There are only three companies that can manufacture super-advanced chips Worldwide: a Taiwan semiconductor manufacturer (TSMC), a California-based company, and South Korea Samsung. The modern chipmaking industry is rare and specialized because it is too expensive to keep the competition at the highest level.
Intel’s setback may not be fatal. The company has led the semiconductor industry for years, and is likely to reach 7-nanometer manufacturing at commercial levels “within a somewhat short period,” according to Albert Swanson, a visiting fellow at the American Enterprise Institute, a Washington-based think tank.
But TSMC’s successes today – and its position as a leading global chip supplier – makes it a very important company at a critical time. The United States and China are fighting a battle over who can develop future technologies more quickly, and the two countries are partnering with TSMC to provide them with the chips they need to operate advanced technology like artificial intelligence, 5G and cloud computing.
TSMC hedged against tensions with the United States, but risked Chinese anger
But the fact that TSMC is helping the United States boost its chipmaking capabilities could upset China. TSMC has invested billions of dollars in manufacturing plants in mainland China. Should Beijing’s revenge against TSMC and Taiwan, It would at least put the market in turmoil.
There was concern in Taiwan about the possibility of Beijing nationalizing the Burundian Armed Forces [plants that fabricate chips] Paul Triollo, Head of Global Technology Policy at Eurasia Group in Nanjing and Shanghai.
Triolu said that taking over fully owned TSMC factories in China is highly unlikely. “It will be a major escalation and a strong blow to the business community. It is not clear what this will buy for Beijing, other than the main negative negatives,” he added.
“Beijing could argue that if TSMC was ready, it would [build] “The advanced forces in Arizona must be prepared to do the same in China.”
Washington’s long-running pressure campaign against Huawei underscores the need for China to limit its independence from foreign chip makers.
The last US sanctions announced in May cut the Chinese Communication maker from TSMC. Although TSMC is a Taiwanese company, it relies on American chip-making technology. The US Department of Commerce said that TSMC and other chip makers who use American technology will now have to apply for a product export license to Huawei and its subsidiary HiSilicon. These apps are very likely to be rejected, since Washington wants to keep Huawei equipment out of the global 5G networks.
Aside from geopolitics, there is also geography. Taiwan is the world’s largest semiconductor exporter, and the global supply chain needs more chip-making capabilities scattered around the world.
Although Intel can design and manufacture its own semiconductors, it can only switch to TSMC when it lags out on advanced chips.
According to Swanson of the American Enterprise Institute, the focus of the highly advanced semiconductor manufacturing capacity on a small island off the coast of mainland China has always been a concern of the supply chain. “What if there is a tsunami in Taiwan?” He said.
This puts TSMC again in a very strong position. “Maybe the West wants to help protect Taiwan not only geopolitically, but because of this technical ingenuity and technical capacity there,” Swanson said.
China is lagging far behind when it comes to the chip industry
Taiwan shared its technical expertise with China. Over the years, hundreds of thousands of Taiwanese engineers have gone to the mainland to help develop the local semiconductor industry in China, which Swanson notes has “made great strides in the past two decades”.
Despite massive domestic support, the semiconductor remains a major technical bottleneck for China.
According to Eurasia Group’s Triolo, the international semiconductor manufacturer (SMIC), the country’s largest chip maker, is stuck anywhere from three to five years behind industry leaders Intel, Samsung and TSMC.
SMIC currently manufactures 10 nm chips, while the top players already produce 7 nm chips, and they race to move to 5 nm and finally 3 nm chips.
However, to make 7 nanometer slides, companies need access to a UV lithography machine. These machines are able to produce complex patterns on advanced chips. It is also difficult to operate, which is why Intel is having trouble making 7 nm chipsets for commercial production, according to Triolo.
Triolo said that the SMIC problem is that the United States is pressing the Netherlands to prevent the sale of EUV equipment to SMIC by the Dutch company ASML. This technology was designed by ASML, but includes large amounts of American intellectual property.
The geopolitical situation can change. But given the time it takes to master the EUV, any major delay will push SMIC’s commercial entry into more advanced chips today beyond 2023, and by that time, industry leaders will be much advanced.