TSMC's Japan Expansion Puts Profit at Risk

By Alan Patterson, EETimes (October 19, 2021)

Last week’s announcement by Taiwan Semiconductor Manufacturing Co. (TSMC) that it plans to build its first chip facility in Japan is yet another sign that the world’s biggest semiconductor foundry will face higher costs as it moves more of its production outside of Taiwan.

TSMC’s plan is subject to board approval later this year.

Western nations are demanding a secure supply of semiconductors as their domestic automakers continue to idle production lines because of chip shortages. Those governments are seeking manufacturing investments from leading chip makers in Asia such as Samsung of South Korea and TSMC of Taiwan, as well as Intel.

As Samsung and TSMC shift production out of highly-integrated domestic ecosystems to locations where the supporting infrastructure is less complete, costs will inevitably rise, according to Matt Bryson, senior vice president of equity research at Wedbush Securities.

“Overseas fabs will almost certainly be less profitable on a margin basis versus current business,” Bryson said in an email. “Take the new [TSMC] Japan fab for instance. Even assuming 50 percent of the fab is paid for by Japan, there is still depreciation.”

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