Lecture Notes: The Global Chip Supply Chain and TSMC

Introduction

• Nvidia's H100 Chip
  • Requires thousands of chips to train one AI model.
  • Each chip costs over $25,000.
  • Most chips are manufactured in Taiwan by TSMC.

Importance of TSMC

• TSMC produces 90% of the world’s most advanced chips.
• Taiwan's concentration in chip production is similar to Saudi Arabia’s role in oil.
• Considered a significant player in the global economy.

Geopolitical Concerns

• Proximity to China

  • TSMC's factories are located less than 100 miles from China.
  • China's aggressive stance on Taiwan poses a risk.

• US Concerns

  • Fear of China's potential control over Taiwan and TSMC.
  • US actions to secure chip supply chain.

Strategies and Investments

• US Investments

  • The Chips Act to bolster domestic chip manufacturing.
  • TSMC's investment of $65 billion in U.S. plants, particularly in Arizona.

• Global Expansion

  • TSMC’s new facilities being built in Europe and Japan.
  • Challenges faced in adapting to different environments and labor markets.

Risks and Challenges

• Earthquakes and natural disasters

  • Earthquake in Taiwan briefly halted production.

• Military and Political Concerns

  • Fears of a Chinese invasion of Taiwan and its impact.
  • Warren Buffett's sale of TSMC shares due to geopolitical risks.

• US Response

  • Consideration of extreme measures to prevent Chinese control, such as destroying TSMC facilities.

Conclusion

• The shift to diversify chip manufacturing locations is urgent.
• Despite efforts, Taiwan remains a critical player in the chip industry.
• The challenge of reducing dependency on Taiwan’s chip manufacturing.

Key Takeaways

• TSMC’s role as a "Silicon Shield" for Taiwan.
• The high costs and complexity of creating new chip manufacturing facilities.
• The ongoing global struggle to control and secure the chip supply chain.