TSMC - The company behind Apple & Nvidia’s success

The Importance of Taiwan in the Global Chip Industry: TSMC’s Role and Challenges

October 14, 2024: Chinese warships circled Taiwan, effectively blocking its ports.
Background:
Taiwan considers itself independent, while China claims it as part of its territory.
Confrontations between Taiwan and China have been ongoing for decades.
In recent months, the USA announced over $500 million in military aid to Taiwan, emphasizing its strategic importance.

CHIPS Act (announced in August 2022 by the US):
A $50 billion subsidy plan to promote semiconductor manufacturing in the US.
Objective: Reduce reliance on Asian chip suppliers, especially from Taiwan.
TSMC (Taiwan Semiconductor Manufacturing Company):
The world’s leading chip manufacturer, responsible for 56% of global chip production and over 90% of advanced chips.
It plays a critical role in manufacturing chips for companies like Apple, Nvidia, Qualcomm, and many more.
The Role of Chips:
Chips are found in everything from smartphones and computers to cars, communication devices, and AI systems.
The world’s reliance on advanced chips means TSMC is at the center of modern technology.

Market Share:
TSMC produces over 90% of the world’s most advanced chips.
Most major companies like Apple, Google, Amazon, and Nvidia rely on TSMC for their high-performance chips.
Advanced Chips vs. Basic Chips:
Basic chips (used in appliances like fridges and washing machines) are made by many companies.
Advanced chips (used in AI, high-performance computers, etc.) are much harder to produce, and TSMC dominates this market.

TSMC’s Growth:
Steady revenue growth from $20 billion in 2013 to $70 billion in 2023.
Net income stands at $27 billion for 2023, making TSMC a $1 trillion company.

Geopolitical Importance:
Taiwan’s president referred to TSMC’s products as “democracy chips,” emphasizing the crucial role these chips play in supporting democratic countries.
The US supports Taiwan’s security partly because of its reliance on TSMC’s chips for national security, tech industries, and communication infrastructure.

Challenges:
The world heavily depends on TSMC, and the risk of relying on a single company for advanced chips has prompted the US and other countries to take action.
US CHIPS Act: Encouraging companies to set up chip manufacturing in the US to reduce reliance on TSMC.
TSMC and other companies like Intel and Samsung are now setting up plants in the US, Japan, and Germany.
Scaling Problems:
Technical Expertise: Manufacturing advanced chips requires a highly skilled workforce, which is scarce in some countries like the US, causing delays in TSMC’s new plants.
Cost: Chip-making machines cost between $150 million to $350 million each, limiting the number of players in this space.

Potential Expansion:
TSMC is in talks with the Indian government, though nothing is confirmed.
India’s first chip-making plant is being developed by Tata Group in partnership with Taiwan’s Power Chip in Gujarat.
While India is strong in chip design (20% of global chip designers are in India), chip manufacturing is still limited.

Global Chip Market:
TSMC controls 50% of all chip-making machines globally.
The cost and technical complexity of chip production create significant barriers to entry for competitors.
India’s Chip Industry:
Tata Group’s chip assembly plant is being set up in Assam.
Companies like Foxconn (maker of iPhones) are eyeing chip production in India, but the scale is still small compared to TSMC.

TSMC remains the dominant player in the chip-making industry.
Even though countries like the US, India, and Japan are attempting to boost local production, TSMC’s deep expertise and technological leadership ensure that its global dominance will continue for the foreseeable future.