In the world of technology and automobiles, we encounter many innovations and products every year, most of which use semiconductors. Taiwan, meanwhile, plays an important role in this market with TSMC, and many companies around the world are affiliated with it, but why does TSMC have such a position and a similar company cannot be established?
Taiwan is a well-known name in the business world of technology, a country where many companies are present and produce a lot of hardware. One of Taiwan’s leading companies is TSMC. The company manufactures chips that move ahead of its competitors and each year produces orders from companies ranging from Apple to Nvidia.
TSMC has made great strides in the technology world over the past decade and will continue to play an important role in innovation in the future, but what is the reason for this?
The world needs better semiconductors
Semiconductors play an important role in human life and are almost everywhere and are an integral part of electronic devices. From small LEDs to spacecraft that want to take humans to Mars, everyone uses semiconductors. Without semiconductors, there would be no phones or laptops, and we could not even access modern medical equipment.
The world today is in a crisis caused by the coronavirus, and companies have been able to make a vaccine and conduct clinical trials in almost six months. Of course, we could not have done that a decade ago, and it was not possible to telecommute in the current style. Researchers around the world use the Internet and applications such as zoom to communicate with each other, and technologies such as machine learning are involved in DNA sequencing.
With smartphones and laptops, the volunteers announced their readiness to receive the vaccine, and almost all coordination was done remotely by electronic devices. If the world of technology were not so advanced, the production of vaccines would certainly have taken several years, during which time many things would not have been possible.
Countless companies can make electronic devices such as phones and tablets, but the main challenge is to improve as well as increase their productivity. If the semiconductor industry had not developed, we would certainly be in a worse position now. In the meantime, you might think that giant hardware or software companies would do all the work, but if semiconductors did not exist, we would not even have a market for these companies.
In the future, we need better semiconductors so that electronic devices consume less energy so that in addition to increasing charging, we can also protect the planet. We are looking for clean energy like solar energy and we want to replace it with fossil fuels. We want phones and laptops to be charged indefinitely, and computers to be more powerful and smarter day by day.
In the meantime, Taiwan, or rather TSMC, is playing a key role in achieving this goal, bringing the company one step closer to its dreams. To understand why TSMC is so important for such a future, you must first know about supply chain.
Every electronics hardware vendor needs a small business unit to produce an integrated circuit (IC) or chip. Chip production is a time consuming process and requires money. Due to this, the sellers of the final products do not want to enter this part of the market and therefore ask for help from other companies such as Samsung.
When a company like Samsung fails to meet all the needs and does not have enough capacity, we need companies that only work in this area. These companies must be able to design and manufacture chips and focus only on semiconductors.
Some companies are only involved in design and are called “Fabless” companies. There are only a few manufacturers called “Pure Play” and TSMC falls into this category. To give you a better idea of the activities, let’s look at a few companies:
- Final product companies: Amazon (cloud servers), Sony (game console), Apple (smartphones), Tesla (cars) and …
- Designer and manufacturer of integrated circuit: Samsung and Intel
- Production without construction (only integrated circuit designs): Nvidia, AMD, Qualcomm and Broadcom
- Pure Play (produces IC only): TSMC and GlobalFoundry
Designing a chip requires a lot of money, and as you can see in the image below, the cost of designing a single chip can be as high as $ 1.5 billion:
TSMC only makes chips and no longer has to pay to design them. You might think design is harder than production, which is why the Taiwanese company only makes chips, but that is completely wrong. In fact, the hardest part is building a circuit board, or chip, and two companies have made great strides in this area, leading the way: TSMC and Samsung.
Why is chip production difficult?
New technologies are needed to make chips smaller and smaller. TSMC currently uses an extremely difficult process called “ultraviolet lithography” or EUV. The machine that makes this process possible is made by a company called ASML. This machine must fundamentally create a new way of producing light.
The manufacturing process is such that molten tin is poured into the chamber and the laser strikes it to create a bright light or plasma. This plasma can reach the wafers through mirrors and masks, and this process is done 50,000 times in one minute.
According to some, this machine is the most complex man-made machine. Such a car is very expensive and each of them sells for $ 120 million and weighs about 180 tons. The dimensions of this car are not much different from a double-decker bus. While ASML builds these EUV machines, it supplies parts from other companies.
You can’t become a chip maker just by buying a machine from ASML and you need other equipment. The ASML lithography machine completes only 10% of the manufacturing process and covers 20% of the cost. TSMC must learn how to use devices side by side. Each of these devices has its own problems, so creating a chain of these devices that can mass-produce chips for you is a problem in itself.
The importance of research and development and the reduction of shortcomings
Dealing with the fewest possible errors and defects is the biggest challenge in production. Chip companies have a special focus on this sector and TSMC has a brilliant performance. Some of the chips are performing well and should be increased as much as possible. For example, if more than 60% of the chips have a problem, you can not easily start mass production. Many reasons, from minor defects to problems with patterns, can lead to a defective product.
This increases the importance of R&D, and companies spend billions of dollars every year on that budget. A company like TSMC wants to achieve the best possible result and produce billions of chips to keep its customers satisfied.
Every year, customers, especially Apple, ask TSMC to make smaller and better chips. The Taiwanese company needs to modify processes to meet needs and to do so requires new equipment. TSMC spent nearly $ 3 billion on research and development in 2019, and that amount will increase by 2020. Of course, not every company can afford to spend billions of dollars on such a budget.
TSMC has almost achieved a monopoly on the market today, which, although Samsung is trying to achieve, has not yet succeeded. TSMC owes such a position to its 30-year relationship with partners and mutual trust.
Why do companies turn to TSMC?
The main reason for this is trust. TSMC and its founder, Maurice Chang, are respected by various companies for their impeccable personality and performance. Companies trust them and entrust the production of their chips to them.
Apple is one of TSMC’s most loyal customers, and after a legal dispute with Samsung, it often goes to the Taiwanese company to produce its chips. In addition to trust, TSMC has a close circle of partners that form a giant ecosystem with trillions of dollars invested in R&D.
TSMC works with countless companies, including Apple, AMD, Logo and ASML. Despite all this, trust in TSMC has made it the first choice of many companies.
Why can’t a company like TSMC be established?
Starting a company like TSMC is not easy because the company has to spend billions of dollars a year on R&D to be able to reach the top position after a while and maintain that lead again at a high cost. If we are not involved in R&D, we need equipment that can cost billions of dollars:
- TSMC’s latest manufacturing facility, Fab18, which produces 5-nanometer chips, is worth $ 17 billion.
- The company’s next plant, which will produce more advanced 3-nanometer chips, will be worth $ 19.6 billion.
These production centers in the best conditions need 5 years to become profitable. In addition, the new company must be able to meet the needs of the market, and this requires management, an issue in which TSMC does not seem to have a problem.
Samsung is TSMC’s most serious competitor, but to date it has not been able to beat the Taiwanese company, although Samsung is not the only chip maker. The company designs and manufactures their spheres and uses them in end products.
Although it is very difficult to set up a company similar to TSMC, this has not prevented countries from entering the sector. Some countries have made great efforts in this regard:
- The United States tried to position itself with Sematech several decades ago, but failed.
- Intel, an American company, is lagging behind in the competition and is not in a good position. Intel is in a position to make even some of its best chips in the future, Samsung or TSMC.
- China is another country that, with an investment of $ 150 billion since 2014, wants to have a say. SMIC is the largest chip maker in China, but it lags behind TSMC for years or even decades, and given the recent US government sanctions and blacklisting, this lag is likely to increase.
- With more than 10 countries and an investment of € 145 billion, Europe wants to compete with TSMC and may be able to have a strong presence in this market segment in the future.
Although we have mentioned heavy sums so far, not everything is money. Of course, companies like Intel do not have a problem with money, but they do not have enough specialists to improve their technology as well as mass-produce advanced chips. While there are countless software and hardware engineers in different countries, few engineers specialize in semiconductor manufacturing. You need to be able to hire the best in the field, which has its own challenges.
Apple is the most valuable company in the world and is one of the major customers of TSMC. The company, which recently began designing ARM-based chips for the Mac world, has billions of dollars in cash, yet has not yet entered the chip market. There seems to be no guarantee of success in investing in this sector, and the final sample may not have the same quality as TSMC products.
TSMC has had great success in Taiwan and is affiliated with many companies around the world. Chips have become an integral part of current and future devices: electric vehicles, spacecraft, servers, the 5G network, and even the development of drugs and vaccines and military equipment all need chips.
The company is not expected to have an impact on TSMC’s position in the future, and the Taiwanese company’s uniqueness is likely to continue.