Why are we so dependent on Taiwan for microchips? Why couldn’t these be manufactured elsewhere, in addition to Taiwan?

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Why are we so dependent on Taiwan for microchips? Why couldn’t these be manufactured elsewhere, in addition to Taiwan?

In: 1601

Sure, they could. But the company that makes them, the Taiwan Semiconductor Manufacturing Company (TSMC), has some unique business benefits from the Taiwan government. Other locales have offered similar incentives, but the government of Taiwan sees TSMC as a strategic shield against a Chinese invasion of the island. They are strongly incentivized to have things go “very bad” should China invade them, given how many times Chinese leaders have proposed invasion in the past.

They are manufactured elsewhere, TSMC is just the biggest company. Chip foundries are extremely specialized and require a lot of investment into equipment and facilities. Companies are working on building more to keep up with demand, but that process takes several years. There is just too much demand for the handful of chip foundries around the world.

We’re not. Taiwain Semiconductor Manufacturing Company has fabrication sites in various countries, including the PRC, Singapore, and the US, although the bulk of their facilities are in Taiwan itself.

It’s just very expensive to spin up a new fabricator from scratch, so the response to a shortage might take years to manifest as a new fabricator.

TSMC (Taiwan Semiconductor Manufacturing Company, Limited) is the largest microchip manufacturing and design company in the world, controlling 51% of the microchip market. The second and third largest producers are Samsung and Intel.

Only these three companies can even produce today’s most advanced microchips. Microchip production relies upon extremely expensive factories and foundries. TSMC’s latest factory cost $19.5 billion.

So TSMC simply became the biggest player in the industry, with the massive capital required to manufacture semiconductors. TSMC is also majority-owned by foreign investors, the top ten of which are American investment firms. The company started in 1987 as a collaboration between the government of Taiwan, the tech giant Philips, as well as private investors with an interest in semiconductor technology. It’s stayed at the forefront of the industry since.

The problem isn’t semiconductors in general but the highest technology factories. There are dozens of fabs located worldwide that can build prior generation technologies. The main issue is that there are probably only three companies today that can make very high end products like the latest CPUs – Samsung, TSMC and Intel. Intel is falling behind the curve a bit and Samsung isn’t as focused on CPUs. TSMC is pretty much the only game in town for the latest AMD and perhaps soon to be Intel CPUs and the latest GPUs (likely). Unfortunately without CPUs, the other chips (even though much higher volumes) aren’t too useful.

These high end factories takes dozens of collaborations across the industry, multi-year partnerships with customers, a stable well trained workforce and tens of billions of dollars to get to work. No other company (at the moment) can duplicate this without many years (think decades!) of development and investment. TSMC has been in the business for nearly 40 years and their investment isn’t going to be duplicated any time soon.

Even if other companies decide to invest in current gen technologies (unlikely), it would be useless for companies who are designing for the next generation technology. It is even less likely that any customer would bet their next gen products on a company that doesn’t have a solid track record.