DIGITIMES ASIA: Made in America, delayed by parts

TAIPEI, May 6, 2025 /PRNewswire/ -- Taiwan's electronics manufacturing services (EMS) providers are accelerating their North American production plans in response to tariff threats, but component shortages and capacity constraints at US chip plants could hamper the AI server market for years, according to industry sources.

"Since Trump's election, Taiwanese manufacturers have been strategically expanding their US presence," said Yen Chou, an analyst at DIGITIMES Research. "Most server manufacturers are concentrating in Texas, with Foxconn's FII already operating there and planning expansions."

Manufacturing Migration

The shift has gained momentum in recent months. Wistron announced plans for a new US facility in February 2025 after a capital increase, while Compal is expanding its automotive electronics plant in Indiana. Foxconn is enlarging its Houston operations to accommodate growing server demand.

Building times in the US present a significant challenge, Chou noted. "A typical EMS factory takes one year to build in Asia, but requires 1.5 to 2 years in the United States, with substantially higher labor costs forcing companies to prioritize higher-margin products."

Pegatron, meanwhile, is proceeding with its planned Mexican facility despite potential risks. "If Trump seriously focuses on trade deficits, operations in Mexico could face future tariffs," Chou warned. "What's safe today might not be tomorrow."

Global Manufacturing Footprint

Major EMS providers are establishing manufacturing footholds across all key markets: the United States (including Mexico), China, the European Union, Southeast Asia/India, and non-Mexican Latin America.

"Assembly lines can be relatively easily moved to populous regional markets, but the real challenge is whether critical components like PCBs, semiconductors, passive components, and mechanical parts can be similarly dispersed," Chou said.

Singapore has emerged as a strategic hub for server assembly due to its relatively low 10% US tariff rate. Foxconn operates two factories there—Cloud Network Technology Singapore and ECMMS Precision Singapore, leveraging ASEAN's internal free trade to import components from Vietnam, the Philippines, and even China before final assembly and export.

Component Constraints

The AI server market faces two critical bottlenecks over the next 2-3 years, according to Chou: TSMC's Arizona fab capacity and domestic HBM production.

"TSMC's Arizona facility has insufficient capacity to meet demand if everyone—Nvidia, AMD, Apple—shifts orders there to avoid tariffs," Chou explained. "The monthly capacity is only 10,000 12-inch wafers, creating a severe imbalance where US plants are oversubscribed while Taiwan facilities potentially face overcapacity."

The memory situation is similarly constrained. Of approximately 1.5 million HBM chips expected to be produced in 2025, Micron will manufacture about 340,000, with only about half of those made in the US. Samsung and SK Hynix, whose production is primarily in South Korea, account for the remainder.

"This is far from sufficient to meet Nvidia's GPU requirements," Chou said. "Companies seeking to reduce costs must use US-manufactured HBM, but that's simply not possible in the short term."

Market Impact

The component constraints could lead to a bifurcated market with different cost structures for the same products.

"We'll likely see the same Nvidia AI accelerator cards with two different cost bases—those made with US components and those made overseas with tariffs applied," Chou said. "Since vendors can't sell the same product at two different prices, they'll likely average the costs, pushing prices up overall."

This could ultimately dampen AI server demand, particularly among small and medium-sized businesses with limited budgets.

"Unless there are specific exemptions, higher prices may force some potential AI server customers to delay or abandon purchases," Chou concluded.

Which countries will escape Trump's tariff trap—and which EMS players are most exposed? Read Yen Zhou's full report for the strategic map.

https://www.digitimes.com/reports/server/2025_global_supply_chain/

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SOURCE DIGITIMES ASIA