A man walks past TSMC’s logo at the company’s headquarters in Hsinchu, Taiwan. TSMC is the world’s largest semiconductor foundry.
Sam Yeh | AFP | Getty Images
Taiwan’s extraordinary role in the production of chips came under the spotlight as a global shortage of semiconductors forced several automakers to halt production.
Countries, including the US and Germany, have reached out to Taiwan to help alleviate bottlenecks in chip production. The shortage was due to increased demand for electronics during the Covid-19 pandemic, and was exacerbated by former President Donald Trump’s trade war with China.
Taiwan dominates the foundry market, or outsourcing of semiconductor manufacturing. Its contract manufacturers together accounted for more than 60% of total global foundry revenue last year, according to data from research firm TrendForce in Taipei.
Much of Taiwan’s dominance can be attributed to Taiwan’s Semiconductor Manufacturing Co. or TSMC, the world’s largest foundry that counts large technology companies such as Apple, Qualcomm and Nvidia as its customers. Last year, TrendForce data accounted for 54% of total foundry revenue worldwide.
Semiconductors are critical components that drive electronics from computers and smartphones to the brake sensors in cars. The manufacture of chips involves a complex network of enterprises that design or manufacture them, as well as those that provide the technology, materials and machinery to do so.
TSMC focuses exclusively on manufacturing and has been the leading producer for many leading semiconductors, Dan Wang, a technology analyst at research firm Gavekal, said in a podcast from Singapore’s DBS bank.
“So, if you look at the market share just a little bit, I believe that 50% of all semiconductors in the world are manufactured. I think it still underestimates how important it is, because it is one of the most advanced chips out there. Wang said.
Semiconductor designers and manufacturers are looking for chips smaller and better. Currently, TSMC and its South Korean rival Samsung are the only foundries that can produce the most advanced 5 nanometer chips.
TSMC is already preparing for the next generation of 3-nanometer chips, which are reportedly starting in 2022.
China plays catch up
Some countries are planning to increase their own semiconductor production – and one of them is China, which wants to be more independent.
But the technological battle with China with the previous U.S. government is holding back its largest chipmaker Semiconductor Manufacturing International Corporation, or SMIC, said Paul Triolo, geo-tech practice chief, Eurasia Group.
TSMC is just as dominant. It no longer has much competition on the high side.
Dan Wang
technology analyst, Gavekal Dragonomics
Last year, the Trump administration blacklisted SMICs, known as the Entity List, which restricts the enterprise’s access to technology and machinery it needs.
SMF was the fifth largest semiconductor foundry worldwide in terms of revenue in 2020 – behind the Taiwanese TSMC and UMC, the South Korean Samsung and GlobalFoundries in the US, TrendForce data showed.
“The goal is to be able to compete at the forefront with companies like TSMC, Samsung and Intel,” Triolo told CNBC’s “Squawk Box Asia.”
“The problem with SMIC now, the dilemma, is that the U.S. government has put them on the list of entities,” he said. “But the bigger picture is that SMIC has at least for the moment been cut off from acquiring the truly latest equipment it needs from ASML, which is a Dutch company.”
ASML makes the so-called extreme ultraviolet lithography equipment used to produce the most advanced chips, such as those manufactured by TSMC and Samsung. Reuters reported last year that the Trump administration had put pressure on the Dutch government to stop selling the machine to SMIC.
Even though SMIC has access to ASML equipment, the company will take years to manufacture high-quality chips in large quantities, Triolo said.
Until then, it appears that TSMC would retain its leading position.
“TSMC is just as dominant. It actually does not have much competition on the high side anymore. And so it took a while before this model really worked out. But at this point, it can indeed be a very profitable company,” Wang said. of Gavekal said.
– Eustance Huang and Arjun Kharpal of CNBC contributed to this report.