Did you know that the world is ruled by one company? Taiwan Semiconductor Manufacturing Company may not be a household name, but its chips are everywhere. In iPhones, air conditioning units, smart doorbells, computers, cars, F-35 fighter jets, and even NASA's Perseverance rover that landed on Mars.
The reason automakers haven't been making enough cars is because of a shortage of these sophisticated chips that power functions like braking. Semiconductor chips are the new oil in terms of our dependence on them. And one company pretty much has a monopoly.
Nestled on the northwest coast of Taiwan, TSMC produces 92% of the most advanced chips in the world. It's one of only two companies that mass-produces chips below 10 nanometers, the other being Samsung. Nanometer refers to the length of a transistor. Tiny switches, 10,000 times thinner than a human hair, that control electric currents.
One nanometer is equal to one billionth of a meter. The smaller the transistor, the more that can be crammed together. The more transistors you have, the better the chip, and the more powerful your computer will be.
When House Speaker Nancy Pelosi visited Taiwan in August 2022, she made it a point to meet with TSMC Chairman Mark Liu, a sign of just how important the company is. Beijing spent weeks telling Pelosi not to go to Taiwan. An island that Chinese President Xi Jinping believes is a breakaway province and has threatened to invade.
In light of Pelosi's visit, Beijing sanctioned Taiwan by suspending imports of citrus fruits and fish. Of course, Beijing did not ban Taiwanese semiconductors because it relies on them like everyone else. Semiconductors have become a key part of the tech rivalry between the U.S. and China.
There are concerns that an invasion of Taiwan by China could choke off the supply of these cutting-edge chips to the rest of the world and give Beijing control of this essential technology. So, how did Taiwan's semiconductor become so dominant? The fundamental technology was actually invented in America and gave Silicon Valley its name as most chips are created with silicon. In the 90s, the US manufactured a third of the world's chips. Today, none of the advanced chips is made in the USA.
Companies like Intel used to build and design chips in-house. But beginning in the 1980s, American firms started struggling against competition from Japanese companies, so they outsourced some parts of their business that were draining their profits, including the expensive factories that produce semiconductor chips. Morris Chang noticed this trend and took advantage of it.
He was born in China and in 1949 he moved to the States where he eventually earned a PhD in electrical engineering from Stanford. He spent 25 years rising through the ranks of Texas Instruments before the Taiwanese government offered him a chance to develop its semiconductor industry. Cheng realized there was a great opportunity to create a new company focused solely on making chips that could supply all needs. In 1987, TSMC was born. Cheng initially priced the chips at a loss to capture a larger market share in the hopes that costs would eventually be reduced enough to generate a profit.
His strategy paid off big time. The world's largest companies all rely on TSMC. Apple, Intel, Qualcomm, AMD, Nvidia, Huawei, and Tesla. Manufacturing semiconductor chips that are the size of a fingernail is crazy difficult.
Each chip is packed with as many as 50 billion transistors. The process begins by cutting silicon wafers. these thin slices of semiconductors that kind of look like shiny mirrors into individual chips.
Employees must wear protective gear when handling them. If even a speck of dust falls onto the wafer, the entire batch risks being ruined. The chips are made by etching tiny patterns across the wafer, layer upon layer. To create the layers, the wafer is coated with a light-sensitive chemical.
It's kind of like layering a cake, except in this case, the cake has 75 layers, and takes three months to make. The layers are connected by copper wires that carry electrical power. The entire process is daunting, and TSMC has the undisputed edge.
But things are getting complicated as it finds itself caught in the middle of a tug of war between two superpowers. In August, President Biden signed the Chips Act into law, which bans companies that receive American subsidies for manufacturing sophisticated chips for China, any that are below 28 nanometers. Washington is offering $52 billion in subsidies to encourage manufacturers like TSMC to build semiconductor plants in the U.S.
One is scheduled to open in Arizona in 2024, which TSMC previewed on its LinkedIn page. But it will still represent only a small sliver of global chip production. At the same time, Chinese chip innovation is growing by leaps and bounds.
In 2020, Chinese firms were still struggling to get below 40 nanometers. Today, Leading Chinese chip company SMIC is said to have successfully made a 7 nanometer chip. Researchers at the firm Tech Insights say the chip was made for crypto mining.
China has made it a strategic priority to boost its domestic semiconductor industry, showering Chinese chip firms with incentives, including exempting them from paying corporate income tax for up to 10 years if they make the most sophisticated chips. Still, for now, Taiwan's semiconductor is the most important chip. chip manufacturer in the world.
It's producing chips that are 2 nanometers smaller than China. Investors start manufacturing ultra-advanced 2 nanometer chips by 2025. That means your iPhone would last 4 days without needing a charge. China needs TSMC just as much as the United States does. As geopolitical tensions rise, Taiwan's semiconductor's importance on the world stage may be the island's greatest protection against any possible invasion.
Thanks for watching. For Newsthink, I'm Cindy Pom.