Producing wafers at TSMC Arizona is only 10% more expensive than in Taiwan: TechInsights

Comments made by TSMC founder Morris Chang about high fab building costs in Arizona and higher operating costs in the U.S. created the impression that producing chips in America is way too expensive to be financially viable. However, analysts from TechInsights believe that this is not the case. According to the firm's recent study, the costs of wafers at TSMC's Fab 21 near Phoenix, Arizona, are only about 10% higher than those of similar wafers processed in Taiwan. 

"It costs TSMC less than 10% more to process a 300mm wafer in Arizona than the same wafer made in Taiwan," wrote G. Dan Hutcheson from TechInsights. 

While it definitely costs more to build a fab in the U.S. than in Taiwan, TSMC's cost was significantly higher because it built its first overseas fab in decades at a brand-new site with a new, sometimes unskilled workforce, according to Hutcheson. According to other people familiar with the fab-building process, it does not cost twice as much to build a fab in the USA than in Taiwan.

The dominant factor of semiconductor production cost is the cost of equipment, which contributes well over two-thirds of overall wafer expenses. Tools made by leading companies like ASML, Applied Materials, KLA, Lam Research, or Tokyo Electron cost the same amount of money in Taiwan and the U.S.; they effectively neutralize location-based cost differences.

A major source of confusion about wafer prices comes from labor costs. Wages in the U.S. are roughly triple those in Taiwan, which many mistakenly take as a significant factor in chip production. However, with the advanced automation of today's wafer fabrication facilities, labor accounts for less than 2% of the total cost, according to TechInsights's wafer cost model. Based on this model, the overall expense gap between operating costs of a fab in Arizona and Taiwan is minimal despite big differences in salaries and other local costs. 

It should be noted that wafers that TSMC currently produces at Fab 21 travel back to Taiwan to get diced, tested, and packaged. Some of them then go to China or elsewhere to be put into actual devices; some will travel back to the U.S., though. Therefore, their logistics are somewhat more complicated than those of typical wafers processed in Taiwan. However, this hardly dramatically adds to costs, and TSMC now plans to build packaging capacity in the U.S. Nonetheless, TSMC is rumored to charge a 30% premium for chips made in the U.S.