Munich For months investors have feared that the Ukraine war and fears of recession would affect the success of the chip industry worldwide. If the figures presented by the manufacturer TSMC on Friday are an expression of this slack – then the worries are rather unfounded. In June, sales rose by 17 percent compared to the previous year, said the world’s largest contract manufacturer in the chip industry at the end of the week.
The increase was thus significantly lower than in the previous months. In the second quarter, however, revenues increased by more than 40 percent to the equivalent of almost $18 billion. Customers shower the Taiwanese semiconductor manufacturer with orders.
TSMC is vital to the industry, and it’s just as important that TSMC thrives. “They have developed a systemically important position,” says Peter Fintl, chip expert at the consulting firm Capgemini.
Only TSMC masters the most complex and advanced manufacturing processes in the world. At the same time, the company also offers older, more mature technologies, such as those demanded by the European automotive industry. The downside of success: Almost the entire semiconductor industry is dependent on the market leader. “If something happens in Taiwan, the shocks in the supply chain will be felt worldwide,” warns consultant Fintl.
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Those who are well known in the chip industry have their products manufactured by the Taiwanese: from AMD to Broadcom and Nvidia to Qualcomm. Even rival Intel, which is itself pushing into the contract manufacturer business, is on the list of buyers.
“System relevant”, but your own name does not appear
The three major European semiconductor groups Infineon, NXP and STMicroelectronics also buy in Hsinchu. By far the largest customer with around a quarter of sales is Apple.
With 63,000 employees, the group manufactures around 12,000 different products using more than 300 technologies. In principle, TSMC does not sell chips under its own name in order not to compete with customers.
The market position is unique: The group accounts for more than half of the revenues of the ten largest contract manufacturers worldwide, explain the market researchers at Trendforce. The number two among the so-called foundries, Samsung from South Korea, has a share of less than 20 percent. If you don’t make your own chips, you’ll have a hard time avoiding the Taiwanese.
Proximity to China amplifies an old concern
TSMC has so far produced almost exclusively at home. This is increasingly worrying buyers. Because the island’s location in the South China Sea harbors various risks. TSMC engineers can cope with natural disasters such as hurricanes that regularly afflict Taiwan and even earthquakes. The group also survived last summer’s drought without major production losses.
>> Read here: The race to catch up with chips threatens to fail – the future of German industry is at stake
However, the proximity to China has exacerbated an old concern in the shadow of the Ukraine war: an armed conflict with the People’s Republic of China, which does not recognize Taiwan’s self-sufficiency, would put an end to freedom and peace and hit the global economy to the core.
It often doesn’t take much to seriously disrupt highly sensitive chip production. When the power went out in Dresden for just 20 minutes last fall, all of the wafers in the Infineon factory – i.e. the discs on which the chips are made – had to be checked individually.
A matter of national security
In a conflict zone, the disruptions to TSMC would be far more significant. And the German car factories would quickly feel that through the supply chains. After all, it takes several months to manufacture a chip, and hundreds of individual steps are required. If the highly complex process is interrupted at just one point, production will be set back by weeks and months.
The new iPhoneSE from Apple: The US group is TSMC’s largest customer.
(Photo: Reuters)
The USA should therefore do a lot more to lure TSMC – and also the South Korean competitor Samsung – to America, the former Google boss Eric Schmidt recently demanded in an opinion piece for the “Wall Street Journal”. It is a national security issue. What Schmidt is also saying: Even the leading American semiconductor manufacturers lack the know-how of the world’s two largest contract manufacturers.
After all, TSMC is currently building a state-of-the-art plant in the USA. However, TSMC has so far shied away from a location in Europe, although the Asians can count on extensive government support. “Factories can be funded 100 percent under European law,” says Thomas Skordas from the EU Commission. However, numerous conditions would have to be met, including the degree of innovation of a location.
That could be a sticking point, experts say. Because the industry based here, such as the automotive industry, usually requires mature technology in the supplier components. High-performance chips for smartphones and computers tend not to be produced – which reduces the degree of innovation, which in turn affects funding. “We’re looking at a lot of places,” said TSMC CEO Kevin Zhang at a recent meeting with customers in Amsterdam. However, there are no concrete plans for a factory in Europe.
TSMC is making huge investments
“We have to keep an eye on our own resources,” he explained. Too many projects at once could overwhelm your organization. Apparently, TSMC also doubts that a factory in Europe can be operated profitably. Zhang says, “We have to consider the whole environment, and there’s still a lot in Asia.”
>> Read here: Dependent on America: The German industry also lacks the guts when it comes to chips
There is speculation in industry circles that the purchase commitments from European customers are not yet sufficient for the Asians. The EU is still not in agreement with TSMC, explained Skordas recently at a semiconductor congress in Munich.
Customers, however, would be happy not to be so dependent on Taiwan as a location. “We welcome it when the foundries diversify and expand the business outside of Asia,” says Rutger Wijburg, Chief Operating Officer at Infineon. “It is particularly important to expand production capacities in structure sizes from 28 to 12 nanometers in Europe.”
The group has enough money: “TSMC is defending its position with huge investments,” says consultant Fintl. In 2022, the group wants to invest 40 to 44 billion dollars in new plants and plants. That is three times as much as the largest German chip manufacturer, Infineon, achieves in sales.
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