Tensions in Taiwan raise doubts over chip supply stability

With Speaker of the House Nancy Pelosi arriving in Taiwan today, tensions are high between the US, China and Taiwan. This can be scary for customers of the world’s largest independent chip foundry, Taiwan Semiconductor Manufacturing Company (TSMC). Engineering companies that rely on TSMC to manufacture chips based on the designs they submit to the company include: Apple, Qualcomm, Mediatek, Nvidia, Intel, AMD and more.

The world’s reliance on TSMC could backfire if China gets aggressive and threatens Taiwan

In June last year we wrote a piece about why the world’s dependence on TSMC could lead to disaster. And now TSMC chairman Mark Liu has voiced his concerns. According to Focus Taiwan, the executive said that in the event that the Chinese invade Taiwan, TSMC’s factories would be “inoperable.” At the same time, such a move would lead to “major economic turmoil” in the region.

Taiwan, technology and the threat of a Chinese attack: part 1 of my conversation with TSMC chairman Mark Liu, from today’s GPS pic.twitter.com/xTGR1ovEoC

— Fareed Zakaria (@FareedZakaria) July 31, 2022

Liu says he means that the complexity of the processes TSMC uses to build chips requires the cooperation of its customers and suppliers. If a fight breaks out, this communication can be blocked, preventing TSMC from producing chips. China accounts for 10% of TSMC’s revenue, leading Liu to say, “If they need us, it’s not a bad thing.”

Liu said a battle between China and Taiwan would have no winners and would be about more than just semiconductors. It could result, he said, in the “destruction of the rules-based world order” and “totally change” the region’s politics. Not that it would stop China from trying to take control of TSMC, the latter’s chairman said any military action in the area “would cause major economic turmoil in [both] sides.”

The director notes that in the event that TSMC has to stop production, many countries, including China, would find that “suddenly their most advanced components” would be unavailable. TSMC is the 10th most valuable company in the world by market capitalization (share price multiplied by outstanding shares). TSMC’s stock trading in New York fell to $84.17, before recovering to close out the regular trading session at $86.05.

Pelosi’s visit to Taiwan made her the highest-ranking US official to visit since 1997

Pelosi’s visit to Taiwan today made her the top US official to visit Taiwan since 1997. The Chinese Foreign Ministry says the visit “seriously undermines China’s sovereignty and territorial integrity”. For years, the US recognized Taiwan (also known as the Republic of China) as the government of China until January 1979 when the US (under the Carter administration) recognized the People’s Republic of China as the only legitimate China.

TSMC and Samsung Foundry are the two foundries currently producing chipsets using advanced process nodes in the 3nm-5nm range. The lower the process node number used to produce a chip, the greater the number of transistors on that chip. The more transistors that power a chip, the more powerful and energy-efficient that chip is. Samsung has started shipping 3nm chips for cryptocurrency miners and TSMC will start shipping 3nm integrated circuits later this year.

China wanted to become self-sufficient in the semiconductor industry and recently the largest foundry, SMIC, raised eyebrows by producing basic 7nm chips for cryptocurrency miners. Previously, SMIC was limited to using its 14nm process node.

The US has imposed restrictions that prevent SMIC from obtaining new extreme ultraviolet (EUV) lithography machines from the Dutch ASML. These $200 million machines help etch circuit patterns onto wafers used to place the transistors on a chip. Because there are billions of transistors in a single chip, these patterns are much thinner than the width of a human hair.