TSMC Semiconductor Dominance Imperils Global Electronics

With its chips in billions of products, Taiwan Semiconductor Manufacturing Company (TSMC) is the world’s most dominant chipmaker and, with a market cap of about $550 billion, is also the world’s 11th most valuable company. According to research firm TrendForce, Taiwan generated about 65 percent of global revenues for outsourced chipmaking, with TSMC accounting for 56 percent of that figure. Capital Economics — and other analysts — opined that the world’s dependence on Taiwanese chips is “a threat to the global economy.”

The Wall Street Journal reports that TSMC, which is listed on the New York Stock Exchange, “reported $17.6 billion in profits last year on revenues of about $45.5 billion.” Capital Economics added that, because its technology is so advanced, TSMC “now makes around 92 percent of the world’s most sophisticated chips … [including] most of the roughly 1.4 billion smartphone processors worldwide.”

IHS Markit reported that TSMC also “makes as much as 60 percent of the less-sophisticated microcontrollers that car makers need as their vehicles become more automated,” although TSMC said its market share is actually about 35 percent.

According to Boston Consulting Group, the U.S. “still leads the world in chip design and intellectual property with homegrown giants like Intel, Nvidia and Qualcomm,” but currently only accounts for 12 percent of global chip manufacturing, down from 37 percent in 1990.

President Biden’s infrastructure plan sets aside $50 billion to boost domestic chip production; China is prioritizing semiconductor independence; and the EU “aims to produce at least 20 percent of the world’s next-generation chips in 2030 as part of a $150 billion digital industries scheme.”

Intel, which announced a $20 billion investment to build two chip plants in the U.S., was unable to work out a deal with TSMC to take over some of its chip manufacturing. The U.S. and Germany have also called on TSMC to “expand supply due to factory closures and lost revenues in the auto industry, which was the first to get hit by the current chip shortage … [and] TSMC said it has taken unprecedented actions and increased microcontroller production by 60 percent compared with 2020.”

According to analysts, “semiconductors have become so complex and capital-intensive that once a producer falls behind, it’s hard to catch up.” One semiconductor factory can cost as much as $20 billion and one key manufacturing tool costs $100+ million. IC Insights said that other countries “would have to spend at least $30 billion a year for a minimum of five years ‘to have any reasonable chance of success’ in catching up with TSMC and Samsung.”

ZDNet reports that, as demand for semiconductors surpasses supply, industry experts are concerned that, “it is only a question of time before the market is flooded with semiconductors that just about pass for authentic, but in reality, are illegal products that could pose huge safety risks.”

At the Center for Advanced Life Cycle Engineering, counterfeit electronics researcher Diganta Das warned that, “if next week, you need to get 5,000 parts or your line will shut down, you will be in a situation of distress purchase and you will put your guard down … you won’t keep to your rules of verifying the vendor or going through test processes. This is likely to become a big problem.”

Related:
Chip Shortages Are Starting to Hit Consumers. Higher Prices Are Likely, The Wall Street Journal, 6/21/21
Xi Jinping Picks Top Lieutenant to Lead China’s Chip Battle Against U.S., Bloomberg, 6/17/21