Mainstream media including Wall Street Journal and the CEO of TSMC’s rival GlobalFoundries have all pointed out that having TSMC manufacture a majority of semiconductor chips is the biggest risk to the global supply chain. The claim has merit. TSMC dominates around 55% of the foundry market and generates more than 80% of the foundry industry’s revenue. A TSMC production halt will seriously disrupt the global handset, server and even automotive sectors. Winners take all, so it’s the norm that global high-tech industry leaders compete to win. It doesn’t matter what others say but it matters how you build up strength that others cannot question and challenge. Former Intel CEO Andy Grove once said, “The more successful you are, the more people want a chunk of your business and then another chunk and then another until there is nothing.” This is the experience and courage only someone who has come out on top could share.
People in Taiwan call TSMC the sacred mountain that protects the country. As a matter of fact, TSMC takes part in every “battle” – not only exporting chips but also acquiring COVID vaccines. It deserves the title. Stock analysts and news commentators have a lot to say about TSMC mostly to generate discussions. Speculations are everywhere. I wouldn’t go so far as to say they are all wrong but I will offer a different perspective and share what I know about the foundry business and TSMC.
Process technology, customer relationship and ecosystem formation are the keys to the success of a foundry house. It’s easier said than done. Each of the three pillars requires tremendous efforts to build. You may find yourself caught between a rock and a hard place if attempting to build three pillars all at once. Having been making long-term efforts in these three aspects, TSMC is leading the competition by a wide margin. What gives rise to TSMC’s leading status? How far ahead is TSMC? Will TSMC be able to maintain its lead going into the next 10 or 20 years? What factors may dictate TSMC’s competitive advantage going forward? Who stands a chance of defeating TSMC? How can TSMC be defeated, by capital, talent or something unexpected?
There is a lot to be said about many industrial topics and meaningful points cannot be clearly expressed in just a few words. We also need to draw on statistics and data to help explain our points when we examine foundry industry co-opetition from the three perspectives – process technology, customer relationship and ecosystem. In regard to process technology competition, we look at the capacity gap between TSMC and Samsung. Intel claims that TSMC’s 7nm process only achieves the same transistor density as Intel’s 10nm process. This is true but the question is Intel has had difficulty bringing its 10nm node to commercialization and lacked major customers. What is the gap between TSMC and Samsung? How far behind is Samsung in terms of the current generation of process technology and the next? How big an effort will Samsung have to make to catch up? It may still lag behind 10 years from now even if it runs at full throttle.
In terms of customer base, Apple and Huawei were the top two customers of TSMC. Who is to take over Huawei’s place in the midst of the US-China trade war. How many companies will turn to Samsung instead of TSMC? Furthermore, Samsung has entered into an agreement with UMC to tap UMC’s production capacity. What is Samsung’s plan behind this? The answers to all these questions may have something to do with corporate strategies. We may be able to figure out the answers from financial data and statements in reference to information from various sources. There are a lot of other influential factors that may affect our judgement. However, we try to take into consideration information from wide-ranging sources rather than subjectively think TSMC is invincible.
As to ecosystem, aside from EUV equipment suppliers whose actions are at the center of industry attention, are other semiconductor material and equipment providers making any moves? Reliable electricity and water supply plays an influential role on local firms’ long-term competitiveness and customer trust. Instead of being all talk and no action, the Taiwan government should provide real assistance to help local firms compete against potential rivals that may very well be South Korean companies. South Korean president Moon Jae-in unveiled the new K-Semiconductor Strategy in May 2021, aimed to build a chipmaking hub based in Gyeonggi Province. What can Taiwan learn from this? Sometimes we gain perspective on where we stand by comparing ourselves with others. Knowing that we are falling behind will help us pick up pace and catch up. There is no need to blame the government for everything. It has made certain contributions to Taiwan’s and TSMC’s competitive advantage today. DIGITIMES