The world's reliance on TSMC could be disastrous

A potential problem in the tech world could be brewing. Taiwan Semiconductor Manufacturing Co. (TSMC) is the largest contract manufacturer in the world. Companies like Apple, AMD, MediaTek and others turn over their chip designs to TSMC which then builds the all-important chips used on devices ranging from the iPhone to laptops to automobiles.

The majority of consumers probably have never heard of TSMC and there is no branding on the products it makes that would give out the foundry's name. But according to the Wall Street Journal, TSMC's market cap of $550 billion makes it the 11th most valuable company in the world. Considering that the whole planet is relying on TSMC to keep churning out large numbers of cutting-edge chips, the fact that China claims ownership of Taiwan as part of its territory under its "One China Principle" is very troubling.

Considering that there have been issues leading to a shortage in the global chip market, and you can only come to the conclusion that TSMC doesn't have the amount of competition that would be able to cover for it in the event of a catastrophe that could impact the firm's production. Taiwan based chip manufacturers were responsible for 65% of global chip revenues in Q1 according to TrendForce. TSMC itself made up 56% of global chip revenue during the same three-month period.

But the potential downside is huge. As research firm Capital Economics points out, depending on Taiwan for chips "poses a threat to the global economy." The researcher says that 92% of the most cutting-edge chips in the world come from TSMC with South Korea's Samsung responsible for the rest. TSMC is also responsible for approximately 1.4 billion smartphone processors used world wide sporting transistors measuring less than one-thousandth the width of a human hair.

Consider Apple's M1 chip used for certain Macs and the iPad Pro (2021). The most powerful chip ever designed by Apple, the M1 was built by TSMC using its 5nm process node allowing 16 billion transistors to be placed inside each chip. 

Major countries have initiatives in place to increase their importance in the global chip industry. In the U.S., President Biden has earmarked $50 billion to hike domestic chip production, and China's national security plan calls for semiconductor independence. The EU wants to source 20% of the world's next generation chips by 2030.

IC Insights, a research firm, says that countries looking to catch up with TSMC and Samsung Foundry would have to spend in the area of $30 billion a year over five years "to have any reasonable chance of success" catching up with TSMC and Samsung as the leading chip foundries in the world.

Taiwan might lead in chip production, but the U.S. still leads the way in both chip design and intellectual property. But when it comes to the manufacturing of chips, the U.S. has seen its share of chip production drop from 37% in 1990 to only 12% now.

Most analysts don't see any chance to broaden the production of chips worldwide. That's because of the amount of money required to build a factory which is approximately $20 billion. An extreme ultraviolet (EUV) lithography machine, used to mark up wafers with circuit patterns,costs over $100 million each and if often delivered via multiple airplanes.

Earlier this month TSMC started building a fabrication facility in Arizona that cost $12 billion to make. Production from the fab will start in 2024 with 5nm chips (which will be one or two process nodes behind the chips that will be produced in Taiwan by then). The U.S. has supposedly asked TSMC to build as many as six plants over 10-15 years.