Semiconductors are the brains in every “smart” product on the planet, and the promise of 5G, Artificial Intelligence, autonomous vehicles, and connected health all ride on the ability to put more intelligence into smaller and smaller “advanced node” chips. Manufacturing semiconductor chips and discrete semiconductors is difficult, expensive, and requires a high level of expertise. There is one company that owns 50% of the semiconductor manufacturing market: TSMC.
TSMC stands for Taiwan Semiconductor Manufacturing Company. They, along with Samsung, are the only companies with the capability and expertise necessary to deliver the most sophisticated chips known as “advanced node” chips. Basically, they are incredibly small. Intel has floundered in terms of chip manufacturing, while Abu Dhabi-backed Global Foundries has abandoned advanced nodes altogether.
TSMC is a critical partner for both the US and China. With the formalization of Hong Kong’s national security legislation, there is growing concern that Taiwan could be next on the list in China’s bid for expanded global influence. According to an opinion piece in the Financial Times, recent comments by Chinese military leaders “make many believe that an assault on Taiwan could be imminent”. The US is Taiwan’s unofficial guarantor, and Taiwan is so strategically critical to both the US and China that it could well become a flash point if either country decides to assert more control.
Recognizing their vulnerabilty, both the US and China are moving to strengthen domestic semiconductor supply chains. The US recently announced that TSMC would begin building a foundry, or chip manufacturing plant, in Arizona, in addition to the existing Samsung foundry already in Texas. Rumors that Intel will build a fab in the US have been circulating in the industry as well. In May 2020, the Semiconductor Industry Association submitted a $37B proposal to fund factories and research in order to keep the US ahead of state subsidized Chinese competitors. In addition, after more than a decade of software domination, US venture capital investments in hardware and semiconductor start-ups have increased significantly over the past two years.
Apple stated that it will take two years for its new chips to become fully integrated into their products. A great many of those chips will be manufactured in Taiwan, and TSMC’s new Arizona fab won’t be online until 2024. Let’s hope that the current struggles in US-China relationship, as well as the pandemic, are far behind us by then.