Pressure from President Donald Trump to manufacture advanced semiconductors in the United States is driving up costs and squeezing profit margins. TSMCone of the world’s leading chip manufacturers.
After Trump returns to power in 2025, the president has repeatedly threatened to impose tariffs on companies that do not manufacture products in the United States.
Since then, TSMC has announced commitments totaling $200 billion to the country, including a $100 billion investment in advanced semiconductor manufacturing and packaging facilities in the United States announced last week.
While TSMC’s market capitalization was buoyed by the AI boom, which has risen more than 100% in the past 12 months, the company said its blockbuster revenue this quarter was impacted by its overseas expansion.
TSMC stock.
Gross margin increased ahead of guidance, but that was offset by dilution from overseas factories, CFO Wendell Huang said on the earnings call. As overseas fab projects “increase,” profit margins will become thinner “over the next few years,” he added.
“President Trump’s leadership is encouraging companies to invest in American manufacturing,” Commerce Secretary Howard Lutnick said in a statement.
“TSMC’s announcement of an additional $100 billion investment following the historic trade and investment agreement with Taiwan will create tens of thousands of American jobs and bring advanced semiconductor manufacturing back to the United States.”
While other Asian chipmakers, including SK Hynix, are developing U.S. facilities, TSMC is making its largest commitment to date. Aggressive expansion in the U.S. exposes the company to higher production costs, creating potential headwinds to margins.
political pressure
TSMC on Thursday reported a 77.4% year-over-year increase in second-quarter profit, significantly beating previous expectations and marking a new record-setting quarter for the world’s largest contract chipmaker.
TSMC’s Huang told CNBC that the company continues to see “huge trends in multi-year demand” from customers and is also expanding aggressively in the United States.
Political pressure is another major driver of overseas expansion.
“Trillions of dollars in investments by TSMC and other semiconductor companies are the result of President Trump’s trade and economic policies, from the historic trade agreement with Taiwan to investments in the renegotiated CHIPS program,” a White House spokesperson told CNBC.
Building in America is quite expensive.
“We roughly estimate that TSMC’s U.S.-made chips will cost 20-50% more than Taiwan-made chips, depending on the timing of subsidies, tax credit approvals and other cost variables,” Morningstar senior equity analyst Felix Lee told CNBC. Lee added that he expects customers to bear more of the higher production costs.
TSMC plans to raise the production prices of both advanced and mature chips by up to 10% in 2027, the Nikkei Shimbun reported on Tuesday. TSMC told CNBC it would not comment on pricing.
“The advantage for TSMC is that there is no significant competition,” Gartner VP analyst Gaurav Gupta told CNBC.
Because of TSMC’s dominance in the advanced node market, “most of the increased costs will have to be absorbed by clients who are looking to diversify or who are mandated by the U.S. government to buy local chips,” Gupta said.
margin
The company expects gross profit dilution due to the expansion of overseas factories to increase by 2% to 3% in the early stages and to 3% to 4% in the later stages over the next few years, Huang said.
“This is a comfortable margin difference for TSMC, which has very high overall margins,” said Gil Luria, head of technology research at DA Davidson. TSMC’s gross profit margin for the second quarter was 67.7%, slightly up from 66.2% in the first quarter.
While President Trump has doubled down on calls for homegrown manufacturing, “customers are increasingly seeking geographic diversification after the coronavirus disrupted global supply chains,” Morningstar’s Lee said.
“Customers are bracing for geopolitical, logistics and other supply chain disruptions,” he added. “It’s less clear how the carrots and sticks will be divided, but we expect the pressure within the United States to continue beyond President Trump.”
