TSMC's stalled Arizona chip factory is 'well on track' to start production next year — and it'll be charging more for US-made chips

Jacob Zinkula
·4 min read
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TSMC's stalled Arizona chip factory is 'well on track' to start production next year — and it'll be charging more for US-made chips

  • TSMC's Arizona chip factories have faced construction delays.

  • But the company said it's "well on track" to start producing chips at its first factory in 2025.

  • TSMC plans to charge more for chips made outside Taiwan to combat higher manufacturing costs.

Things may be starting to look up for the world's leading chipmaker.

Last year, Taiwan Semiconductor Manufacturing Company reported its first profit decline in four years. But on April 18, the company reported its strongest sales growth since 2022, and rising quarterly profits that beat expectations. The Taiwan-based TSMC also forecast that second-quarter sales could rise as much as 30% on the backs of "insatiable" demand for chips used to power AI technologies like ChatGPT.

But for the US, in particular, the most important detail from the call may have been the update on the construction timeline of TSMC's Arizona chips factories. TSMC said it had made "significant progress" on the construction of its first Arizona factory — located in the Phoenix area — and that it was "well on track" to begin producing chips in the first half of 2025. The company said engineering wafer production began at the factory in April, an important step toward the eventual chip production.

The chipmaker's commitment to building three factories on its Phoenix campus is a key pillar of the Biden administration's efforts to boost the US's manufacturing of chips that power everything from cars to iPhones. Bolstering domestic manufacturing could also make the US less reliant on Taiwan — which faces the potential risk of a Chinese invasion.

TSMC's progress is also important for President Joe Biden because Arizona is a key swing state in the upcoming presidential election. The company's investment is expected to create roughly 6,000 "high wage" jobs across the factories, in addition to over 20,000 construction jobs, and tens of thousands of indirect supplier jobs.

However, construction has faced a series of challenges. Last July, TSMC announced that chip production for the first factory would be postponed from 2024 to 2025. A lack of skilled construction workers in the US was cited as a reason for the first factory's delay. Additionally, in January, the opening of its second factory was delayed from 2026 to 2027 or 2028.

Barring further setbacks, TSMC's update could mean the first factory will begin production of chips in 2025. In recent weeks, however, a report from the Chinese news outlet money.udn has fed speculation among some experts that production could begin by the end of 2024 — TSMC has stuck to the 2025 timeline in public comments.

The sooner chip production begins, the sooner Americans will have access to the "long term," non-construction jobs TSMC has promised, Dylan Patel, a chief analyst at the semiconductor research and consulting firm SemiAnalysis, told Business Insider.

During the earnings call, TSMC said 2028 was the scheduled opening of the second factory. The third factory is expected to begin production by 2030.

TSMC is planning to charge more for chips made outside Taiwan

Earlier this month, TSMC got more good news: The Biden administration announced it was providing the company with up to $6.6 billion in direct funding and an additional $5 billion in proposed loans to support its investment in Arizona.

Chipmakers have been vying for funding from the CHIPS and Science Act, legislation passed in 2022 that's expected to fund over $200 billion in US chip production.

This funding could be particularly important for TSMC, given the cost of factory construction and chip manufacturing can differ between the US and Taiwan.

In 2022, TSMC's founder Morris Chang said that US efforts to boost chip production would be "a wasteful, expensive exercise in futility," adding that "manufacturing chips in the US is 50% more expensive than in Taiwan."

In its first-quarter earnings call, TSMC said that cost pressures would cause it to charge more for chips made outside Taiwan, the Financial Times reported. The company also has plans to build two factories in Japan and one in Germany.

"If a customer requests to be in a certain geographical area, the customer needs to share the incremental cost," TSMC CEO C.C. Wei said during the earnings call.

While boosting the US manufacturing of chips and other products could create jobs and help secure supply chains, it could also lead to higher prices for American consumers.

If Apple, for instance, follows through on its commitment to source chips from TSMC's Arizona factories, it could make the latest iPhone more expensive.

Read the original article on Business Insider