TSMC: The World’s Most Sought After Company

Advanced economies worldwide are inviting TSMC to join their local supply chains

A logo of Taiwan Semiconductor Manufacturing Company Ltd. (TSMC) is seen at its headquarters in Hsinchu, Taiwan, on Aug. 31, 2018. (Tyrone Siu/Reuters)

New Analysis

The electronic chip shortage crisis has disrupted supply chain security and industrial activities worldwide.

Amid a global semiconductor race, Taiwan Semiconductor Manufacturing Company (TSMC), the world’s top chipmaker, has become the company that is most invited to set up factories in many advanced economies.

Since 2020, the semiconductor shortage has led to the reduced production of automobiles, smartphones, computers, and appliances, pushing chipmakers worldwide to rapidly expand their production capacity.

The Semiconductor Industry Association (SIA) recently announced that the global semiconductor industry sales totaled $555.9 billion last year, the highest-ever annual total and a 26.2 percent increase over the $440.4 billion in sales in 2020. The industry shipped a record 1.15 trillion semiconductor units in 2021.

However, this record chip supply has yet to alleviate the shortages. Advanced economies in North America, Europe, and Asia are introducing new policies to support their semiconductor industries, hoping to quickly establish a secure supply chain and reduce dependence on chip imports.

World’s No. 1 Chip Foundry

For the entire 2021, TSMC posted $56.8 billion in revenue, up 25 percent from $45.5 billion in 2020, according to its earnings report.

In the foundry market, TSMC recorded the highest global market share of 59.5 percent in 2021. In second place, Samsung occupied 8.7 percent, while, in fifth place, China’s SMIC, only occupied a 5.7 percent market share, according to DIGITIMES Asia.

TSMC’s immense market share is due to its advanced process technologies, which generate most of its revenue.

In semiconductor fabrication, generally, the smaller the process technology, the more advanced the chip. The smaller the technology node, the higher the transistor density and the lower the chip power consumption, resulting in higher performance. However, the smaller manufacturing process requires more advanced material and production technology and a greater cost in R&D and production lines.

Currently, only TSMC, Samsung, and Intel possess the most advanced manufacturing processes. Among them, TSMC has the highest production volume and yield rate in advanced chips. Yield is a quantitative measure of the quality of a semiconductor process; it reflects the amount of product that can be sold relative to the amount manufactured.

According to TSMC’s recent quarterly report (pdf), 5 nm and 7 nm advanced processes accounted for 50 percent of its total wafer revenue in 2021, up from 41 percent in 2020.

In addition, TSMC recently announced its plans to spend $40 billion to $44 billion in capital expenditure for 2022 as part of its efforts in expanding production and upgrading technologies, according to Taiwan’s state-run Central News Agency (CNA). And 70 to 80 percent of the expenditure would be used to develop advanced 2 nm, 3 nm, 5 nm, and 7 nm processes, the company’s chief financial officer Wendell Huang added.

In response to the newly-unveiled European Chips Act, a director at Taiwan Industry Economics Services, Liu Peizhen, told CNA that most advanced economies want to establish a localized semiconductor supplier in response to the U.S.-China decoupling.

On Feb. 9, the European Commission unveiled the “European Chips Act,” which aims to enable the European Union (EU) to work more closely with world leaders in the semiconductor industry, such as Taiwan. The Act neutralizes its strict rules governing state aid, to lure companies like Intel and TSMC to build more microprocessors in the region.

Liu added that TSMC’s global market share of advanced nodes below 10 nm is around 63 percent, the world’s largest. And its production capacity in mature nodes is also the largest globally, accounting for about 20 percent, and making it the most desirable company to invite to Europe.

Taiwan’s Ministry of Foreign Affairs (MOFA) spokeswoman Joanne Ou said her country welcomed the European Chips Act on Feb. 9 .

The United States

The U.S. House of Representatives on Feb. 4 passed the “America COMPETES Act,” which includes a $52 billion allocation to support a localized semiconductor supplier. TSMC is the key to building a cutting-edge production line in the United States.

After repeated invitations from the United States, TSMC announced in May 2020 that it would build a $12 billion factory in Arizona. The construction is expected to be completed by July and volume production is expected to start in 2024.

TSMC’s major customers are American companies, such as Apple, AMD, Qualcomm, Broadcom, and Nvidia. With the strong commitment and support from both the U.S. federal government and the Arizona state government, TSMC’s new Arizona factory is under construction at full pace. The state-of-the-art 5-nanometer fab is said to come with a monthly production capacity of 20,000 wafers.

Since then, TSMC has devised a plan for its Arizona plant to quickly replicate its plants in Taiwan. The move outlines TSMC’s intention to mirror its comprehensive supply chain in Taiwan to the United States due to concerns over Beijing’s potential invasion.

In addition to exporting talents from Taiwan, TSMC has arranged for more than 100 American engineers to go to its factories in Taiwan for on-site training.

With its security at stake, TSMC aims to export its advanced 5 nm wafer processing plant and complex supply chain to the United States as quickly as possible. The 5 nm node is currently the most advanced chip manufacturing process that can be mass-produced.

The European Union

On Feb. 9, the European Commission unveiled the European Chips Act, aiming to significantly ramp up semiconductor production within the European Union (EU) and become a global leader in the industry. The Act is a multi-billion euro attempt to secure its supply chains, avert chip shortages, and promote investment in the sector. To achieve that, it will need to bring in key players in Asia and the United States, such as TSMC and Intel, to set up factories in the continent.

Under the Act, the commission plans to allocate a total of $49 billion of public and private investment to expand the EU’s global market share of semiconductors from the current 9 percent to 20 percent by 2030.

The commission pointed out the EU’s global market share of semiconductors currently sits at 9 percent and primarily relies on external supply. In the event of a supply chain disruption, chip inventory in parts of Europe’s industrial sectors could run out within weeks, and factories would be forced to slow or halt production.

The Act underlines the EU’s excessive dependence on imports of advanced chips below 7 nm nodes as most of its manufacturing capacity can only produce chips above 22 nm nodes.

In addition, the EU also notes the need for partnerships with “like-minded partners,” such as the United States, Japan, South Korea, and Taiwan.

Japan

Last November, Japan successfully invited TSMC to set up a factory in Kumamoto, Japan. In a joint venture with Sony Semiconductor Solutions Corporation (SSS), TSMC announced it would provide foundry service with initial technology of 22 to 28-nanometer processes to address strong global market demand for specialty technologies.

Although it is not an advanced process fab, TSMC recently announced additional investment in the plant to upgrade its process technology and increase its manufacturing capacity.

In a press release on Feb. 15, TSMC said the new total capital expenditure of the Kumamoto factory would increase from the initial $7 billion to $8.6 billion and enhance its capabilities with 12 to 16-nanometer FinFET process technology. The planned monthly production capacity is also increased from 45,000 to 55,000 12-inch wafers. The fab is expected to directly create about 1,700 high-tech professional jobs.

In addition, Denso, a supplier of Toyota Motors, plans to invest $350 million to acquire more than 10 percent stake in the new fab, becoming another minority stakeholder. Initially, SSS (Sony) had also provided $500 million to acquire a nearly 20 percent minority stake in the new plant, with TSMC holding the controlling share.

The joint venture with Denso, a component supplier to the world’s largest automotive manufacturer, would mean a long-term and stable supply of semiconductor chips for the Japanese auto industry.

Construction of the Japanese fab was scheduled to begin in 2022, with production starting by the end of 2024. The Japanese government plans to subsidize about half of the plant’s construction cost.

India

India’s Prime Minister Narendra Modi set up a 20-year vision to make India a global leader in the semiconductor industry, and in December, the Indian government announced a $10 billion incentive plan to attract semiconductors and display manufacturers to the country.

In a bid to boost the country’s semiconductor ecosystem, its senior officials are reportedly trying to rope in top chipmakers such as TSMC, Intel, AMD, United Microelectronics Corporation (UMC), and Fujitsu, according to The Times of India. Experts in India estimate that more than a dozen chipmakers will set up factories in India in the coming two to three years.

China

The first country to invite TSMC onboard was China. In 2004, the Taiwanese government gave the green light for TSMC to relocate its “low-tech” eight-inch wafer facilities to Shanghai, which later became TSMC’s first fab in China.

In December 2015, Beijing persuaded TSMC to set up a 12-inch wafer fab in Nanjing, China. The factory was based on the 12 nm and 16 nm processes—considered advanced at the time—and was completed in October 2018.

However, the Trump administration placed Huawei on a trade blacklist in May 2019 over national security concerns, adding SMIC in December 2020 for the company’s alleged links to the Chinese military.

The U.S. sanctions barred China from importing the most advanced chip-making tools. As a result, TSMC’s Nanjing plant’s production capability was significantly reduced, diminishing its supply to Chinese industries.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.