By Jang Show-ling 鄭秀玲
During the US presidential campaign, then-Republican candidate Donald Trump repeatedly said that Taiwan “stole” the US’ chip industry. The reality is that Taiwan’s semiconductor industry plays a key role in the US’ tech dominance.
First, Taiwan Semiconductor Manufacturing Co (TSMC) focuses on chip process innovations that US companies are not adept at, creating a complementary relationship between Taiwanese and US companies.
When I was researching my doctoral thesis on US competitiveness in semiconductor manufacturing during the late 1980s, Japanese companies were manufacturing cheaper, higher-quality memory chips than their US counterparts and exporting many of them to the US. The US government used anti-dumping tariffs to protect US manufacturers, but these tariffs were ultimately ineffective.
Studies conducted by Mansfield University of Pennsylvania showed that while US manufacturers focused their investments on product research and development (R&D), Japanese makers invested in process technology innovation.
Founded in 1987, TSMC has been manufacturing chips for 37 years and counting. Its mission is to help fabless IC design companies or those that lack chipmaking capacity to produce semiconductors for use in personal computers, cellphones, Internet of Things devices, self-driving vehicles, advanced military hardware and artificial intelligence (AI) large language model training. TSMC’s investments in R&D are focused on how to improve chip production yields and efficiency. That is an area that US chip companies neither like nor are adept at undertaking.
Second, TSMC has over the decades invested heavily in research, development and innovation, allowing it to overtake South Korea’s Samsung Electronics Co and the US’ Intel Corp.
In its early days, TSMC was just a medium-sized chip contract manufacturer and could not compete in terms of investment or R&D with integrated device manufacturers (IDMs) such as Intel and Samsung, with their in-house upstream chip design to midstream chip manufacturing, and downstream chip testing and packaging. For 25 years, TSMC kept its nose to the grindstone, with tens of thousands of employees working three shifts of more than 24 hours to research and develop new technologies and manufacturing processes.
Finally, in 2011, TSMC superseded Samsung with the first successful commercial production of 28-nanometer chips. It continued to advance to 20-nanometer chips, which helped it win over Apple Inc for its latest iPhone series, as well as for its A8 processor for MacBook laptops — a business partnership that continues to this day.
For a long time, TSMC has insisted on a policy of investing 8 percent of its revenue into R&D. Its R&D last year hit US$6.53 billion — far higher than the Massachusetts Institute of Technology’s annual budget of US$2 billion. This level of funding has allowed TSMC to dominate the global chipmaking business. There is no other company in the world that is willing to invest such enormous sums of money over the long term to advance chip process technologies. From 2010 to last year, the number of patents and trademarks issued under the “H01L Semiconductor devices not covered by class” category by the US Patent Office to the top three companies were as follows: TSMC, 35,591; Samsung, 160,805; and Intel, 27,677.
Third, Taiwan’s semiconductor companies have a group strategy that resembles one large IDM factory.
One of the keys to TSMC’s success is its long-term, close relationship with Taiwanese suppliers, which is critical to its relatively low manufacturing costs and high production efficiency.
A report released by the Industry and Technology Intelligence Service, titled “2023 Semiconductor Industry Production Report,” showed that in 2022, Taiwan’s upstream, midstream and downstream semiconductor companies numbered 314: 262 chip designers, 15 chip manufacturers, and 37 packaging and testing firms, as well as photo mask, substrate, circuitry frame and chip material sourcing businesses. Through about 40 years of continuous hard work and the adoption of a vertical production model for localized supply chains, Taiwan’s semiconductor industry resembles one giant IDM factory.
Fourth, Taiwan’s semiconductor industry has played a vital role in helping the US become the king of tech.
The Taiwanese semiconductor industry’s accomplishments have helped the US become the global industry leader in semiconductors. US companies account for about 48 percent of global semiconductor revenue — far ahead of any other country or territory. This includes US fabless chip designers dominating the world, with the total production value of Nvidia Corp, Broadcom Inc, Advanced Micro Devices Inc, Qualcomm Inc and Marvell Technology Inc amounting to US$4.8 trillion. Applied Manufacturing Corp — a materials supplier of TSMC — is the world’s largest manufacturing equipment and service provider.
In 2009, TSMC invested US$100 million in equipment and hired 400 engineers to work on chip-on-wafer-on-substrate R&D, allowing it years later to expand into downstream assembly services. TSMC and its IDM rivals Intel and Samsung account for just 28 percent of global semiconductor production value. TSMC is the champion in global AI chip production, with about a 90 percent market share. The reason it was able to provide the US market’s second-most valuable company, Nvidia, with its supercharged AI Blackwell chip is its advanced packaging and assembly. Its AI chip and South Korea’s SK Hynix’s high bandwidth memory are the result of nearly 13 years of Taiwan-South Korea R&D cooperation, as well as investment from multiple Taiwanese manufacturers.
Nvidia founder Jensen Huang (黃仁勳) has repeatedly said that if Taiwan were not in the picture, Nvidia would not be anywhere close to where it is today, adding that Nvidia would continue to promote the AI product revolution of the future together with Taiwanese firms.
AI technology is of great concern to the growth of digitizalization across all industries, as well as in enhancing military power. With its advanced process technology, TSMC has already succeeded in placing more than 200 billion transistors on a single chip. The company’s former CEO predicted that future 3D assembly could reach more than 1 trillion transistors. This would be an absolutely astonishing feat. At hand, AI chip production mostly relies on the massive advances in technology from TSMC’s 3-nanometer chips. If the US were to rely solely on Intel’s production, its future AI computing technology could come within close proximity to China’s industrial giants, but sooner or later, it would lose the AI race, as well as business and military equipment superiority.
If the US wants to maintain its dominance in biotech and pharmaceuticals, national defense and data security software, it has to continue its tight-knit cooperation with Taiwanese semiconductor companies.
Jang Show-ling is an adjunct professor of economics at National Taiwan University.
Translated by Tim Smith
