TSMC is making the most of a bad geopolitical situation

debtor companyWith a value of $430 billion straddling one of the world’s most dangerous geopolitical flashpoints, Taiwan Semiconductor Manufacturing Company (TSMC). Both America and China covet the unrivaled ability to manufacture advanced chips. It is a much larger supplier to the former than to the latter, but if a superpower were to suppress its independence entirely through economic pressure or force, the consequences would be immense. Yes, and is threatened by Chinese aggression across the Taiwan Strait. Still, I refuse to panic. “If there’s a war, it’s not just the chips that you have to worry about,” 91-year-old founder Morris Chan said on a podcast last year. His successor, Chairman Mark Liu, argues that peace is in the interests of all.

Such indifference risks sounding naive. Like it or not, the semiconductor rivalry of the great powers (some call it the Silicon Curtain) has solidified in recent months. China has long tried to build a chip industry from scratch, to little avail. Last year, the United States increased its control over certain “chokepoint” technologies, such as artificial intelligence chip design, chip software and semiconductor manufacturing equipment, to thwart China’s ambitions.Furthermore, American chips The law, enacted last year, promises about $200 billion in investment through subsidies. One of the biggest beneficiaries he is Intel, both rival and client. TSMC.

In response to, TSMC It looks like you’ve joined Uncle Sam. Last month, President Joe Biden celebrated the proposed $40 billion investment by standing in front of the company’s massive new American factory under construction in Phoenix, Arizona. Still look closely, TSMC It offers a lesson on how to handle the dirty business of geopolitics. Contrary to what some think, the new Cold War will not force a breakaway from Taiwan, whose foundry capacity makes more than three-quarters of the world’s high-end chips. Profitability that generates the cash flow needed to maintain an edge is unlikely to be compromised. However, in the long-term future, we believe that one day geographic flexibility may become more important. In short, you’re playing a subtle diplomatic game where business interests come first.

Phoenix factory on display Ah For those who fear “exiting Taiwan”. It stretches across miles of desert and is the size of a pharaoh. Intel plans to start making 4-nanometer chips next year, and if it beats Intel it would be the most advanced ever made in America. Most of the $40 billion investment TSMC will be the second fab to begin manufacturing more sophisticated chips in 2026. The biggest customer in Phoenix is ​​Apple. Outside the US, it plans to build its first fab in Japan for another gadget maker, Sony. This seems like a strategy to get closer to customers, but if you’re sitting in Taiwan, it might look abandoned and suspicious.

“Completely ridiculous,” counters Pierre Ferrag of financial firm New Street Research. TSMC We launched a new fab in Taiwan almost simultaneously, with four times the wafer capacity of our two Arizona foundries and more advanced technology. The company’s bet on the United States is more like a long-term insurance policy than an immediate game-changer.to enable TSMC It will begin the daunting task of recruiting labor and gathering suppliers in America, providing a baseline for expansion “if the Chinese are mad enough to bomb Taiwan.” However, for the time being, most R.&D. likely to remain in Taiwan.at least four-fifths TMSCcapacity.

Next is profitability. Fear is twofold.First, for all the subsidies America offers, manufacturing there is very expensive, and the concern is TSMC Bear the loss as a sign of goodwill to the country. Second, subsidies could help Intel’s comeback. TSMC But it’s been beating the drums of chip nationalism ever since. In the fourth quarter financial results on January 12, TSMC Put some of those fears to rest. U.S. construction costs are five times higher than Taiwan’s, but customers who want their chips made in the U.S. will pay higher prices to protect their profits, the people said. Moreover, despite the cyclical decline in the global chip market, TSMC It’s boosting market share against rivals such as Intel. As industry consultant Malcolm Penn says, the company is on the cutting edge of chip manufacturing, so cutting-edge products are always in short supply.

In some respects TSMC It is cleverly side by side with the Biden administration. Arizona’s fabs may not solve America’s chip security problem. But at least they offer some of the good (i.e. unionized) manufacturing jobs the president loves so much. I guess. In other ways, the company is building a long-term hedge against its own future. We believe that high-end chips will become increasingly complex and expensive to manufacture, and that the digitalization of the global economy will intensify their use.In that case, the final TSMC It may overtake Taiwan, whose population is declining. Access to more global minds in America and elsewhere will be essential.

silicon curtain call

Will that offshore investment contribute to the glut that is currently weighing on the global chip market? No, says Penn. Chip demand will grow at an average annual rate of 8%. Planning for the future makes sense if you can adjust your investments to market conditions. More important is the degree to which the US and its allies blacklist China. TSMC It has a fab in Nanjing that manufactures mainstream chips for the domestic market. The company may be right in believing that cool minds win. But even if it’s wrong, you’ve at least started the long process of hedging your bets. ■

Read the article by Schumpeter, a columnist on global business.
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