TAIPEI -- Taiwan Semiconductor Manufacturing Co., the world's largest contract chip maker with more than 50% of the global market share, said on Monday it plans to build a plant in the southeastern Chinese city of Nanjing to make 16-nanometer chips, their most advanced chips used in the latest iPhone 6s and iPhone 6s plus models, pending approval from Taiwanese and Chinese governments.
TSMC's new $3 billion project, a record for Taiwanese investments in China, comes at a time when China is aggressively building its domestic semiconductor sector. Faced with surging demand for electronics and other mobile gadgets in China, global chipmakers are keen to expand their operations on the mainland.
The unit, set to become the most advanced production facility for mobile processors in China, is scheduled to begin production of 12-inch wafers in the second half of 2018, wholly owned by the Taiwanese chipmaker and manned by a staff of 1,200.
TSMC is also creating an additional 500-staff design center together with the plant. Taiwanese officials said on Monday they will make a decision whether to approve the project within two months.
Previously, TSMC Chairman Morris Chang has said that it is more expensive for his company to run a facility in China than in Taiwan. TSMC has only one facility in China, a 8-inch wafer plant in Shanghai making imaging sensor and power management chips.
At the same time, China is becoming a key market for the Taiwanese tech giant, which saw its revenues from Chinese customers grow by a compound annual growth rate of more than 50% over the past five years.
TSMC's two main rivals, Intel Corporation and Samsung Electronics, have also been growing the scale of their operations in China.
In 2014, Intel paid $1.5 billion for a 20% stake in a subsidiary of China's tech conglomerate Tsinghua Unigroup, a main driver of China's chip industry. In the same year, Samsung began production at an $7 billion advanced NAND flash memory plant in the central Chinese city of Xi'an.
"It cost 5-10% more per wafer output for TSMC to manufacture in China, as there are no complete semiconductor clusters there and TSMC could not freely distribute capacity from one fab to another like they did in Taiwan," said Andrew Lu, a longtime industry watcher.
Analysts said that TSMC's move to capture Chinese market share is timely.
"This is definitely a positive and smart move for TSMC, as they do not want competitors like Samsung and Intel to gain any market share from Chinese clients," said Carlos Peng, an analyst at Fubon Securities. "No Chinese company can compete with TSMC in 16-nanometer process technology even in second half of 2018."
Competition between the big three is heated. TSMC is set to produce 10-nanometer chips in small quantities in the fourth quarter of 2016, around the same time as Samsung and three quarters ahead of Intel.
TSMC Co-Chief Executive Mark Liu told suppliers on Dec. 3 that the company plans to start producing 7-nanometer chips in the second quarter of 2017, while Intel and Samsung are yet to announce a production schedule for the same product.
In an emailed statement, an Intel spokesperson told Nikkei Asian Review that the American chipmaker expects to launch its first 10-nanometer chip in the second half of 2017, but it does not have a schedule for 7-nanometer yet.
Samsung did not respond to a request for comments before the deadline.
TSMC shares closed up 2% at NT$143.5 each before the announcement.