TSMC and the Semiconductor Industry

The Taiwanese Semiconductor Company (TSMC) was officially created in 1987 because of a public-private partnership. That is, a joint venture combining the efforts of the Taiwanese government (which invested through its NDF, “the National Development Fund”) and Morris Chang, the pioneer of the pure-play foundry model and former director of the Industrial Technology Research Institute (ITRI). Over the following three decades, TSMC would go on to become the world’s largest semiconductor producer, securing consistent growth without relying on specific market trends.

A large part of this growth is credited to the manufacturing processes and the multinational’s focus on the so-called “pure-play foundry model”. Thus, unlike the integrated-device strategy (followed by companies such as Samsung), TSMC focuses uniquely on chip production while collaborating with other major technology companies, such as Apple and NVIDIA. This implies that there’s no competition in the initial and final stages (only in the secondary one), as well as no vertical integration. Therefore, instead of relying on shifting market trends, TSMC has built a reliable system for chip manufacturing applicable to most technological products worldwide.

As a result of this economic success, TSMC’s market share reached the 70%-milestone last year, and, by the 3rd quarter of 2025, its revenues in this market tenfolded those of its largest competitor (Samsung). Such a market dominance has eventually led to a major global dependence on the Taiwanese branch in several key technological sectors, including transport, electronics, and consumer goods industries. That is to say, TSMC produces 7 out of 10 smartphone chipsets and 35 per cent of automotive microcontrollers in the world.

As many experts predicted, the “semiconductor bubble” eventually “exploded” in 2020, leading to the “Global Semiconductor Chip Shortage”. This crisis has been fuelled by trade disruptions, initially due to the COVID-19 pandemic and the widespread lockdowns, and later, due to several international military and economic conflicts (such as the trade war between China and the US). However, beneath these endogenous factors lies the exogenous (and most dangerous) ones: the fragility of the global supply chains and the risks of globalization.

In response to such a climate of economic instability and seeking to diversify its building sites, by May 2020, TSMC embarked on one of the most decisive projects of FDI in its entire history: opening a large semiconductor factory in the US. With an estimated investment of $165 billion, TSMC targeted the production of N2, N3, N4, and A16 process technologies through several facilities, including six semiconductor wafer fabs, a Research & Development team center, and two advanced packaging sites. 4 years later, the project had created almost 15.000 jobs in Arizona, including 2500 engineers, as well as 12.000 union and non-union trade workers. Alongside this operation, TSMC is also expanding its fabs across the world, including new projects in Dresden, Germany (with a smaller investment of $11 billion) and Kyushu, Japan (set to become the “Silicon Island” according to many experts).

This strategy thus responds to three different motives: First, through the pure-play foundry model, TSMC has managed to lower transportation costs by getting closer to its main trading partners across the world and in the US, especially those in California (such as Apple or NVIDIA), fostering scale economies and forging strategic alliances with major technological partners. For example, TSMC Arizona has specialized in the production of 2nm chips, which are used in several production and logistical hubs by Apple in Austin (Texas) and Elk Grove (California).

Secondly, these “expansive” movements go hand in hand with larger economic investments in the semiconductor market by the Western Hemisphere. For instance, the US has brought in more than $450 billion in private investment through its CHIPS and Science Act. On the other hand, European nations such as Germany, France, or Poland have now committed over $103 billion in line with their mission of gaining more “economic sovereignty”. In other words, TSMC is taking advantage of the positive market trends as well as a favourable institutional environment to increase its operations worldwide.

Thirdly, and most remarkably, the Phoenix investment marks a new chapter in the US-Taiwanese relations, fostering diplomatic and economic ties between the two nations while reaffirming the American commitment to defend Taiwan against foreign threats. Those clearly materialize in the One-China Policy, a strategy envisioned by Beijing to unite the ROC (Republic of China, most widely known as Taiwan) with the rest of mainland China under the rule of the Communist Party (CCP).

However, even though a full-outright war remains unlikely due to the global dependence on Taiwan and the security assurance of the US over the island, to put into perspective the economic damage of a war between Beijing and Taipei, according to the IEP (Institute of Economics and Peace), whilst the war in Ukraine has cost $250 billion to the global economy, a scenario of a military blockade over Taiwan would carry a global cost of $2.7 trillion and, a full-scale war, over $10 trillion.

Written by Jordi Lopez Lopez

TSMC and the Semiconductor Industry

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