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.

This would disrupt shipments and turn into a global economic emergency. China still relies on chip exports from Taiwan — and an invasion risks an already fragile Chinese economy.