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Taiwan Semiconductor Manufacturing Company (TSMC) is the world’s largest contract chip manufacturer. But it has been thrust into the middle of US-China geopolitical tensions. logo displayed on the screen.
Rafael Henrique | Sopa Images | Lightrocket | Getty Images
US House Speaker Nancy Pelosi may have left Taiwan, but the visit once again shined a spotlight on the island’s critical role in the global chip supply chain, and in particular the world’s largest chipmaker, the Taiwan Semiconductor Manufacturing Co., or TSMC.
The controversial visit, which angered Beijing, saw Pelosi meet TSMC Chairman Mark Liu in a sign of how important semiconductors are to US national security and the integral role the company plays in making the most advanced chips .
Semiconductors, which are involved in everything from our smartphones to cars and refrigerators, have become a key part of the US-China competition for technology in recent years. More recently, a shortage of semiconductors has prompted the US to try to reach Asia and maintain its lead over China in the industry.
“Taiwan’s unresolved diplomatic status will remain a source of intense geopolitical uncertainty. Even Pelosi’s trip underscores how important Taiwan is to both countries,” Reema Bhattacharya, head of Asia research at Verisk Maplecroft, told CNBC “Street Signs Europe” on Wednesday.
“The obvious reason is its critical strategic importance as a chipmaker and in the global semiconductor supply chain.”
Pelosi’s visit to Taiwan and meeting with TSMC show that the US cannot do it alone and will require cooperation with Asian companies that dominate the most modern brands.
TSMC’s critical role
TSMC is a foundry. That means it makes chips designed by other companies. TSMC has a long list of customers from Apple to Nvidia, some of the biggest tech companies in the world.
As the U.S. has fallen behind in chipmaking over the past 15 years or so, companies like TSMC and Samsung Electronics in South Korea have moved forward with cutting-edge chipmaking techniques. While they still rely on tools and technology from the US, Europe and elsewhere, TSMC in particular has managed to solidify its position as the world’s leading chip maker.
TSMC accounts for 54% of the global foundry market, according to Counterpoint Research. Taiwan as a country accounts for only two-thirds of the global foundry market when considering TSMC along with other players such as UMC and Vanguard. This highlights the importance of Taiwan in the global semiconductor market.
When you add Samsung to the mix, which has 15% of the global foundry market share, then Asia really dominates the chipmaking sphere.
That’s why Pelosi wanted to meet with TSMC’s chairman.
Fears of an invasion of Taiwan
China sees the democratic, self-governing Taiwan as a renegade province to be reunited with the mainland. Beijing spent weeks telling Pelosi not to come to Taiwan.
During her visit, China escalated tensions by conducting military exercises.
There is concern that any kind of incursion into Taiwan by China could massively affect the power structure of the global chip market, giving Beijing control over technology that it has not had before. In addition, there are fears that a hack could choke off the supply of cutting-edge chips to the rest of the world.
“Most likely, the Chinese would ‘nationalize’ it (TSMC) and start integrating the company and its technology into its own semiconductor industry,” Abishur Prakash, co-founder of the Center for Innovating the Future consultancy, told CNBC. via email.
What is the US doing?
How is China stacking up?
SMIC is vital to China’s ambitions, but sanctions have cut it off from the key tools it requires to make cutting-edge chips like TSMC does. SMIC remains years behind its rivals. And China’s semiconductor industry still relies heavily on foreign technology.
TSMC has two chip factories in China, but they produce less sophisticated semiconductors than the Arizona manufacturing facility.
Chip manufacturing alliances
TSMC meanwhile is caught in the middle of the US-China rivalry and could be forced to choose sides, according to Prakash. Its commitment to an advanced semiconductor factory in the US could already be a sign of which country it is siding with.
“In fact, a company like TSMC has already ‘picked sides.’ It is investing in the U.S. to support American chip production and has said it wants to work with “democracies” like the EU to make chips,” Prakash said.
“Increasingly, companies are taking an ideological tone in who they work with. The question is, as tensions between Taiwan and China rise, will TSMC be able to maintain its position (aligned with the West) or will it be forced to recalibrate geopolitical strategy” .
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