How Taiwan’s semiconductor industry expertise became so desired globally
There are many reasons China may want Taiwan. Its strategic position off the coast of China, a history between the two that goes back centuries and last but not least — a lead in one of the most important areas of technology.
Taiwan has something desired by the whole world…
…Expertise and a lead in semiconductor chip manufacturing. Taiwan is a powerhouse for semiconductors — home to companies like Taiwan Semiconductor Manufacturing (NYSE:TSM) — which controls 90%+ of the market for advanced chips.
It’s a strong position to be in. Progress in the industry is seen as a national power. After all, these chips power all things digital, including cutting-edge devices and military weapons.
To reduce their dependence, the U.S. and China are investing heavily in their own semiconductor industries:
- The U.S. is investing $52B through the CHIPS Act — which recently passed Congress — but this could take years for any results.
- China has also committed to investing in its semiconductor industry — but analysts say they’re ~10 years behind Taiwan in several areas.
How did one company become so dominant?
Intel was once the gold standard in the semiconductor business — until competitors emerged and specialized in different parts of the process.
- Chipmakers like Nvidia and AMD made the strategic decision to focus on chip design.
- TSM focused on manufacturing — becoming incredibly good at the highly complex process of advanced chip manufacturing.
How complex? It requires thousands of manufacturing processes and highly specialized equipment to manipulate particles on sub-atomic levels.
Today, TSM is the eleventh largest company globally with a $430B market cap — serving customers like AMD, Apple, Nvidia, Sony and Intel.
Even at this size, TSM grew its sales by 43% last quarter with a 44% profit margin. And they intend on keeping their lead — planning a total $100B investment into R&D between 2021 and 2023.
Investors: Taking over an entire industry isn’t so simple…
In a CNN interview this week, TSM’s Chairman said its factories would be “non-operable” given its dependence on the global supply chain. Even if China invaded, Taiwan could sabotage its own facilities, and Taiwan’s researchers and engineers might not cooperate.