Recent market reports highlight ongoing challenges for TSMC's wafer fabs in Arizona, including high costs and low profits. Industry sources cite supply chain issues, talent shortages, equipment maintenance, corporate culture, and labor laws as factors lagging behind Taiwan operations, with a sharp profit collapse expected by the third quarter of 2025.
However, insiders reveal that despite short-term profit pressures, TSMC has confirmed plans to expand its Arizona campus beyond the existing six fabs by adding two new fabs. Advanced packaging capacity will also increase from two fabs to three or four. This means TSMC is set to build up to 12 fabs in Arizona, keeping capital expenditures elevated through 2026-2028.
TSMC declined to comment on market rumors ahead of upcoming earnings disclosures.
Third quarter gas outage slashes US fab profitability
Market chatter has intensified over persistently high costs at TSMC's US fabs. In the third quarter of 2025, an unexpected power outage at a gas supplier caused several hours of downtime, scrapping thousands of wafers and slashing quarterly profits by 99%. This incident underscored operational management gaps compared to Taiwan facilities.
Still, supply chain sources confirm TSMC's firm commitment to overseas expansion plans alongside domestic growth.
Japan and Germany plans hit headwinds
TSMC's second fab in Kumamoto, Japan, faces delays due to weaker-than-expected order volumes and no immediate plans to leapfrog from 6nm directly to 2nm processes. The lack of large chip customers and Japan's costly ecosystem—including Rapidus support, labor shortages, and expensive production equipment—are key hurdles.
Nearby, Sony's new factory construction has also reportedly slowed, partly because Taiwan and the US 2nm capacities are ramping up steadily. Similar deceleration affects TSMC's German plant, where engineering continues, but progress has moderated.
Arizona emerges as overseas expansion centerpiece
TSMC's overseas expansion clearly centers on Arizona. Beyond the original six fabs, Chairman C.C. Wei confirmed acquiring a second land parcel near the new site to support capacity growth, aiming for eight total fabs.
The P1 fab, which commenced mass production at the end of 2024, upgraded from a 5nm to 4nm process. Fabs P2 through P6 plan to return to full-scale capacity after P1's demonstration-focused, smaller scale.
P2 construction accelerated atop P1's foundation, introducing a 2nm process earlier than planned, targeting machine installation by late 2026 and mass production start by the end of 2027. This aligns with demands from major customers like Apple, Nvidia, and AMD.
With initial construction challenges overcome, timelines for P3 to P6 fabs have advanced. P3 has broken ground; both P3 and P4 will focus on 2nm and A16 processes, while P5 and P6 target A14 and more advanced nodes. Plans continue to push down process nodes for P7 and P8 fabs.
Advanced packaging timeline moves up
Two advanced packaging fabs in the US, AP1 and AP2, will begin construction early in 2026. These are easier builds compared to wafer fabs, with AP1 expected to start mass production by 2028, focusing on SoIC and CoW technologies.
AP2 will emphasize CoPoS technology. Due to strong long-term AI demand, TSMC plans to add two more packaging fabs, though specific applications remain undecided.
Capex projections climb amid geopolitical pressures
TSMC projects capital expenditures of US$40-42 billion in 2025, allocating about 70% to advanced processes, 10-20% to specialty processes, and another 10-20% to advanced packaging, mask making, and other areas. Market estimates suggest capital expenditures rising to US$44-46 billion in 2026 and potentially exceeding US$50 billion in 2027 and 2028.
Semiconductor experts note TSMC's full acceptance of the geopolitical realities under US President Donald Trump's administration. To meet demands from US-based customers accounting for over 70% of revenue, TSMC must establish resilient global supply chains.
Earlier media reports mentioned the 99% profit plunge at the Arizona fab in the third quarter, highlighting difficulties producing in the US.
Supply chain sources attribute the loss mainly to unstable gas purity from supplier Linde, prompting TSMC to halt production temporarily rather than risk yield losses—a one-off event. With recent price hikes for US fab wafer processing, TSMC aims to boost gross margins and overall profitability aggressively.
TSMC reiterated it will not respond to market rumors before its January 15, 2026, earnings call. Analysts expect robust demand fueled by nearly all major AI customers locking in orders, with 5/4/3nm capacities running full tilt for years. The newly launched 2nm capacity will reach record levels over the next three years with multiple customer reservations.
Supported by annual price increases, TSMC's dollar revenue growth rate is forecasted to sustain around 30% in 2026 and 2027, with profits soaring and gross margin reaching approximately 60%.
Article edited by Jerry Chen
