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fabricante de semiconductores

Taiwan Holds a Monopoly in the Manufacturing of Semiconductors

TSMC leads the manufacturing of semiconductors in the world, as it dominates 28% of the market, which has made it the eleventh most valuable company in the world

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Taiwan Semiconductor Manufacturing Company (TSMC) leads the world in the manufacturing of semiconductors, from the simplest for household appliances to the most sophisticated for cell phones and electric cars. It currently dominates 28% of the market.

TSMC’s iron grip over the market has pushed its market capitalization to over 590 billion, making it the eleventh most valuable company in the world. TSMC’s hegemony in the semiconductor industry should come as no surprise, considering that it produces the prized microchips for customers such as Apple, Nvidia and AMD.

Unfortunately, TSMC has not been able to keep up with demand, so it has earmarked $28 billion for an expansion in its production capacity. A good portion of this investment is to expand its extreme ultraviolet lithography processes, a laser and plasma technology that allows it to accelerate the manufacture of microchips.

semiconductor manufacturing
TSMC has invested heavily to expand its semiconductor production capacity in the coming years. (EFE)

The manufacturing business has become increasingly concentrated in so-called foundries (semiconductor fabs), which seem to be getting scarcer as time goes by. While there were up to 25 competitors at the peak of microchip technology in the year 2000, today there are only three manufacturers in the world: Intel, Samsung and TSMC. The other foundries have been relegated to making less complex chips for appliances and other more basic electronic products.

The high cost of setting up a semiconductor fab is one of the reasons why there are so few manufacturers. Building a foundry can mean an investment of $20 billion. Due to the rapid technological advancement in microchip manufacturing, there is a risk that in 5 years the facility will be completely obsolete, so in these locations, microchip production runs 24/7.

To be profitable, a foundry must produce hundreds of millions of semiconductors each year and sell them at high premiums to justify its operating costs.

Debido a los elevados costos de producir semiconductores Intel ha tercerizado parte de su producción a TSMC: (EFE)
Due to the high costs of producing semiconductors, Intel has outsourced part of its production to TSMC (EFE)

The costly business has begun to impact Intel, which for years dominated the microchip market and has relegated part of its operation and outsourced production to TSMC, concentrating semiconductor manufacturing in a single company.

Although Samsung still dominates the market by volume of microchips, the South Korean giant focuses mainly on the manufacture of memory microchips, not microchips with logical operation as TSMC, which makes it the main supplier of companies like Apple and Qualcom (the 5G internet company).

China’s plan to boost its capabilities in the manufacturing of semiconductors

The problem lies not only in the fact that TSMC has a lot of market power, but that it is located in Taiwan. Since the end of the Chinese Civil War and the relocation of Chiang Kai-shek’s government-in-exile to the island of Formosa, which we know today as Taiwan, the People’s Republic of China has denied the legitimacy of the Taiwanese government and claimed the territory it now occupies as its own.

Although Taiwan is a commercial and technological power, diplomatic pressures from the People’s Republic of China have led only a few nations to recognize the island as a sovereign state.

Taipei tiene toda una estructura de know-how incubada en su economía que permite crear un clima de innovación en la industria de semiconductores. (EFE)
Taipei has a whole structure of know-how incubated in its economy that allows it to create a climate of innovation in the semiconductor industry. (EFE)

Taiwan’s political isolation is also aggravated by the escalation of tensions between the United States and China, which today face a trade war. The sanctions imposed by the Trump administration have undoubtedly affected companies such as Huawei, which recorded a drop in revenues due to the shortage of microchips. For its part, TSMC’s sales to suppliers in China fell by as much as 70% last year.

Naturally, the Chinese government has not stood idly by and is investing heavily in the semiconductor market. It has earmarked up to 50 billion in a pooled fund to support the industry.

The fact that the United States’ main economic and military rival is getting stronger in the semiconductor field represents a danger for Americans. Against this backdrop, President Biden has announced 50 billion in support for the semiconductor industry as part of his infrastructure plan.

Experts are skeptical that these investments will soon succeed in opening the bottlenecks in the supply chain. In the meantime, the world will have to continue to rely on the semiconductor manufacturer TSMC in Taiwan.

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