What is TSMC? The Taiwanese Company That Controls the World's Tech

Did you know that a single Taiwanese company, TSMC, manufactures over 60% of the world's semiconductors and more than 90% of the most advanced ones? It's no exaggeration to say that Taiwan Semiconductor Manufacturing Company (TSMC) is the unsung hero powering our digital world. From smartphones to supercomputers, TSMC's chips are the brains behind the tech we rely on every day. But what exactly is TSMC, and how did it become such a critical player in the global tech landscape?

TSMC: The Birth of the Foundry Model

TSMC (Taiwan Semiconductor Manufacturing Company) isn't just a chipmaker; it is the company that invented the "foundry" business model. Before TSMC, chip companies did everything themselves—design, manufacturing, and testing. TSMC changed the game by becoming a pure-play foundry. This means they strictly manufacture chips for other companies and never design their own, ensuring they never compete with their customers.

The company was founded in 1987 by Morris Chang, a veteran of the US tech industry who was recruited by the Taiwanese government to modernize the island's economy. At the time, the idea was considered risky. In fact, when Chang sought initial investors, industry giants like Intel and Texas Instruments rejected the proposal.

However, the Dutch electronics giant Philips saw potential. They agreed to a joint venture, providing $58 million and essential intellectual property in exchange for a 27.5% stake. Combined with funding from the Taiwanese government and private investors, this kickstarted an industry revolution. Today, that risky startup is a publicly traded titan, having listed on the Taiwan Stock Exchange in 1993 and becoming the first Taiwanese company to trade on the New York Stock Exchange (NYSE) in 1997.

Expert Tip: The "fabless" model, championed by TSMC, allows companies to focus solely on chip design, outsourcing the complex and expensive manufacturing process. This has fueled innovation and competition in the semiconductor industry.

TSMC's Role in the Semiconductor Industry

Semiconductors are the fundamental building blocks of modern electronics. They're the tiny components that control the flow of electricity in devices like smartphones, computers, and cars. The semiconductor industry is broadly divided into two main categories:

  • Integrated Device Manufacturers (IDMs): These companies, like Intel and Samsung, design, manufacture, and sell their own chips.
  • Fabless Semiconductor Companies: These companies, like Apple, NVIDIA, and AMD, design chips but outsource the manufacturing to foundries like TSMC.

TSMC's pure-play foundry model has made it an indispensable partner for fabless semiconductor companies. By focusing solely on manufacturing, TSMC has achieved unparalleled expertise in chip production, allowing its customers to create cutting-edge products without the burden of owning and operating expensive fabrication facilities (fabs).

TSMC's customers include some of the biggest names in tech:

  • Apple
  • NVIDIA
  • AMD
  • Qualcomm
  • Broadcom
  • MediaTek

In fact, Apple alone represented 25% of TSMC’s revenue in 2023, making it the company’s top client.

How TSMC Makes Chips:

Engineering at the Atomic Scale Manufacturing modern semiconductors is widely considered the most precise and complex manufacturing process in human history. It isn't just about assembling parts; it involves "printing" microscopic circuits onto silicon wafers layer by layer.

TSMC operates at the cutting edge of this technology, often referred to as the "leading node." The industry measures progress in nanometers (nm). The smaller the number, the more transistors can be packed onto a single chip. More transistors mean faster processing speeds and better battery life.

To achieve this, TSMC utilizes Extreme Ultraviolet (EUV) Lithography. This process involves using massive machines built solely by the Dutch company ASML that weigh over 160 tons and cost roughly $200 million each. These machines generate light with a wavelength so short it can etch patterns smaller than a virus.

TSMC's advanced technologies include:

  • 7nm: TSMC began large-scale production of its 7-nanometer process in 2018.
  • 5nm: TSMC began large-scale production of its 5-nanometer process in 2020.
  • 3nm: TSMC began large-scale production of its 3-nanometer process in December 2022.
  • 2nm: TSMC plans to start 2-nanometer mass production in 2025.

Key Highlight: TSMC's ability to manufacture chips at increasingly smaller nodes (measured in nanometers) gives its customers a significant competitive advantage in terms of performance, power efficiency, and device size.

TSMC's Global Footprint

While TSMC's headquarters and primary operations are in Taiwan, the company has been expanding its global presence in recent years. This expansion is driven by several factors, including:

  • Geopolitical considerations: Mitigating risks associated with over-reliance on Taiwan, given tensions with China.
  • Customer proximity: Serving customers in North America and Europe more efficiently.
  • Government incentives: Taking advantage of subsidies and support from governments seeking to onshore semiconductor manufacturing.

TSMC's major facilities include:

  • Taiwan: The heart of TSMC's operations, with numerous fabs in Hsinchu Science Park and other locations.
  • United States (Arizona): TSMC is building a $65 billion complex with multiple fabs in Phoenix, Arizona. The first fab is expected to begin production in 2025, but talent shortages may delay the second fab until 2027 or 2028.
  • Japan (Kumamoto): TSMC has established a subsidiary, Japan Advanced Semiconductor Manufacturing (JASM), in Kumamoto, Japan. The first factory began commercial operations in December 2024 and produces 12-, 22-, and 28-nanometer processes. A second factory is under construction and will produce 6-nanometer and 12-nanometer processes.
  • Germany (Dresden): TSMC is investing €3.5 billion in a €10+ billion factory in Dresden, Germany, in a joint venture with Bosch, Infineon, and NXP Semiconductors. The factory is planned to be fully operational in 2029.

The Geopolitical Significance of TSMC

TSMC's dominance in semiconductor manufacturing has made it a strategically important company, particularly in the context of rising geopolitical tensions between the United States and China. Taiwan's critical role in the global chip supply chain has led to the concept of the "Silicon Shield," suggesting that Taiwan's economic importance deters military action against it.

The US, European, and Japanese governments had to intervene and reach out to Taiwan and TSMC in particular, to step up production of chips during the pandemic.

The US government has been actively encouraging TSMC to expand its manufacturing presence in the United States through the CHIPS Act, which provides subsidies and incentives for domestic semiconductor production. This effort aims to reduce reliance on foreign chip suppliers and strengthen US national security.

China, on the other hand, has been investing heavily in its domestic semiconductor industry to reduce its dependence on foreign technology. However, matching the manufacturing prowess of TSMC is no mean feat. Chinese semiconductor manufacturers are nowhere near the production capability of their Taiwan counterpart owing to their decades worth of investment in technology and production.

Challenges and Opportunities for TSMC

Despite its dominant position, TSMC faces several challenges:

  • Geopolitical Risks: Tensions between Taiwan and China could disrupt TSMC's operations and the global chip supply chain.
  • Competition: Companies like Samsung and Intel are investing heavily to catch up with TSMC in advanced manufacturing technologies.
  • High Capital Expenditure: Building and maintaining leading-edge fabs requires massive investments, which can strain TSMC's finances during economic downturns.
  • Client Concentration Risk: A significant portion of TSMC’s revenue comes from a small number of major clients, especially Apple. Any loss or reduction in orders from such clients could have a major financial impact.

However, TSMC also has significant growth opportunities:

  • 2nm and Beyond: TSMC is leading the race to commercialize 2nm and 1.4nm process nodes, which will enable faster, more power-efficient chips for next-gen computing.
  • Global Fab Expansion: The company is expanding internationally with new semiconductor fabrication plants in the U.S. (Arizona), Japan, and Germany to reduce geopolitical exposure and meet regional demand.
  • Automotive Semiconductors: With electric vehicles and autonomous driving technologies on the rise, TSMC is ramping up production of automotive-grade chips for key EV players and Tier-1 suppliers.
  • Artificial Intelligence (AI) and HPC: Demand for high-performance AI accelerators and data center chips continues to grow. TSMC’s advanced nodes are critical for NVIDIA, AMD, and custom silicon players.

TSMC: The Linchpin of the Tech World

TSMC's journey from a government-backed research project to the world's leading semiconductor foundry is a remarkable success story. As a key manufacturer of chips powering technologies such as iPhones and AI supercomputers, TSMC has been instrumental in driving advancements in computing and shaping the modern digital economy.

As the world becomes increasingly reliant on semiconductors for everything from smartphones to AI-driven technologies, TSMC is poised to remain at the heart of this technological revolution. Its technological leadership, strategic investments, and global partnerships make it a company closely watched by investors, governments, and the tech world alike.

In short, TSMC isn't just a company; it's the engine that powers the modern world.