TSMC, the world's leading chipmaker, faces margin pressure from its U.S. manufacturing expansion driven by President Donald Trump's push for American-made semiconductors. Following Trump's return to power in 2025, TSMC announced $200 billion in total commitments to the U.S., including a $100 billion investment unveiled last week into advanced semiconductor manufacturing and packaging facilities. CFO Wendell Huang said on an earnings call that gross margin will be diluted by 2% to 3% in early stages and 3% to 4% in later stages over the next several years as overseas fab projects ramp up. The expansion comes amid Trump's repeated tariff threats against companies that don't manufacture products in America and follows a historic trade deal with Taiwan. Despite the AI boom driving TSMC's market cap up more than 100% in the past 12 months, the company's blockbuster Q2 earnings were impacted by overseas expansion costs.
TSMC Commits $200 Billion to U.S. Semiconductor Manufacturing
TSMC has announced $200 billion in total commitments to the U.S., including a $100 billion investment unveiled last week into advanced semiconductor manufacturing and packaging facilities. Commerce Secretary Howard Lutnick stated in a statement that "TSMC's announcement of an additional $100 billion investment following our historic deal on trade and investment with Taiwan will create tens of thousands of American jobs and bring advanced semiconductor manufacturing back to America." A White House spokesperson told CNBC that "trillions of dollars in investments by TSMC and other semiconductor companies are a result of President Trump's trade and economic policy, from a historic trade deal with Taiwan to renegotiated CHIPS program investments." While other Asian chipmakers including SK Hynix are developing U.S. facilities, TSMC has made by far the largest commitment.
TSMC Reports 77.4% Q2 Profit Jump Amid Margin Dilution
TSMC on Thursday reported a 77.4% jump in second-quarter profit year on year, soaring past estimates and marking another record-breaking quarter for the world's largest contract-chipmaker. Second-quarter gross margin was 67.7%, up slightly from 66.2% in the first quarter. Huang told CNBC the company continues to see a "multi-year demand mega trend" from its customers. However, Huang said on the earnings call that gross margin increased ahead of guidance but was offset by dilution from overseas fabs. The company forecasts gross margin dilution from the ramp-up of overseas fabs in the next several years to be 2% to 3% in the early stages, widening to 3% to 4% in the latter stages.
U.S. Production Costs 20-50% Higher Than Taiwan Facilities
Building in the U.S. is considerably more expensive than Taiwan operations. Phelix Lee, senior equity analyst at Morningstar, told CNBC: "Broadly, we estimate TSMC's US chips to cost 20-50% more than those produced in Taiwan, depending on subsidy timing, tax credit recognition and other cost fluctuations." Lee added he expected customers to bear more of the higher costs of production. TSMC is set to raise prices for both advanced and mature chip production by up to 10% in 2027, Nikkei reported on Tuesday. TSMC told CNBC it doesn't comment on pricing. Gaurav Gupta, VP analyst at Gartner, told CNBC that "a large part of the increased costs would have to be absorbed by its clients, who are looking to diversify or have mandates from the U.S government to purchase local chips." Gil Luria, head of technology research at D.A. Davidson, said: "This is a margin difference TSMC can afford because of its very high overall margins."
FAQ
What did TSMC announce regarding U.S. investments last week?
TSMC unveiled a $100 billion investment into advanced semiconductor manufacturing and packaging facilities in the U.S. last week, bringing its total commitments to the country to $200 billion.
How much will TSMC's overseas fabs dilute gross margins?
TSMC forecasts gross margin dilution from overseas fab ramp-up to be 2% to 3% in the early stages, widening to 3% to 4% in the latter stages over the next several years, according to CFO Wendell Huang.
How much more expensive is U.S. chip production compared to Taiwan?
Morningstar analyst Phelix Lee estimates TSMC's U.S. chips cost 20-50% more than those produced in Taiwan, depending on subsidy timing, tax credit recognition and other cost fluctuations.
