Squeezed, TSMC chooses US over China

Mark O'Neill November 24, 2024 22:34

In the third quarter of this year, 11 per cent of the revenue of Taiwan Semiconductor Manufacturing Company (TSMC) came from China, down from 20 per cent in 2019.

TSMC is the most prominent Taiwan firm caught in the crossfires of the U.S.-China. It will only intensify after Donald Trump becomes President again in January next year.

He has threatened to impose tariffs of 60 per cent on imports from China. Beijing will certainly retaliate with measures of its own.

TSMC has no alternative but to choose the U.S. In the third quarter, 71 per cent of its revenue came from North America.

Under pressure from Washington, it is building a giant manufacturing facility in Phoenix, Arizona that will finally involve investment of US$65 billion in three plants.

Last week the U.S. Department of Commerce announced that TSMC would receive up to US$6.6 billion in grants and US$5 billion in loans for the Phoenix facility.

It is the first big award to be finalised under the Chips Act signed by President Joe Biden in August 2022. The Phoenix plant is the largest new foreign manufacturing project in U.S. history.

TSMC had a reminder of what is at stake last month. On October 9, a TechInsights, a Canada-based information platform, said that it had found a TSMC chip on a Huawei Atlas AI training card.

TSMC reported the case to the U.S. Department of Commerce and destroyed all the wafers involved in the shipment.

Then it notified Chinese chip design companies that it would suspend production of their most advanced AI chips with nodes of seven nanometres or smaller.

“We are a law-abiding company and committed to complying with all applicable rules and regulations, including applicable export controls,” the company said.

In an editorial on November 12, China Daily sharply criticised the firm. “TSMC has always been ready to do Washington’s bidding, even at the expense of its own interest,” it said.

“The company’s revenue from mainland companies has been nearly cut in half since the U.S. started to crack down on chip exports to the mainland. In 2019, 20 percent of TSMC’s revenue came from the mainland. Last year it was down to 12 per cent.

“The stepped-up U.S. restrictions on advanced chips will not cripple China’s progress in AI technology but rather they will only serve as an impetus for the country to double down on its self-reliance drive for science and technology,” it said.

Another reason for TSMC to align clearly with the U.S. is the arrival of Donald Trump. Like foreign firms around the world, it does not know exactly what policies he will follow. So it aims to protect itself as best as it can and present itself as a loyal friend of the U.S.

Trump is likely to continue Biden’s policy of encouraging domestic production of semi-conductors and aiming to prevent China from obtaining parts and components for its AI and other high-technology products.

Mainland IT website Jiwei.com said Chinese chip designers were having to wait for detailed shipment rules that were being discussed between TSMC and the U.S. Commerce Department.

They would have to apply for licences if they wanted to TSMC’s facilities to “tape out” or product their AI chips and GPUs, even though these products did not violate U.S. export rules, it said. “Taping out” is making sample chips before mass production.

In a Weibo post, a Guangdong columnist named “Xinyifei” said that, because the yield of China’s seven-nanometre chip-making processes remained unknown, Chinese foundries could not satisfy the demand of all local chip designers.

“TSMC now dominates the market for chips of seven nanometres and less, while Samsung is lagging far behind in terms of yields. China’ SMIC can make seven-nanometre chips but has limited production capacity and low yields. In the short run, Chinese fabless chip makers that make seven-nanometre chips may have to shut down or downsize,” he said.

For the time being, TSMC enjoys market dominances. But it does not know how long this will last.
As the Sino-U.S. trade war intensifies, it has no alternative but to align with the U.S.

Mark O'Neill

A Hong Kong-based writer, teacher and speaker.