Hey everyone 👋
You hear about Intel, NVIDIA, and AMD almost every day - new chips, fresh launches, billion-dollar bets.
Right after we did a deep dive on Intel, news broke that NVIDIA is partnering with them for integrated graphics. The headline? NVIDIA just bought 5% of Intel - roughly $5 billion worth of shares - right after Uncle Sam poured in $10 billion a couple of weeks ago.
We’re even hearing rumors of Apple wanting to “make Intel rich again,” though nothing’s confirmed yet. What is confirmed is that Intel and NVIDIA are collaborating on custom x86 processors that will power NVIDIA’s AI infrastructure, with talk of Intel chips featuring NVIDIA RTX-class graphics coming down the line.
It’s a fascinating story - but not the most important one.
The headlines can’t get enough of Big Tech but their tech is something that is largely dependent on just this one company - from Apple iPhones to Amazon’s Cloud.
Today’s deep dive is about that giant - Taiwan Semiconductor Manufacturing Company (TSMC) - the company that quietly powers everything from your smartphone to the AI arms race itself.
When we think of tech companies, Google, Meta, Microsoft and other similar companies are some of the popular ones that come to mind.
The Big Tech is pretty big and there is no denying its importance but there is a company that is almost invisible from popular discourse that is powering most of the Big Tech.
Yet, we rarely hear mention of that company that is single-handedly powering not just Big Tech and most of the technology around us.
This invisible powerhouse powers everything from consumer electronics like smartphones & laptops to military technology like drones & radars and critical infrastructure like hospitals, banks, power-grids - basically anything critical that you could think of.
Apart from the technological side of things, this company is also at the heart of global politics and a potential global conflict. The two superpowers of our time - China and the USA have their sleeves rolled-up over this company.
That’s why I feel it’s the perfect time to discuss Taiwan Semiconductor Manufacturing Company (TSMC) and learn what it does, how it does it and why it is so important for the world.
Before We Begin
Before I take you on a deep-dive of TSMC and its origins, let’s first spend a couple of minutes discussing the technical terms that I will keep on repeating in this piece.
Once we have a baseline knowledge of these smaller topics, it would be easier for most people to understand what I’m blabbering about in the rest of this piece.
Depending on how familiar you already are with all of this, you may choose to skim through or skip this section.
What are Chips?
In our context, a chip is a small electronic device that is the brain for any digital device you could think of. Any electronic device that can be programmed has a chip inside it.
Chips are tiny pieces of silicon with the ability to turn electrical signals into logic that we can further use to perform calculations.
You interact with chips everyday without even knowing most of the time. Even right now, the device you’re using to read this article has a chip.
At a personal level, anything from your laptop, computer, car, etc includes a semiconductor chip in one form or another.
At a grand level, fighter jets, submarines, large data-centers, all have chips that allow these devices to perform complex operations.
So, no matter if a device is big or small, if it is smart in any way, it is being powered by chips. They are the building blocks for any digital device.
There is no escaping these chips. You find them in your home, inside hospitals, airports, banks - basically everywhere.
Now, chips come in many shapes and sizes, and that’s why people have different names for them.
Chips are commonly referred to as Microprocessors, Integrated Circuits (ICs), CPUs, GPUs.
The terms above have some slight differences but for today, we’ll assume that all of them are the same thing - Chips.
What’s a Foundry?
Foundry is a company that manufactures semiconductor chips. Other companies come to foundries with their designs to get chips according to their needs.
These are expensive factories where some of humanity’s most cutting edge engineering happens. If you ever see a foundry, it looks like an alien facility.
You’d see humans dressed up in special suits wandering around with specialized robots around them, moving to and from the big machines that build chips.
Fabs are so expensive that setting up a new fab can cost you anywhere from $1-20 billion.
The chip manufacturing process involves hundreds of steps and can take months from design to production.
Humans aren’t even allowed to enter without first going through a series of specialized chambers that first clean and isolate the human body from the rest of the environment.
These facilities have to be really clean, so clean that the smallest speck of dust can ruin a whole chip.
Foundries have to usually maintain an air quality that is 10,000 times cleaner than the outside air.
So, foundries are basically chip makers that are contracted by other companies to build out chips based on their designs.
Foundries are also called Fabrication plants or Fabs for short.
What Does TSMC Do?
TSMC is an independent semiconductor foundry, and not just any foundry but the most advanced foundry in the entire world. TSMC was the first company to solely focus on chip manufacturing of the world’s most advanced semiconductors.
TSMC is the world’s largest contract chipmaker producing more than 60% of the world’s semiconductors and over 90% of the most cutting-edge chips.
Every tech company that you can think of is somehow related to TSMC. Big tech companies like Apple, Nvidia, AMD, Tesla, etc are the direct customers of TSMC.
Companies like AMD and Nvidia directly share their chip designs with TSMC to get their chips manufactured. Same goes with Apple, Tesla and many others.
From the phone in your hand, the laptop at your office to your PlayStation and the sound system of your car - pretty much all of them use chips produced by TSMC
Moreover, any other company that is providing a digital service to you is probably using TSMC’s chips - think of Youtube, Netflix, ChatGPT or pretty much any of your favorite sites.
It boggles my mind that such a significant percentage of our digital world depends on just one company.
The 2020-2023 supply chain shortage didn’t just hurt TSMC but in-turn disrupted the entire operations of the digital world.
The Taiwanese government is the single largest shareholder of TSMC with the stock amounting to ~30% of the country’s stock market index.
Foreign investors hold the majority of the company. In 2022, the company exported $184 billion worth of chips.
TSMC is so significant that it is talked about that the next World War may just happen to get ahold of the technology they produce.
The two superpowers China and USA have their interests in TSMC and both have their eyes on the small country.
The Origins of TSMC
The origin story of TSMC is quite surprising, coming from a country struggling with low-value exports and a poor economy. I’ll discuss some of the most important events in the TSMC origin story below:
Taiwan’s Interest in Semiconductors
Taiwan wasn’t a country known for high-tech exports a couple of decades back. It was a small country facing economic challenges back in 1973.
At the time Taiwan’s export economy was made of agricultural products like sugar and simple electronics - basically low-value exports.
The government was tired of low-value agricultural exports and wanted to overhaul the economy so high-skilled exports could become a viable option.
The Economic Ministry of Taiwan was actively looking for investment in areas which could overturn the Taiwanese economy.
Even as early as the 1960s, Taiwan was working on producing low-cost electronic components. The country didn’t even have trained professionals for the semiconductor business.
In 1965, the Taiwanese government wanted to shift its focus to consumer electronics as part of the government’s policy to improve the economy.
By 1970 it was pretty clear to the Taiwanese government that the semiconductor industry would be significant going forward.
This was because of government-led seminars which included experts working in Bell Labs, IBM and other companies working on semiconductor technology.
The Ministry of Economic Affairs for Taiwan set up the Industrial Technology Research Institute (ITRI), a research institute aimed to acquire and transfer new electronic technology to the private sector.
This shows the Taiwanese government’s intent to manufacture consumer electronics built on cutting edge technologies.
The Building Stone
Right from the very start, the Taiwanese government was clear about its goals. They wanted to build a competitive semiconductor industry.
And building an industry that would be respected among its peers out of basically nowhere was a challenge and the government at the time knew it well.
The Industrial Technology Research Institute (ITRI) set up by the government had to focus on applied research instead of just basic research.
The public funded research institute had to do applied science research and its projects would be made up into separate companies.
ITRI created a sub-committee (IRSO) to teach the Taiwanese people how to build competitive semiconductor technology by learning from experts from the US, Europe and other areas.
Basically, the government tried their best to encourage semiconductor technology transfer from established companies around the world.
But the government was conscious from the very start that it had to focus on applied research with public-private partnership to be successful in chip manufacturing.
The partnerships were aimed to transfer not just the science and technology that goes behind building semiconductors.
But it also included things like management that goes in successful companies that used to build cutting-edge semiconductors at the time.
The American company RCA partnered with the Taiwanese government but the technology they shared with the Taiwanese was a couple generations behind.
United Microelectronics Corporation
You might think that TSMC was Taiwan’s first semiconductor success but that’s not the case. That crown goes to United Microelectronics Corporation (UMC), a company just a couple of blocks away from TSMC’s HQ.
In 1980, The company was spun off as a research project from IRSO and it quickly became a profitable company manufacturing semiconductors.
UMC acted like a traditional chip-maker at the time. The government provided technology, trained professionals and helped the company hit the ground running.
UMC soon became Taiwan’s most profitable industrial manufacturer of semiconductors but it failed to be a success like TSMC.
But soon, UMC started having issues, the biggest issue was that it lagged in technology against the cutting-edge chip makers of the time.
That’s why UMC mostly built low-level chips for toys and watches. It was simply not possible for UMC as a company to compete with the cutting-edge companies of the time.
The Morris Chang Story
Morris Chang, the founder of TSMC has a fascinating story. He was born in China and his parents had to flee to Hong Kong because of many wars.
He was accepted by Harvard and he went there with an interest in humanities and literature but was asked by his father to do engineering because of good career prospects.
I guess Asian parents back then still knew of engineering and medicine as the only two career options ;)
With a masters from MIT and failing the MIT PhD entrance exam twice he started looking for work. He started in a small electric company that made transistors, Morris worked for Texas Instruments for more than 20 years.
Early on when he joined Texas Instruments, he helped increase production yield to more than 30% while there. Seeing the promise in him, TI paid for his 3 year PhD at Stanford.
He helped Texas Instruments start a new fab that had circuit yields of 40%. At that time, Texas Instruments’ existing fabs had a yield as low as 20%.
After this he gets promoted to Vice President, that’s when office politics came to into play and Morris wasn’t having it. He resigned soon after, joined General Instrument for some time and left on request of the Taiwanese government to ITRI.
TSMC Enters The Chat
Taiwan Semiconductor Manufacturing Company (TSMC) was different from UMC in a couple of aspects. The company started with better technology than UMC.
This gave the company a head start right from the beginning. The technology TSMC used came from Europe from companies like Philips.
Initially, the Taiwanese government provided capital for TSMC but it knew that private input was required for success.