Part 2: The Titans of IT Dominating the World: The Success and Future of TSMC

Exploring the Innovations and Challenges of Global IT Leaders through Professor Cho Sung Kap’s "High-Tech Corporate Management Theory"

Cho Sung Kap, Chair Professor at Anyang University, author of 'High-Tech Corporate Management Theory' - an analysis of the world's top 10 IT company founders and success stories.

In his latest publication, Chair Professor Cho Sung Kap's ''High-Tech Corporate Management Theory'' offers an in-depth analysis of the world's leading IT giants, examining their strategies of innovation and challenge. The book meticulously explores the success strategies of ten pivotal companies driving the global IT industry, including NVIDIA, Microsoft, Apple, Alphabet, Amazon, Meta, TSMC, Broadcom, Tesla, and Tencent. Each company stands out on the world stage with unique and practical approaches. Immigrant CEOs like Satya Nadella, Sundar Pichai, Jensen Huang, and Elon Musk have reshaped the history of management through their resilience and adaptability. Their secret to success lies in dual strategies of "Know-how" and "Know-where," emphasizing the significance of the American education system and the "3S spirit" (Servant, Share, Service). This highlights the strengths underpinning America's claim to eight of the top ten IT firms globally.

Korea IT Times reconstructs and reports a synopsis of this new book by Professor Cho. In this issue, we delve into TSMC's political and economic influence, anticipating its role in the future global economic landscape. Beyond mere technological advancement, TSMC's success story wields significant influence across political and economic spheres, projecting a strong leadership position in the global market.

Professor Cho Sung Kap at Anyang University has an illustrious career at IBM, the Watson Research Center, and Harvard Business School. Selected as one of the 2000 Outstanding Intellectuals of the 21st Century by the UK’s International Biographical Centre, his narratives on the success of top IT firms remind readers of the importance of entrepreneurship, encouraging them to overcome fears and relentlessly pursue their dreams.

TSMC: Dominating the Global Foundry Market
Taiwan Semiconductor Manufacturing Company (TSMC) stands as a leader in the global foundry market, commanding a 59% share. Founded in 1987, TSMC has grown exponentially through its unique contract manufacturing business model, distinguishing itself from other semiconductor giants that focus on design.

Initially launched through technology transfers from Taiwan's Industrial Technology Research Institute (ITRI), modeled after Korea’s ETRI, TSMC has predominantly manufactured semiconductors for global tech giants such as Apple, Qualcomm, and NVIDIA. By 2022, TSMC reported revenues of $76 billion and net profits of $34 billion, largely due to its exclusive ability to offer cutting-edge semiconductor processes, especially in close collaboration with Apple. For example, most of Apple’s M-series chips are produced using TSMC processes.

Driven by the vision of Dr. Morris Chang, an MIT alumnus and former Texas Instruments executive, TSMC was established with the guidance of the Taiwanese government during his tenure as the director of ITRI. This was a strategic move to ensure Taiwan remained competitive in the microprocessor and memory semiconductor markets. Early on, TSMC received critical technological support from the Netherlands’ Philips.

TSMC has continuously expanded its production capabilities in recent years, announcing a new plant in Kumamoto, Japan, in 2024, alongside a significant investment for a new fab in Arizona, USA. This global expansion reflects not only the economic significance of the semiconductor industry but also leverages TSMC’s political influence on the international stage.

TSMC holds the highest market capitalization in both Taiwan’s stock market and East Asia, with a valuation of approximately $960 billion as of 2024, representing half of Taiwan's stock market. This valuation has been propelled by the increasing demand for AI technologies, reinforcing TSMC’s integral role in Taiwan’s economy and solidifying its unrivaled position in the global semiconductor market.

Amid China's economic rise and Taiwan’s diplomatic isolation, TSMC has significantly strengthened Taiwan's financial and diplomatic stance. TSMC's semiconductor segment is now a pivotal battleground in the US-China trade conflict, underpinning Taiwan's vital role in the global economy. This status has granted TSMC the nickname "Guardian Mountain," highlighting its critical importance to Taiwan’s sovereignty.

During the COVID-19 pandemic, surging semiconductor demand—particularly in the automotive industry—magnified TSMC's influence. Semiconductors have become indispensable to all electronic devices, cementing TSMC's status as an essential player. As the US uses semiconductors to counterbalance China, TSMC's role has grown paramount, reflecting broader geopolitical concerns about potential supply disruptions should China threaten Taiwan.

Japan, aiming to maximize economic and technological gains, offered substantial subsidies to host a TSMC plant in Kumamoto. This initiative aligns with Japan's strategy to revitalize its semiconductor industry and absorb advanced technologies, showcasing TSMC's international influence. Similarly, by establishing two foundry plants in Arizona, the US affirms TSMC's vital role in maintaining its semiconductor supremacy.

One of TSMC’s core philosophies is to "not compete with its customers," focusing solely on the foundry business without developing its own chips. This strategy has fostered trust with clients, illustrating its success in the case of Apple, which shifted from Samsung to TSMC due to concerns over technology leaks. By avoiding such risks, TSMC maintains a significant competitive edge over rivals, particularly those developing their own chips.

In 2022, Taiwan, led by TSMC, held the second-largest foundry market share globally, following the US. Major companies like MediaTek, which surpassed Qualcomm in global mobile AP market share, bolster Taiwan’s strategic position in the foundry industry.

Although TSMC possesses superior yields and mass production capabilities compared to competitors, it sometimes faces criticisms over production challenges. Nonetheless, its long-standing experience and reliability account for TSMC’s remarkable performance, attracting admiration from global fabless companies.

"Only Black Chips are Good?" A Rumor in the Semiconductor World

The rumor that "only black chips are good" concerning NVIDIA's Kepler GPU series surfaced amidst reports of yield issues at TSMC related to NVIDIA. At the time, it was speculated that TSMC struggled to produce sufficient high-quality chips for NVIDIA, adjusting voltages in an attempt to improve yields. Such yield issues garnered attention precisely because TSMC, as a leading foundry, set the industry standard. Although other companies like Intel, Samsung, and GlobalFoundries are also players in the foundry market, they lack the experience and technological foothold as robust as TSMC’s. Intel has relatively recently ventured into foundry services, and while Samsung is working to close the gap with TSMC, it still lags behind.

In the semiconductor world, "good chips" refer to those that meet specific performance and thermal standards at a designated speed. It's important not to confuse a product's overclocking capability with its yield. Yield refers to how many high-quality chips can be produced from a single wafer, separate from overclocking, which describes the ability to push a product’s performance beyond its base specifications. Thus, products deemed "good" meet required standards, and judging chip quality based on overclocking is a misconception.

Semiconductor companies purchase wafers in bulk rather than individual chips. Chips that fail to meet the performance criteria are deemed defective and discarded, ensuring that only quality products reach the end consumers. Even when yield issues are brought to light at TSMC, it remains a cornerstone of trust for its major clientele. Yield rates in TSMC’s operations are a critical benchmark in determining quality standards across the semiconductor industry. Although they can be conflated with overclocking abilities, yield rates actually reflect the efficiency of product design and the capacity to produce a substantial number of quality chips.

TSMC's Dominance and Its Strategic Implications

The relationship between TSMC and the Taiwanese government is highly strategic, playing a crucial role in economic collaborations with key nations like the United States and Japan. Various economic and policy shifts in Taiwan significantly influence TSMC's global business strategies, with TSMC contributing decisively to Taiwan's economic trends and reigning supreme in the foundry market. However, recent challenges threaten TSMC’s position and cast uncertainty over its future.

Having focused exclusively on the foundry business for over three decades since its founding in 1987, TSMC has secured unparalleled technical prowess and market share. Global powerhouses like Apple, Qualcomm, NVIDIA, and AMD rely on TSMC's advanced processing technologies for their production needs. Pioneering technologies like fan-out wafer-level packaging (FO-WLP) have allowed TSMC to surpass competitors like Samsung, securing Apple’s application processor orders and affirming its technological leadership. Additionally, TSMC has realized economies of scale by acquiring EUV equipment, solidifying its competitive edge in cutting-edge nanotechnology processes.

However, TSMC's reign is not guaranteed to last indefinitely. Focusing solely on the foundry business poses inherent risks, such as customer attrition. A shift by Apple to another supplier like Samsung would significantly blow TSMC. Moreover, Samsung’s aggressive pursuit of contracts cannot be ignored; it has recently secured major deals such as NVIDIA's RTX 30 series and Qualcomm’s 5nm chipsets, challenging TSMC’s dominance. Moreover, the biased reporting from Taiwanese media outlets like DigiTimes, which sometimes obscures objective market analysis, further complicates the narrative. For instance, blaming low yield rates at Samsung for initial RTX 30 series shortages when the real cause was a GDDR6X VRAM shortage illustrates the nuanced reality often overlooked in such discussions.

External Factors and TSMC’s Crisis

Another element contributing to the uncertainty surrounding TSMC's future is the external threats it faces. The photochemical contamination incident in 2019 resulted in the loss of tens of thousands of wafers; however, it was limited to the 16nm/12nm processes and did not critically impact TSMC's long-term competitive edge. In contrast, the toxic clauses associated with U.S. semiconductor subsidies present a serious concern. The U.S. government expects companies receiving these subsidies to provide sensitive, confidential information and to return excess profits. This raises the risk of technology leaks for TSMC and could diminish its profit margins. Notably, the decision to establish factories in the U.S. for processes below 3nm was largely an unavoidable response to U.S. pressure.

An even more pressing threat emerges from discussions within the U.S. about a potential "pre-emptive strike on TSMC." Extremist voices in parts of the U.S. government and among politicians have argued for targeting TSMC’s production facilities in the event of a cross-strait conflict, a notion that poses significant risks not only to TSMC but also to other semiconductor companies such as ASML and the Taiwanese government. The earthquake in Hualien in April 2024 starkly highlighted both the importance and vulnerability of TSMC.

Nonetheless, TSMC retains its exceptional technological capabilities and market dominance. The rising demand for automotive semiconductors in the era of autonomous vehicles, combined with the expansion of data centers driven by advancements in artificial intelligence (AI), presents new opportunities for TSMC. However, the company must effectively manage threats from competitors like Samsung, pressure from the U.S. government, and geopolitical uncertainties. It will be crucial for TSMC to continue innovating technologically, strengthen trust with its customers, and diversify its operations to mitigate risks.

Dr. Morris Chang, born in 1931 in Zhejiang, China, fled to Chongqing and Hong Kong during the Second Sino-Japanese War before eventually making his way to the United States. There, he studied at Harvard and MIT, worked at Texas Instruments, and returned to his homeland with dreams for the future of the American education system and electronics industry to establish ITRI. His founding of TSMC was a direct result of his experience and visionary leadership, as well as the strategic judgment and responses of the new management team.

Consequently, TSMC must focus not only on market share but also on creating a long-term vision and strategies for sustainable growth to shape its future.

The next issue will continue with the ‘Broadcom’ episode.

Korea IT Times/Editorial Team 다른기사 보기