TSMC boss C C Wei says customers who want to fabricate in the chip giant's non-Taiwan facilities will need share the cost by paying more.

During the Q&A part of TSMC's Q1 earnings call, an analyst asked the CEO how the world's largest chip contract maker would cope with rising expenses, such as electricity, in order to achieve the targeted 53 percent gross margin in 2025.

The analyst suggested that if the cost of doing business was going up and could erode gross margin, the only way to offset that would be to perform price hikes.

Although Wei said he couldn't disclose pricing strategies as such information is confidential, he did elaborate on how pricing would work at fabs with higher operation expenses. "We do encounter some kind of higher cost in the overseas or even recently, the inflation and the electricity."

"We expect our customers to share some of the higher cost with us, and we already started our discussion with our customers," he continued, confirming that higher production costs would be at least partly funded by higher prices.

Customers, however, wouldn't be paying more and getting nothing in return, claimed Wei.

"As I said, for the overseas fab, we want to share our value, which also includes the flexibility of geopolitical location or something like that," he said. "If my customer requests to be in some certain area, then definitely, TSMC and the customer has to share the incremental cost."

Geopolitics are a chief reason why TSMC is setting up shop in the US in the first place, in spite of American fabs being more expensive. China has claimed Taiwan rightfully belongs under its control ever since the end of the Chinese Civil War in 1949, which ended with the Chinese Communist Party establishing the People's Republic of China on the mainland, and the exile of the Nationalist or Kuomintang-led Republic of China to Taiwan.

Although China has never made a full-blown attempt to seize Taiwan and dismantle its rival once and for all, fears of a Chinese invasion have increased in recent years, especially since Taiwan became an extremely important strategic asset thanks to TSMC's cutting-edge fabs. A successful invasion may cut off the West from TSMC's chips, but even a failed attempt could cause serious damage.

That's essentially the geopolitical value Wei refers to with overseas fabs, because they're probably not going to be the target of military operations any time soon. Of course, since building fabs in places like the US isn't the best choice financially, TSMC has received billions of dollars in subsidies.

Wei didn't specify exactly how much more expensive its fabs abroad would be, but considering TSMC probably wouldn't have built them without receiving $11 billion in grants and loans, we can guess the difference could be quite substantial. ®

https://www.theregister.com//2024/04/18/tsmc_overseas_costs/