Have you ever wondered why a company the size of TSMC would invest heavily in a country where its profit margins are so reduced? The Taiwanese foundry, a world leader in semiconductor production, faces unique economic challenges as it expands its operations to the United States. So why does it persist in this direction? Discover the reasons behind this strategic choice.
The 3 key facts not to miss
- TSMC maintains its expansion strategy in the United States despite low profitability.
- TSMC’s gross margin drops drastically from 62% in Taiwan to only 8% in the United States.
- Labor and depreciation costs are the main factors behind this margin difference.
TSMC’s financial challenges in the United States
TSMC, one of the largest semiconductor manufacturers in the world, faces much higher production costs in the United States compared to Taiwan. While 5-nanometer wafer production is booming, the company’s gross margin in the United States is only 8%, compared to 62% in its home country. This drastic reduction in margins is mainly explained by two factors.
Labor cost and depreciation
The cost of labor in the United States is a major obstacle for TSMC, being twice as high as in Taiwan. Added to this is depreciation, which is five times greater on American soil. This accounting term reflects the amortization of production equipment over an extended period, directly influencing the cost per unit of wafer produced. Construction costs, productivity, and equipment utilization are all factors that exacerbate this depreciation.
TSMC’s geopolitical strategy
Despite these economic challenges, TSMC maintains its expansion strategy in the United States. Securing semiconductor supply chains is crucial in a tense geopolitical context. Taiwan’s geographical position, between China and the United States, makes this strategy necessary to reduce risks related to international tensions.
Historical context of TSMC
Founded in 1987, Taiwan Semiconductor Manufacturing Company (TSMC) has become a key player in the semiconductor industry. It has distinguished itself by specializing in contract manufacturing, allowing other companies to design chips while letting TSMC handle production. Over time, the company has consolidated its leadership position through advanced technologies and unmatched production capacity. Faced with an unstable geopolitical environment, TSMC has chosen to diversify its production sites to ensure continuity of operations on a global scale.