TSMC

Almost every phone, laptop, and data center contains at least one chip: a tiny piece of silicon carrying billions of switches. Many well-known companies only design such chips on a computer. They cannot build them, because that requires a factory costing tens of billions of dollars. TSMC, a company founded in Taiwan in 1987, operates exactly these factories. The name stands for Taiwan Semiconductor Manufacturing Company. TSMC does not design any products itself but manufactures exclusively on behalf of others.

A supplier the whole tech industry depends on

Apple, Nvidia, AMD, and Qualcomm have their most important chips manufactured at TSMC. In the most advanced manufacturing processes, the company holds a market share of around 90 percent. There is practically no alternative supplier. If TSMC doesn’t deliver, product lines around the world grind to a halt.

This is especially precarious for the AI industry. Nvidia’s graphics processors, on which the large language models are trained, all come from Taiwanese plants. No matter how many orders Nvidia has: there simply aren’t more chips than TSMC can manufacture. That’s why TSMC’s quarterly figures regularly appear in financial news. They are considered an early indicator of just how strong the demand for AI hardware really is.

On top of that, there is politics. Taiwan is claimed by China as its own territory. A conflict over the island would hit the global chip supply. For this reason, the US, Japan, and the EU are subsidizing the construction of factories on their own soil with billions of dollars, including in Arizona and in Dresden.

How a chip is made in the factory

The starting point is a round disc of pure silicon, the wafer. Layers are applied to it and partially etched away again, hundreds of times in succession. A machine transfers the patterns onto the disc using light, similar to a slide projection, only extremely miniaturized. In the end, the wafer is sawed into individual chips.

The competition revolves around how fine these patterns can become. When people talk about a three-nanometer process, they mean the current generation of manufacturing. Smaller structures mean more switches on the same area and less power consumption per computing step. The exposure machines needed for this come exclusively from the Dutch manufacturer ASML and cost well over a hundred million euros apiece.

An important metric is called yield. It indicates how many chips on a wafer end up working. A single speck of dust can render a chip useless, which is why the air in the factory halls is cleaner than in an operating room. A new process often starts with poor yield and is improved over months. Whoever manages to do this faster than the competition earns significantly more.

TSMC in headlines and products

You rarely encounter TSMC directly, since its name doesn’t appear on any device. Nevertheless, the company is inside the iPhone, in gaming consoles, and in the servers behind every chatbot. When a new graphics card is sold out for months, it is often due to limited manufacturing capacity.

In the news, the company usually comes up in three contexts: new factories abroad, export restrictions on chips to China, and the question of who gets the scarce production capacity. A common misconception is that TSMC is a competitor of Nvidia. In fact, Nvidia is one of its biggest customers. A real competitor, on the other hand, is Samsung, and to a lesser extent Intel, which, unlike TSMC, also designs its own chips.