Semiconductor chips power just about every electronic device we use these days, from our phones to our laptops to our smart doorbells and house locks. But despite their ubiquity, making these chips is a complicated and hugely expensive process, dominated by a small number of manufacturing powerhouses. 

This week, we’re looking at Taiwan Semiconductor Manufacturing Company, or TSMC, one of the world’s leading semiconductor fabrication companies, to get a better sense of the industry and how it operates. The company, which is listed on the New York Stock Exchange and the Taiwan Stock Exchange, currently has 12 “fabs” (fabrication plants — aka, factories or foundries) around the world, with nine in Taiwan, one in the U.S. (in Washington state), and two in China. 

The “Purest” Player

Though giants Intel and Samsung lead global semiconductor sales, TSMC ranks #1 among “pure-play” companies, which means it manufactures chips for others rather than designing and manufacturing its own. Companies such as Qualcomm and Nvidia, for instance, are “fabless” semiconductor companies — they design high-end chips, but rely on others’ expertise for the production rather than spending time and money building their own foundries. Even companies that have their own foundries, such as Intel, outsource orders to TSMC, which dominates the pure-play space, with over 50 percent market share.

TSMC, which was founded in Taiwan in 1987 by M.I.T. and Stanford graduate Morris Chang, has thrived as a strategic partner to chip designers. According to Willy Shih, who teaches at Harvard Business School, the company sees itself as not just a manufacturer, but a service company, and it has a reputation for delivering high-quality products. The word in the industry, Shih told The Wire, is that “if you want to sleep well, you send your order to TSMC.”

TSMC served 499 different customers in 2019, according to their annual report. Though they keep most of their clients’ details secret, some of their top customers include high profile companies like Apple, HiSilicon, Qualcomm, Nvidia, and Advanced Micro Devices.

Another reason for TSMC’s dominance is its wide variety of semiconductor process recipes, which allows them to manufacture a vast array of products. The company’s 2019 annual report claims they have “the foundry segment’s broadest technology portfolio,” producing 10,761 different products using 272 distinct technologies.  

TSMC is also a leader in pushing manufacturing processes forward. In its new facility in Taiwan — known as Fab 18 — the company is currently ramping up production using 5nm processes — the latest, smallest tech, which allows a higher density of transistors on a chip and thus more powerful computing. Fab 18 cost $17 billion to build, and The Economist called it “the most expensive factory ever built.”

The company is also on track to start large scale production with 3nm processes by 2022. When it comes to producing the latest high-tech chips designed by leading fabless firms like Qualcomm, Nvidia and AMD, only Samsung remains a competitor for TSMC.

Broken down by product type, the largest portion of TSMC’s revenue comes from smartphone chip sales, which account for roughly half of all sales. Popular phone brands containing chips manufactured by TSMC include Apple, Huawei, Samsung, Xiaomi, OnePlus and Sony. 

TSMC’s Global Operations

The output of semiconductor foundries is measured in wafers. Integrated circuits (ICs) are printed on silicon wafers, and TSMC makes semiconductors on wafers ranging in size from six to twelve inches in diameter. After production, the wafers are cut into individual chips. Chips themselves vary widely in size, so these wafers may contain anywhere from several hundred to thousands of chips. In total, TSMC produced more than 12 million 12-inch equivalent wafers last year, according to the company’s website. 

Of its 12 fabs, TSMC’s Taiwan fabs are by far its largest, including three “gigafabs” — Fabs 12, 14, and 15 — which can produce more than 100,000 wafers per month and had a combined capacity of more than eight million 12-inch equivalent wafers in 2019, according to TSMC’s website. 

While it gets an increasing number of orders from China, more than half of TSMC’s 2019 orders from China came from HiSilicon, Huawei’s in-house chip design firm. Now, with Huawei and its affiliates on the U.S. Entity List, which bars companies with U.S. operations from exporting goods to them, companies such as TSMC are under pressure. TSMC, for instance, has stopped taking new orders from Huawei, so it could lose a large portion of its China business this year. But the company’s chairman, Mark Liu, reassured shareholders at the company’s annual meeting earlier this month that other orders could make up for the loss.

TSMC still gets the majority of business from American customers, so it was a big deal when, in May, TSMC announced plans to build a new plant in Arizona. The new fab is expected to cost $12 billion and will have a capacity of about 20,000 wafers per month. However, TSMC is still in talks with the U.S. government to secure federal subsidies aimed at offsetting differences in operating costs between the U.S. and Taiwan, while American lawmakers proposed federal aid for American manufacturers in order to compete with foreign manufacturers like TSMC.

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