TAIPEI/TOKYO -- With the global shortage of semiconductors becoming ever more serious, Taiwanese Economic Minister Wang Mei-hua held an unusual meeting with executives from Taiwan Semiconductor Manufacturing Co. on Jan. 24 to relay a plea from numerous foreign governments.
"Is there any way to increase output quickly, somehow?" Wang asked the executives.
Sources say the executives at TSMC, the world's largest chipmaker, were polite but committed to nothing.
"If production can be increased by optimizing production capacity, we will prioritize automotive chip supply," a company representative reportedly said.
TSMC's factories are already running at maximum capacity. But the way it brushed off the minister's plea reflects the company's unparalleled clout in the chip industry -- a dominance that has only grown amid the growing rivalry between the U.S. and China.
From Apple and Qualcomm to Sony, corporations from around the world are now sending representatives to TSMC's headquarters daily in hopes of securing chips for their products. TSMC's rise is reflected in its stock price, which has doubled in the past year. Market capitalization has topped $550 billion, placing it among the top 10 in the world.
The Taiwanese company was founded in 1987. The year of establishment is significant because it came one year after Japan and the U.S. inked a bilateral semiconductor treaty in response to a major trade clash.
Back then, Japanese chipmakers NEC, Toshiba and Hitachi ranked among the world's top producers. The chip agreement essentially forced the Japanese players to hike prices so as to give greater market share to U.S. rivals.
Seeing an opportunity to put the Taiwanese industry on the map, the island's authority had urged Morris Chang, a longtime veteran of the U.S. semiconductor industry, to set up shop back home. The global chip industry was about to change, which presented a major opportunity for resource-poor Taiwan, they said.
The gamble paid off in spades. Chang's TSMC found quick success as a contract manufacturer, tapping the U.S. shift toward "horizontal" specialization. Previously, the chip companies had kept the entire production in house, from innovation and design to manufacturing. But American companies decided that keeping manufacturing within the company was not cost effective because of high U.S. wages and began outsourcing the low-value mass production to Asia.
Once this shift was made, TSMC stepped into the role of a reliable manufacturer that could keep costs down.
TSMC gained further momentum when smartphones became commonplace in the 2010s. The company swiftly poured cash it accumulated from contract manufacturing to developing new production technology, which helped attract even more orders.
TSMC is now one of only three companies that can produce cutting-edge semiconductors, alongside Samsung Electronics and Intel. And Intel is on the verge of dropping out of that elite club.
The new American business model of focusing on chip design gave birth to fabless chipmakers such as Qualcomm and Nvidia. Their value lies in intangible assets such as patents and data.
That has left Asia to emerge as the global factory. As one of the few major contract manufacturers, TSMC now commands an unexpectedly large influence in the semiconductor industry, causing restlessness among U.S. fabless players.
The frictions the U.S. has caused with China have produced geopolitical risks. The dynamic has ended up boosting TMSC's global presence. The U.S., which had once antagonized Asian companies, is now desperately moving to draw TSMC in for national security reasons.
Thirty-five years after sealing the U.S.-Japan semiconductor agreement, Washington is now wielding sanctions against Semiconductor Manufacturing International Corp., China's leading chipmaker. That move has resulted in an unprecedented shortage of semiconductors that has reverberated the world over.
Due to the sanctions against SMIC, TSMC is receiving more orders. The Taiwanese company is cooperating with China in a plan to significantly expand production at a Nanjing production center, which supplies chips to Chinese clients.
The U.S. has built a legacy of upsetting the balance in the global chip industry. TSMC will continue to play a starring role in the latest disruption.
