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TSMC's Morris Chang calls on Taiwan to defend its chip industry

Industry veteran says China 'not yet a competitor' despite hefty subsidies

TSMC founder Morris Chang, center, says Taiwan must "hold on tightly" to its leadership in semiconductors. (Photo by Lauly Li)

TAIPEI -- Morris Chang, the founder and former chairman of the world's most valuable chip company, has called on Taiwan and its government to defend the island's semiconductor manufacturing leadership amid a push by the U.S. and China to build up their own chipmaking capabilities.

Chang, who established Taiwan Semiconductor Manufacturing Co. in 1987, is seen as the founding father of the island's flagship chip industry.

"Semiconductor manufacturing is a crucial industry that involves daily lives, the economy and national defense. It is also the first industry for which Taiwan has earned a competitive position on the global stage," Chang told an Economic Daily forum in Taipei in a rare public appearance by the 89-year-old.

"It's very difficult to create such a flagship chip industry over years, and it's also very challenging to keep this edge," he said. "I call on the government, society and TSMC to keep hold of it tightly."

Chang's comments come as major economies step up efforts to bring vital semiconductor manufacturing onshore. The U.S. is looking to earmark $50 billion or more to support domestic chipmaking, while the European Union vowed earlier this year to localize 20% of the most advanced semiconductor manufacturing by 2030. China, meanwhile, has made the development of its semiconductor industry a top policy priority amid tensions with the U.S.

Assessing the relative strengths of these challengers, Chang said the U.S. has a competitive edge in terms of the physical resources and environment needed to build a semiconductor manufacturing industry, including land, water and electricity. "However, they lack dedicated talent -- including dedicated and committed engineers, technicians and production-line workers -- as well as the capability to mobilize manufacturing personnel on a large-scale."

By contrast, he said, Taiwan has "excellent" engineering talent and executives, though he acknowledged that their management capability "does not necessarily work in foreign countries."

He also said the unit cost of chipmaking in the U.S. is higher than in Taiwan, adding that subsidies from the federal and state governments "will not last forever" and are not enough to offset the long-term competitive weakness of making chips in the U.S.

China, meanwhile, has spent tens of billions of dollars subsidizing its chip industry over the past 20 years, but its manufacturing capability is still at least five years behind that of TSMC, according to Chang. In terms of chip design capability, China is a year or two behind the U.S. and Taiwan. "China is not yet a competitor," he said.

TSMC's biggest competitor, he said, is Samsung of South Korea, the world's biggest memory chipmaker.

"South Korea has similar competitive edges as Taiwan. ... However, what is good in South Korea is not necessarily good if they need to operate in foreign countries."

Chang is a respected figure in the global chip industry, with a career that spans six decades. He worked with Jack Kilby, the inventor of integrated circuits, during his time at Texas Instruments, where he served as a senior executive for 25 years. In 1985, Chang was invited by Taiwan's government to help develop the island's nascent chip industry. Two years later he founded TSMC, now the world's biggest contract chipmaker.

Early last year, Chang described the pandemic as a new kind of "war," predicting that it would dramatically change the way people lived and bring massive disruption to the global economy. Late that year, when tech-related tensions between the U.S. and China were heating up, he described TSMC as a crucial strategic resource whose cooperation all industry players and even countries wanted to secure.

Currently, about 75% of semiconductor manufacturing capacity, as well as many suppliers of key materials, are concentrated in Japan, South Korea, Taiwan and China, according to a recent report by the Semiconductor Industry Association, a U.S. industry alliance. The SIA further pointed out that Taiwan accounted for 92% of global production of advanced chips below 10 nanometers, a number that refers to the linewidth between transistors on a chip and is used as an indicator of performance -- the smaller the number, the more advanced the chip.

Taiwan's vital role in the semiconductor supply chain was underscored when the major car making economies of the U.S., Japan and Germany all pressured the island's government to help prioritize the production of automotive chips amid a global supply crunch.

Booming demand for chips is also straining Taiwan's resources and infrastructure. The island is in the midst of its worst drought in 57 years, and several cities have started drilling wells for residential, commercial and industrial use. An expected spike in energy consumption during the hot summer months means power supplies will likely be another challenge for the local tech industry.

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