything to do with inflation. Inflation is caused by the creation of more money (inflation of the money supply, while supply or productivity remains stable).

International trade that generates more supply (increased production) does not raise prices. I don't think the higher wages paid by export oriented firms is a strong driver of price increases in domestic goods in exporting countries. Even if it did it wouldn't be inflation raising prices but labor supply reduction.