TSMC says building semiconductor factories in the United States costs four to five times more than constructing similar facilities in Taiwan, but the company is still expanding its Arizona operations with another $100 billion investment.
The additional spending will support four more facilities and extend TSMC’s presence beyond its first Arizona fab. The company says customer demand for advanced chips remains strong enough to justify the investment despite the higher construction and operating costs.
TSMC’s first Arizona phase is already producing chips using its N4 process. The company says manufacturing yields are comparable with those at the original facility in Taiwan, which is an important milestone for the project.
The second phase will use 3nm technology and is expected to begin production during the second half of 2027. Construction has also started on a third phase planned for 2nm manufacturing, while early preparation is underway for a fourth phase and an advanced packaging facility.
TSMC’s Arizona expansion covers several chip generations
The Arizona site is being developed in stages, with each phase introducing a newer process or additional manufacturing capability.
| Arizona project phase | Planned technology or role | Current status |
|---|---|---|
| Phase one | N4 manufacturing | In production |
| Phase two | 3nm manufacturing | Tools arriving, production expected in the second half of 2027 |
| Phase three | 2nm manufacturing | Construction underway |
| Phase four | Future chip production | Preparation work started |
| Packaging facility | Advanced semiconductor packaging | Initial preparation started |
| Additional US investment | Four new facilities | $100 billion announced |
The schedule remains dependent on market conditions and customer demand. TSMC wants to move quickly, but each stage requires equipment installation, workforce training, customer qualification, and improvements in production yields.
The company’s expansion is also supported by federal, state, and local authorities in the United States. Government incentives and infrastructure assistance can reduce some of the financial burden, but they do not remove the underlying cost difference between Arizona and Taiwan.
Leading edge production will still begin in Taiwan
TSMC does not plan to introduce its newest manufacturing technology overseas at the same time as Taiwan.
The company says early production of a new process requires close cooperation between research teams and factory operations. Those groups are concentrated in Taiwan, making it easier to solve manufacturing problems and improve yields during the initial ramp.
Once a process becomes stable, TSMC can consider transferring it to other countries.
This explains why the Arizona roadmap follows Taiwan’s leading facilities. The US site will receive 3nm and 2nm technology, but only after those processes have progressed further at home.
The approach reduces technical risk, though it means Arizona customers may not receive TSMC’s newest process as early as customers using Taiwanese production.
Higher US construction costs will reduce profitability
TSMC expects its overseas expansion to dilute profit margins for several years.
The company estimates that overseas facilities will reduce annual margins by around 2 to 3 percentage points at first. That effect could widen to between 3 and 4 percentage points as more factories begin operating between 2024 and 2029.
| Financial impact | TSMC estimate |
|---|---|
| US fab construction cost compared with Taiwan | Four to five times higher |
| Initial annual margin dilution | Around 2 to 3 percentage points |
| Later annual margin dilution | Around 3 to 4 percentage points |
| Main dilution period | 2024 to 2029 |
Each production phase should become more profitable as yields improve and output rises. However, the next factory will begin its own ramp while the earlier phase is still improving, keeping pressure on overall margins.
TSMC does not expect its US operations to match Taiwan’s profitability quickly. Labour, construction, equipment installation, utilities, regulation, and the local supplier network all affect costs.
Strong AI demand is supporting the investment
TSMC’s decision is based on expectations of sustained semiconductor demand rather than a short period of unusually high orders.
Customers remain optimistic about spending on AI processors, data centre chips, advanced CPUs, GPUs, and networking hardware. These products require leading manufacturing processes and advanced packaging, areas where TSMC holds a strong market position.
Expanding in the United States also gives customers more geographic choice. Many technology companies and governments want important chip production spread across several regions instead of being concentrated primarily in Taiwan.
For customers, US production can improve supply chain resilience and help meet government procurement or funding requirements. It may also reduce some geopolitical risk, even if the chips cost more to manufacture.
Advanced packaging is becoming part of the Arizona plan
The planned packaging facility is an important part of the expansion.
Modern AI processors often combine several compute dies, high bandwidth memory, and interconnect components inside one package. Manufacturing the individual chips is only one stage of production.
If wafers are made in Arizona but shipped elsewhere for advanced packaging, the supply chain remains divided. A local packaging facility would allow TSMC to complete more of the manufacturing process in the United States.
This could be particularly valuable for customers building large AI accelerators and chiplet based processors.
However, advanced packaging facilities require specialised equipment, materials, and technical workers. They may face the same cost challenges as the wafer fabs.
The investment balances cost with supply security
TSMC is accepting lower profitability in exchange for stronger customer relationships and a broader manufacturing footprint.
The company’s Arizona facilities may never match Taiwan’s economics, but cost is not the only consideration. Access to US incentives, proximity to major customers, political support, and demand for regional chip supply all contribute to the decision.
The expansion also gives TSMC a stronger position as governments encourage domestic semiconductor manufacturing.
The main risk is that demand weakens before all planned facilities are completed. TSMC has said later phases will depend on market conditions, giving it some flexibility over timing.
For now, the company appears confident that multi year demand for AI and advanced computing will support the investment. The first Arizona fab is already operating successfully, while the next stages will move the site from N4 to 3nm, 2nm, and advanced packaging over the coming years.
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