TSMC: The Quiet Titan

How Taiwan's Semiconductor Giant Shapes the Global Tech Landscape

Hey Everyone,

Read this on a web browser for the best reading experience. You can always do this by clicking on the title of any article.

Since I moved to Taiwan and started my new Semiconductor Newsletter (from scratch, still learning) called Semiconductor Things, I’ve come to the belief that TSMC, Taiwan Semiconductor Manufacturing Company Limited, is the most important company in the world. If curated News on the semiconductor and AI chip industry interests you, feel free to tag along:

TSMC has nearly a 62% marketshare in the Global Semi foundry industry. Apple, Nvidia and AMD are among its biggest customers. In comparison, Samsung, the second-largest player in the market, held an 11% market share in the first quarter of 2024. Nvidia is very dependent on TSMC, and Nvidia has a huge monopoly in the AI chips sector. I’m convinced that the competitiveness of TSCM and its network of firms in Taiwan, and partners in Japan and South Korea are an AI for good story the world needs to protect at all costs. Nobody even come close and the global economy is profoundly dependent on it to degrees that the American MSM cannot ever fully grasp.

Taiwan therefore might be the most important country in tech. Not Silicon Valley, not China, but this little island nation. Contested, lawful, democratic. The heart of East-Asia is no longer Hong Kong, or even Singapore, it’s Taiwan. A great place to learn about the semiconductor industry and TSMC in particular is the legendary YouTube, Asianometry. By Jon Y:

The Asianometry Newsletter

I recommend listening to the YouTubes when you have time:

TSMC produces an estimated 90% of the world's super-advanced semiconductor chips. They are several years ahead of their closest competitors.

I asked Michael Whalen, a talented writer who started his Newsletter about 9 months ago, Byte-Sized History, to look into TSMC for us.

If you enjoy articles like this feel free to upgrade.

Introducing Byte-Sized History

Michael was generous enough to share a short video about his Newsletter, to read his about section go here.

J. Michael Wahlen

:

The history of technology fascinates me and is one of the Substack’s strengths as an educational ecosystem. Michael is a management consultant who uses data and analytics to help Fortune 500 companies find new ways to grow in the Boston area.

---

Masters of Silicon: The TSMC Story

From Humble Beginnings to Semiconductor Supremacy

By

J. Michael Wahlen

of Byte-Sized History Newsletter.

Michael’s work stood out to me based on my reading of his work here that is epic, richly contextual and triumphant:

1. How Did Taiwan Become So Important to SemiConductors

2. Network Effects: A Value Lost

3. The World’s Greatest Graph

4. Age of Unprecedented Rivalry

5. The Value of History

via Byte-Sized History. Let’s get into the article:

Thank you to everyone who liked and commented on my post about Taiwan’s semiconductor industry. By popular demand, I’ve written the below to delve a little deeper into TSMC's history.

Now that Nvidia is worth over $3 trillion and has become the world’s most valuable company, we can officially say that semiconductors have gone mainstream. While its stock price is fantastic - rocketing over 3,000% in the last five years - what’s perhaps most surprising is how few people Nvidia has needed to get there. While Microsoft and Google, numbers two and three on the most valuable company list, boast over 200,000 and 160,000 employees, respectively, Nvidia has 30,000, meaning that each one “contributes” over $100 million - nearly 7x as much as Microsoft and Google¹.

Nvidia can achieve this type of value-per-employee because it has, literally and figuratively, offshored its manufacturing process. Large plants would mean lots of employees and, consequently, would bring down its value per employee. Instead, it uses a variety of companies, most notably Taiwan Semiconductor Manufacturing Company, or TSMC as it’s better known, to do its literal dirty work. TSMC’s inimitable manufacturing process has allowed Nvidia and others, such as ARM, to realize their lofty plans in a reliable, cost-efficient manner, enabling everything from lane assist to iPhones. While Nvidia is undoubtedly the star of the semiconductor show, TSMC, as the behind-the-scenes fixer, is not making out badly: at $800 billion, it is in the top ten most valuable companies in the world, and its stock is up over 300% in the last five years².

While Nvidia may have a higher stock market valuation, TSMC’s unique attributes make it more important from a geopolitical perspective. First, as its name suggests, TSMC is based in Taiwan and, therefore, at the center of the tension between China and the US. Second, while designing semiconductors may be the highest value activity, as we all learned in the pandemic, all those plans are useless if they cannot be manufactured. TSMC’s dominant market share in manufacturing the most cutting-edge semiconductors means that any country that wants a robust artificial intelligence industry will have to rely on it. And every country wants a strong AI industry. 

What’s most incredible about all of this is that, in 2024, a manufacturing process can be so difficult to copy. Since Henry Ford, companies have recognized that manufacturing processes can be a source of competitive advantage, with Michael Porter notably codifying it as such in his famous work Competitive Strategy in the 1980s³. But, previously, companies (and indeed countries) were often able to imitate results. The USSR couldn’t quite replicate Ford’s assembly line, but it was able to come close⁴. And, GM has never been able to achieve the results Toyota can with its Just-in-Time system, but attempting it has increased efficiency⁵.

Things have been different with semiconductors, however. The USSR was never able to make very good semiconductors. And, despite the best efforts of challengers, no one has ever been able to come near TSMC at its own game. TSMC earns just over 60% of the world’s semiconductor manufacturing revenue, up from just under 50% five years ago⁶. Samsung, Nvidia’s second supplier, comes in at a distant 11%. But, when it comes to the most high-end chips, its market share is nearer 90%⁷. 

Understanding how it got there, though, requires some further explanation…

The Project of a Nation

As I explained in detail in my previous post, TSMC was an outgrowth of Taiwan’s government’s interest in semiconductors. While I will leave the larger history of semiconductors and Taiwan to that essay, it’s important to emphasize that Taiwan was a national project. In and of itself, that doesn’t make TSMC special, however. In the latter half of the twentieth century, many Asian countries sought to escape poverty and various isms (feudalism and socialism, most notably) by harnessing growing technologies and leaning into markets⁸. However, they did not do so as the West expected; they formed extensive industrial policies aimed at creating economic growth through technological modernization. The most famous of these is Japan’s MITI, the effectiveness of which has been a topic of vigorous debate for economic historians for decades⁹.

However, Taiwan was late to the party when it came to semiconductors. By the 1960s, when Taiwanese leader KT Li was looking to create a semiconductor industry, the US was dominant in designing and manufacturing semiconductors. What little business existed at the more commoditized end of the spectrum was owned by Japan. Nor was Taiwan the only country looking to enter: Korea had similar plans to create an industrial policy that would establish them as players in the semiconductor industry¹⁰. Put simply, competition was steep and increasing, and the market was still relatively nascent. Moving into semiconductors would not have “resonated” with a strategy consultant.

KT Li, Taiwan’s “Godfather of Technology,” courtesy of Taiwan Today

But, in a story made for Malcolm Gladwell’s David and Goliath, Taiwan succeeded by being both lucky and good. 

Taiwan was lucky in that its interest in semiconductors occurred just as a breakthrough in electrical engineering. Before the 1970s, relatively few transistors could fit on a single chip (Fairchild was proud of putting four transistors on a chip in 1960!) due to the tremendous complexity of integrating chips and circuits¹¹. Carver Mead and Lynn Conway developed a “Very Large Scale Integration” (VLSI) system that enabled many more transistors to be placed on a chip by separating the design and manufacturing of chips, enabling the use of computer-assisted designer (CAD) models¹². In essence, they developed a means of standardizing chip design so that each chip did not have to be custom-made.

Mead and Conway’s brilliant achievement, courtesy of the University of Michigan

A Brilliant Founder

Though Taiwan may have benefitted from auspicious timing, its strategy was absolutely spot on. First, it made one of the greatest hires of the 20th century: Morris Chang. Chang and TSMC are inextricably bound, like Jobs and Apple, and consequently, any history of TSMC is effectively a history of Morris Chang. But, unlike Jobs (and many other 20th-century business giants), he lacked the dramatic flair for marketing that we associate with colorful leaders today, succeeding more on efficiency and less on ‘brand.’  

Morris Chang, courtesy of Sahil Bloom’s excellent Substack - worth checking out!

That is not to say that his life lacked color, however. Though something of a Taiwanese hero, Chang was born in mainland China in 1931, growing middle class at a time when the Chinese middle class was still relatively poor. The civil and Sino-Japanese wars led his family to move frequently, likely preventing him from ever feeling he had roots in China¹³. At 18, he left for Harvard, but, in a decision that warms every MIT’er’s heart, he transferred to MIT after a year “in order to get a good job.” He stayed at MIT to earn a master's, failing to obtain a PhD, and left to work at Sylvania Semiconductors briefly before moving on to Texas Instruments (TI), where his career would take off.

As he described in his own words, Chang was “on the fast track” by 1961, only three years into his tenure at TI¹⁴. He quickly climbed the ranks and earned perks, including a fully funded Stanford PhD. Unlike others in the pantheon of twentieth-century technology, however, his gift was not inventing new technology nearly so much as his ability to manage production processes. Not that he didn’t understand the science - his initial success in TI revolved around solving a complex technical problem - but that his true gift was efficiency.

---

• Editor’s Note: To read the entire article, subscribe to the guest author’s Newsletter or start a free trial. We’ll publish it for free in full at a later date.

• The article continues in depth for premium readers.