Illustration: Chen Xia/Global Times
Recent concern over the future of Taiwan’s semiconductor industry – and crown jewel TSMC – is as much a story about fear mongering as it is about semiconductors.
There are genuine reasons for concern. Yet politicking ahead of key Taiwan elections on November 26 has taken those fears to the extreme. It took decades for Taiwan to build a vibrant semiconductor ecosystem and it isn't going away anytime soon.
If you had to put a date on when real fears began, it would probably be March 23, 2021.
That was the day America’s biggest chip maker announced Intel Foundry Services (IFS), a new chip foundry set up to challenge TSMC in the business it invented 35-years ago.
Intel’s entry into the segment is part of a turnaround program. The company lost its global lead in semiconductor manufacturing several years ago to TSMC and Samsung Electronics.
IFS might also be able to take a bite out of TSMC's revenue, slowing its relentless advances in manufacturing technology, which are a boon to key Intel rivals.
TSMC's prowess has helped customers like AMD and Nvidia gain share in markets Intel has long dominated, such as PCs and data centers.
IFS will also help Intel reduce its yearly capital spending tab. Leading edge chip fabrication plants, or fabs, cost $12 billion or more today.
Foundry chip makers share the cost of the fab with clients.
Like all great ideas, the foundry model solved a key problem for customers. TSMC saved clients the heavy cost of building their own fabs up front by offering production for a fee. In return, TSMC clients end up helping pay for the fabs.
TSMC boasts over 500 customers today. Every new kind of chip it manufactures broadens its expertise and brings in more fees to help pay for new fabs.
It’s a symbiotic relationship.
Intel hopes to capitalize on both aspects of the foundry business, advancing its manufacturing prowess while also sharing costs.
The challenge to TSMC is clear. Intel, the former semiconductor heavyweight champion of the world, hopes to regain its title against the industry disruptor from Taiwan.
Intel remains a potent rival.
U.S. supply chain and national security concerns darkened the situation further for TSMC. Supply chain woes caused by the Covid-19 pandemic raised supply concerns at a time when the U.S. was already growing wary of the military ramifications of what appear to be rapid advances in chip production in China.
As the pandemic unfolded, automakers in the U.S., Europe and Japan asked their governments for help obtaining semiconductors needed to keep cars rolling off production lines. The fact that chips costing less than $0.50 each could stop the sale of a $50,000 vehicle surprised many - and taught a powerful lesson about the fragility of the global semiconductor supply chain.
U.S. officials at first sought to get chips flowing back to automakers, and later became convinced that too many fabs had moved abroad.
“America needs to produce more semiconductors. Congress must pass funding for domestic semiconductor production, such as the U.S. Innovation and Competition Act, to solve our supply challenges for the long term,” the U.S. Commerce Department said.
The U.S.’s yearlong work on supply chains also highlighted the role semiconductors play in global technology leadership, and a key vulnerability: A vital part of the supply chain responsible for most of the advanced chip production is located dangerously close to China, namely in Taiwan and South Korea.
At a time Russian troops were already fighting in Ukraine, the security of the semiconductor supply chain in Asia took on a new priority.
In the case of Taiwan, China's Communist Party (CCP) has threatened to invade dozens of times over the past few decades. Though the threats are nothing new, the situation has become more dangerous as the CCP's air force flies daily patrols meant to intimidate and harass democratic Taiwan.
Add to military threats the fact the CCP has utterly failed to build a powerful semiconductor industry at home despite decades of effort and hundreds of billions of dollars, and many feared the CCP might take Taiwan for the chip industry alone.
The Economist magazine highlighted Taiwan's plight on its May, 2021 cover:
These geopolitical concerns played out in Intel's favor.
Amid the perceived threat of war and lack of a secure supply chain, Intel was hard at work lobbying the U.S. and Europe to re-shore more semiconductor manufacturing, particularly for advanced chips, where TSMC makes most of its money.
What if Communist China actually invaded Taiwan? In addition to bloodletting, the global technology industry would grind to a halt for lack of chips.
With global fears finally calibrated correctly, Intel announced a plan to regain semiconductor manufacturing leadership in 2025 by developing five generations of manufacturing technology in four years.
The West will help pay the cost.
In a victory for Intel, the U.S. passed a $52 billion CHIPS Act, the majority of which goes toward building semiconductor manufacturing plants and homegrown R&D, while Europe is putting the final touches on a €43 billion ($44.5 billion) package to do much the same.
A generous portion of that money appears destined for Intel.
Even though TSMC will benefit from the U.S. CHIPS Act at its new Arizona fab site, the money adds up clearly to a reshuffling of some semiconductor manufacturing out of Taiwan.
TSMC will continue to make the majority of its investments in Taiwan, where key R&D engineering teams are already hard at work on 2-nanometer and 1-nanometer manufacturing processes. But TSMC's investment in the U.S. raises fears of the loss of multi-billion dollar fab investments at home, and high paying jobs.
It also stokes fears that Taiwan might lose the semiconductor security umbrella, or 'Silicon Shield,' that helps protect it from invasion.
These fears were carried to an extreme in Taiwan by a steady drumbeat of stories in a few newspapers and websites that weighed TSMC's fate.
Taiwan's China Times kept up a steady drumbeat of stories highlighting Taiwan's plight, much of it based on real fears, but also accusing the U.S. of trying to hollow out Taiwan's semiconductor industry.
Not to be outdone, the CCP's Global Times offered up a story that repeats much of what's been said: "US selfishness seen in TSMC manufacturing outflow, to hollow out Taiwan's economy."
What happens if Taiwan's semiconductors, the Silicon Shield that almost guarantees U.S. help against an invasion by Communist China, moves away?
It's like Saudi Arabia asking, "What happens when the oil runs dry?"
News in Taiwan has focused as much on the China threat as on TSMC losing its lead in semiconductor manufacturing.
The issues are linked.
Every time local newspapers mention TSMC, it is referred to as "護國神山”, meaning the sacred protector, or guardian of Taiwan.
TSMC is the center of the Silicon Shield.
Even worse, some of Taiwan's fears come straight from the new book, Chip War, by Chris Miller.
In the book, Professor Miller argues correctly that if the U.S. successfully reshores advanced chip manufacturing, allies Taiwan, South Korea and Japan stand to lose market share.
He also says the U.S. could deploy even more aggressive tools to protect its chip supply, including asking TSMC to invest more in the U.S., or that TSMC roll out its latest technologies simultaneously in the U.S. and Taiwan.
Talk about exposing Taiwan's deepest fears.
The idea that Taiwan's loss might come from the policy change of a longtime friend and ally (the U.S.), the very nation depended upon for help in a crisis; a change of policy that could also lead to the loss of billion dollar investments, high paying jobs, and technology leadership, is simply too much.
There are limits to what should be asked of Taiwan.
There are legitimate reasons for concern.
People in Taiwan also need to remember the true strength of the semiconductor industry they have built.
A few TSMC fabs in the USA is not going to hollow out Taiwan, where the majority of fabs and all the key R&D and advanced engineering personnel remain. Moreover, TSMC is only one of hundreds of chip companies in Taiwan, many of which are global leaders in their segments.
And here again, counterintuitively, is Intel. Earlier this year, Intel CEO Pat Gelsinger himself highlighted Taiwan's importance during an interview on the U.S. financial news station, CNBC:
Never is a long time.
Semiconductors are among the most difficult devices in the world to make, and gaining expertise in the industry takes decades.
Taiwan started in the 1960s.
Today, it is a global powerhouse with over a thousand chip companies, ranging from materials and equipment providers to designers and manufacturers of the most sophisticated integrated circuits on earth.
It will be extremely difficult to unseat Taiwan, or TSMC, from the head of the pack.
The number of global chip industry leaders from such a small island is nothing short of amazing.
No. 1: TSMC (Taiwan Semiconductor Manufacturing Co., Ltd.) the biggest chip foundry in the world is also the inventor of the business model. No. 1: TSMC is the global leader in semiconductor manufacturing technology. No other company mass produces semiconductors at finer geometries than TSMC currently does.
In fact, TSMC will likely end 2022 as No. 1 overall in global semiconductor revenue, beating out Samsung Electronics Co. Ltd. and Intel Corp.
No. 1: ASE Technology Holding Co. Ltd., the biggest OSAT, or outsourced semiconductor assembly and testing company in the world. It’s more than three times the size of U.S. rival, and industry No. 2, Amkor Technology, Inc.
No. 2: WPG Holdings Ltd., is the world’s second largest semiconductor distributor, behind U.S.-based Arrow Electronics Inc.
No. 3: GlobalWafers Co. Ltd., is the world’s third biggest maker of silicon wafers, behind two Japanese firms, Shin-Etsu Chemical Co., Ltd. and Sumco Corp.
No. 3: United Microelectronics Corp. (UMC), is the third biggest chip foundry in the world, behind TSMC and Samsung Electronics. Powerchip Semiconductor Manufacturing Corp. (PSMC) ranks 7th and Vanguard International Semiconductor Corp. is 8th, rounding out Taiwan’s place in the foundry Top Ten.
No. 4: MediaTek Inc., the smartphone chip designer, is the world’s fourth biggest chip design firm, behind Qualcomm Inc., Nvidia Corp., and Broadcom Inc., all U.S. companies.
No. 4: Powertech Technology Inc., in OSAT, followed by No. 7, 8, 9 King Yuan Electronics Co., Ltd. (KYEC), ChipMOS Technologies Inc., and Chipbond Technology Corp. are all in the Top Ten.
No. 4: WT Microelectronics Co., Ltd., in global chip distribution, followed by No. 5 Supreme Electronics Co., Ltd.
No. 6: Novatek Microelectronics Corp. ranks sixth in chip design, followed by Realtek Semiconductor Corp. in 8th and Himax Technologies Inc. in 10th place.
The list goes on.
These companies and others are part of a global supply chain that works together closely. Even the smallest advances in semiconductors take a massive effort by dozens of partners.
In all, Taiwan exported a record high US$155.5 billion worth of semiconductors last year, compared to global semiconductor sales of $556 billion, also a record high.
Fears Taiwan may lose its edge in semiconductors are overdone. The semiconductor industry is one where the knowledge and expertise accumulate over time. Taiwan will remain vital to the industry for decades to come.
The November elections will soon be over and passions will recede.
The way to keep Taiwan’s semiconductor industry on top - especially against Intel - can best be summed up by the way TSMC faced down mighty Samsung Electronics in early 2006, when the South Korean giant took aim at the chip foundry business.
When asked by the media what TSMC would do, then TSMC Chairman Morris Chang said his company would keep doing as it always had: Work hard, push the technology envelope forward, and daily earn the trust of its customers.
Beyond that, he planned to watch his new rival carefully.
"We respect them, but we do not fear them," he said.
Sources:
https://www.commerce.gov/news/blog/2022/01/results-semiconductor-supply-chain-request-information
https://www.intel.com/content/www/us/en/newsroom/news/intel-accelerates-process-packaging-innovations.html
https://foreignpolicy.com/2022/11/09/tsmc-taiwan-battle-semiconductors-water-resource-scarcity/
https://www.christophermiller.net/semiconductors-1
https://www.chinatimes.com/realtimenews/20221123001779-260410?chdtv
https://www.globaltimes.cn/page/202211/1280374.shtml
https://twitter.com/dnystedt/status/1518258974998802432
https://www.cnbc.com/video/2022/05/23/intel-ceo-pat-gelsinger-the-u-s-needs-more-balanced-geographic-supply-chains.html?
https://www.trendforce.com/presscenter/news/20220324-11169.html
https://www.mof.gov.tw/singlehtml/384fb3077bb349ea973e7fc6f13b6974?cntId=1c387e6de44f4798b2efe3e53bca2e30
https://www.wsts.org/76/103/WSTS-has-published-the-Q4-2021-market-figures-and-recalculated-the-Fall-2021-Forecast
https://www.infoworld.com/article/2654993/samsung-elbows-its-way-into-chip-foundry-business.html
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