The Ever Given container ship affair in the Suez Canal once again made clear how dependent the world economy is on the few geopolitical strategic choke points, transport and trade hubs for the supply chains. While the Covid crisis and shortages in the imports of drugs, pharmaceutical material and vaccines already lead to a debate to diversify the dependence from foreign imports, to reorganize the supply chains and foreign trade,to upgrade selfresilience and even ideas of decoupling, gloregionalization and partly deglobalization were discussed, there are opposite tendencies and business as usual.The latest example is the dependence of many industrial sectors from automotive to electronics industry from the semimonopoly of Taiwan Semiconductor Manifacturing Company (TSMC):
“Chip wars- how a chipmaker from Taiwan became the linchpin of the global economy
(FINANCIAL TIMES) – When Li Ta-sen was a little boy, he used to walk to school through fields of sugarcane taller than him.Some 40 years later, he is making a living by selling off the same fields as a property boom takes hold in his home town of Shanhua.The reason for the construction frenzy in the once shabby rural town in southern Taiwan is simple – the arrival of the world’s most advanced chip factory.
Taiwan Semiconductor Manufacturing Company (TSMC), the largest contract chipmaker in the world, is building a plant to make 3-nanometre (nm) chips, semiconductors expected to be up to 70 per cent faster and more power efficient than the most advanced in production now, and which will be used in devices from smartphones to supercomputers.
„Prices for the adjacent agricultural land tripled last year, and we had the highest transaction volume in our 10-year history,“ says Mr Li, who runs the local branch of real estate broker Century 21, and has watched TSMC engineers snap up newly built apartments and town houses.
But the impact of TSMC’s new fabrication plant, or „fab“, radiates far beyond southern Taiwan.In the world of semiconductors, this is the centre of the universe.The plant, due to start mass production next year, will use process technology which only TSMC and South Korea’s Samsung Electronics have mastered so far – at present, the most advanced chips are 5nm.
The new chips bring huge advantages for customers: The smaller the transistors on a chip, the lower the energy consumption and higher the speed.Measuring 160,000 sq m – the size of 22 football fields – the plant is commensurate with TSMC itself: a hulk with a stranglehold on global semiconductor manufacturing.
Normally a low-key company, TSMC’s massive investment in cutting-edge technology and growing influence are quietly drawing it into the limelight.
At a time when a global chip shortage has forced slowdowns or even suspensions of car production from Japan to Europe and America, and with politicians in many countries making noises about bringing more manufacturing onshore, the Taiwanese company’s dominant position in global chip production is attracting attention.
Given that China retains a standing threat of invasion of Taiwan, the island has long been at the centre of the military rivalry between Washington and Beijing in East Asia. But it is also increasingly being caught up in the technological competition between the two superpowers.
China’s companies have been unsuccessful in their bid to match TSMC’s manufacturing prowess, but the United States has also started to struggle.
Intel is set to outsource some production of processors, its crown jewel, to the Taiwanese company. In Washington, the Pentagon has been quietly pressing for the US to invest more in advanced chip-making, so that its weapons are not dependent on foreign manufacturers.
All of that makes TSMC possibly the most important company in the world that few people have heard of.
While many governments would love to be able to mimic its success, they are likely to find the costs of trying to match TSMC prohibitive.
And its customers are beginning to realise they are not dealing with a traditional supplier.
TSMC has long gone largely unnoticed because the semiconductors it manufactures are designed and sold in products by branded vendors such as Apple, AMD or Qualcomm. Yet the company controls more than half of the world market for made-to-order chips.
And it is getting more dominant with every new process technology node.
While it accounts for only 40 per cent to 65 per cent of revenues in the 28nm-65nm category, the nodes used for producing most car chips, it has almost 90 per cent of the market of the most advanced nodes currently in production.
„Yes, the industry is incredibly dependent on TSMC, especially as you get to the bleeding edge, and it is quite risky,“ says Mr Peter Hanbury, a partner at Bain and Company in San Francisco.
„Twenty years ago, there were 20 foundries, and now the most cutting-edge stuff is sitting on a single campus in Taiwan.“
Since every new node of process technology requires more challenging development and bigger investment in new production capacity, other chipmakers have over the years started focusing on design and left production to dedicated foundries such as TSMC.
The steeper the cost became for new fabrication units, the more other chipmakers started to outsource, and the more TSMC’s competitors in the pure-play foundry market dropped outof the race.
This year, TSMC upped its forecast for capital investment to a whopping US$25 billion to US$28 billion (S$34 billion to S$38 billion) – potentially 63 per cent more than last year and putting it ahead of both Intel and Samsung.
Analysts believe that includes at least some investment in capacity the Taiwanese manufacturer needs to supply Intel. The US chipmaker is forced to outsource part of its processor production because it has struggled to master two successive process technology nodes – 10nm and 7nm – in time to make its own chips.
Intel’s stumble on the second successive generation of manufacturing technology triggered a call from an activist investor last year for the company to abandon chip manufacturing by switching to a „fabless“ business model, as so many other chipmakers have done.
Mr Pat Gelsinger, Intel’s new chief executive, rejects that idea. „Confidence in 7nm is increasing,“ he told investors and journalists in a video message on Tuesday.
He said the company was increasing its engagement with TSMC and other foundries, and outsourcing the manufacturing of some processors to TSMC.
Despite his pledge to resurrect Intel’s manufacturing prowess, the company needs TSMC at least for a transition period to stop losing market share for central processing units (CPUs) – the heart of every computer and server – to its rival, AMD.
According to two people familiar with TSMC and Intel, the US company has had a team working with TSMC for more than a year to prepare outsourced production of CPUs at the new Tainan fabrication plant.
Mr Mark Li, a chip industry analyst at Bernstein, estimates that Intel will outsource 20 per cent of its CPU production
to TSMC in 2023, and the Taiwanese company needs to invest about US$10 billion in capacity for that alone.
The prohibitive cost has made it increasingly difficult for other companies to stay in the game of advanced chip manufacturing.
But as the Intel example shows, money is not the only factor.
Shrinking the size of transistors – the key feature necessary for cramming ever more components into one chip, which in turn allows continued cost and energy efficiency – is becoming a challenging feat of engineering.
The transistor size in a 3nm node is just 1/20,000th of a human hair.
The tweaks to machinery and chemicals needed to achieve this come more easily with the single-minded focus on this manufacturing technology, the large scale and broad range of applications that TSMC has developed.
Supply chain concerns
TSMC’s increasingly dominant position in chip manufacturing is starting to attract political attention too.
The shock from the auto chip shortage is reinforcing the pressure from governments to bring vital supply chains closer to home in order to make them less vulnerable to disruption in scenarios like the Covid-19 pandemic and secure them against influence from geopolitical adversaries such as China.
In the US, lawmakers are citing the chip shortage as proof that the country needs to revive more semiconductor manufacturing at home. Last year, TSMC committed under political pressure from the administration of Donald Trump to build a US$12 billion plant in Arizona.
Japan is also getting worried. Last month, TSMC announced it would set up a subsidiary in Japan to conduct research in new semiconductor materials. Japan dominates upstream material supplies to the semiconductor industry. „It is unsafe if TSMC is only in Taiwan; you have to spread things out a little more,“ says a Japanese government official. „This is to counter the risk of a Taiwan war. That risk is very real.“
Even EU member states are now aspiring to bring cutting-edge chip production back to Europe with an initiative that seeks investment in a 2nm chip plant – the next generation of process technology node after the 3nm factory that TSMC is building in southern Taiwan.”
Worries about such hi tech dependencies were already voiced it the 2008 paper about NATO reform “Towards an overall strategy in an uncertain world – Renewing the transatlantic partnership” by the former NATO generals General Dr. Klaus Naumann, General John Shalikashvili (USA), Field Marshal The Lord Inge (GB), Admiral Jacques Lanxade (F) and General Henk van den Breemen (NL). The study revealed the range of regional and global threats that are exacerbated by international trends. These could no longer be dealt with by the nation states alone in terms of their scope and complexity, but could only be grasped in a holistic, joint approach that included non-military and military means. Not only are nation states overwhelmed by the new threats and problems, Europe and the EU cannot cope with them alone without the USA and NATO, especially since the weight of the EU in the world of tomorrow will decrease and the threats will not only be of a military nature, but also also of a non-military nature are for example the use of energy dependencies, financial dependencies, computer warfare (cyber war). The generals wrote:
“At the same time, the globalized world has created a strategic environment that is unparalleled in terms of complexity. The threat posed by the cold war, with a rational opponent, was one-dimensional and dominated by military affairs. (…) What is new about globalization today is that it enables local risks and threats to become global threats. (…) This vulnerability of the West through the new dependence on the services and production of Asia is as strong today as the European dependence on the oil of the Middle East. People in the West are not unfamiliar with some increase in gasoline prices during crises or wars in the Middle East, but they are not prepared for the more sudden and drastic collapse caused by a crisis affecting the Indian high-tech industry caused by a war with Pakistan or major unrest. In other words, the most positive uses of the global economy make the world as a whole vulnerable to local crises. ”(P.12)
And one can imagine besides scenarios about Indian Silicon Valley Bangalore, what a Sino-American conflict about Taiwan could mean in relation with TSMC. A new study by the Pentagon “Assessing and Strengthening the Manufacturing and Defense Industrial Base and Supply Chain Resiliency of the United States” aims to ensure a rapid transformation to a war economy in order to make the United States fit for war in a longer Sino-American war
Especially as China and the USA are preparing for a “protracted war” (Xi Jinping) , it remains to be seen how all these countries can upgrade their own resilience. However the main worry of the German people during the Suez Canal container ship crisis was according to a headline of the German newspaper BILD“ Will the Playstation 5 arrive just in time?“ . That gives hope that the ordinary German can get interested in geopolitics and world politics if his consumerism is attacked.