Article – Semiconductor Supremacy: Unravelling Global Dynamics and Future Prospects

As expectations towards the future of technology rise, the very roots of its innovation further challenge the basics of science itself. Semiconductors, serving as the backbone of modern technology, play a pivotal role in this dynamic, pushing the boundaries of scientific knowledge and understanding. They are the basic materials required to manufacture chips – sets of electronic circuits on a small flat piece of silicon – and we can find them in everyday life in a wide range of devices we rely on for work, travel, and entertainment.

Its computing power is essential for all sectors of our economy, relying on the companies responsible for its production. We use chips for cars, smartphones, credit and debit cards, and, critically, for military purposes, like guided missiles, fighter jets, and emerging artificial intelligence. As Igor Mikolic-Torreira said, “Money moves thanks to these chips” (Financial Times). For a long time, since the end of World War II, the US was the global leader in the technology sector. However, in recent decades, only 12% of the world’s chips are produced in America (The New York Times). As AI becomes an increasingly prominent topic of discussion, demanding further advanced and innovative chips, the US has struggled to keep up, with Taiwan leading the production of 92% of chips at seven nanometers or below (Financial Times). In fact, Taiwan Semiconductor Manufacturing Company, TSMC, is both the world’s largest and most advanced chip maker. So, at the core of the matter lies the question: “How do we make sure we have multiple suppliers so that we aren’t reliant on a single one? And how do we make sure there’s enough capacity in the supply chain?” (Financial Times). In this article, we aim to present the current market response and future expectations regarding this matter.

The Supply Chain

To tackle the heart of the matter, it’s crucial to comprehend first what is the semiconductor’s supply chain and how chips are made. ​​

The semiconductor value chain comprises a network of interconnected processes, including design, manufacturing, distribution, and product support.

While some companies undertake diverse roles within this chain, others are highly specialised. However, all are somewhat interdependent, given the intricate production process involving over 500 discrete stages. Consequently, the semiconductor supply chain is remarkably complex, segmented, and international (CSIS).

The semiconductor manufacturing process begins with design, where core IP – chore building blocks – and Electrotion Design Automation (EDA) companies, which provide software tools, techniques, and methodologies for the design, take place. Fabless semiconductor companies, like Apple and Qualcomm, are responsible for the design and development of their chips, however, they don’t have their own manufacturing facilities to produce the physical chips (CNBC).

After the design phase comes production, which involves manufacturing equipment and materials. Companies such as ASML play a critical role in equipment manufacturing, producing the machines responsible for printing these chips. ASML holds a monopoly on EUV lithography machines, the most advanced technology necessary for producing further advanced processor chips (CNBC). This technology, manufactured in the US, aims to reduce the cost per transistor and enhance semiconductor capabilities even further. Its stocks have skyrocketed since 2018, presenting a double-digit growth every year and its largest single customer is TSMC, the first company to deliver chips made with EUV (CNBC). As for materials, silicon wafers, photomasks, and photoresists are necessary inputs across the semiconductor manufacturing process (Quartr). Experts at FMI anticipate that the market revenue could exceed 87,9 billion dollars by 2033, with a projected CAGR of 6,4% from 2023 to that year (FMI).

While foundry companies, like TSMC, focus on manufacturing chips for design firms, Integrated Device Manufacturers (IDM) are responsible for both design and production (CNBC).

Lastly comes assembly, testing, and packaging – companies who specialise in providing packaging and testing services for semiconductor manufacturers.

How did TSMC become the World’s Chips Leader?

To understand how TSMC became so dominant in the semiconductor market, there is a need to first comprehend why the company started in the first place. During the 1970s, the Republic of China (Taiwan), which had enjoyed recognition as the legitimate government of the entirety of China since the end of the Chinese Civil War from most of Europe, the USA, Japan, and others, started to see that diplomatic support fade away, as these countries began to open diplomatic relations with the People’s Republic of China. As such, the RoC needed some sort of leverage to make these countries intervene on its behalf in the event of a PRC invasion. Many countries that have found themselves in this situation have had natural resources that interested the developed world and made foreign powers come to their aid. One example of this was Kuwait during the Gulf War: this country had huge reserves of oil and natural gas that interested a large number of countries, resulting in the largest coalition since WWII to come in the country’s defence after an invasion by Saddam Hussein’s Iraq.

However, the island of Taiwan is not rich in natural resources and, as such, the Taiwanese government, with the help of Taiwanese-American businessman Morris Chang, designed a plan to use artificial resources in a similar way to how Kuwait leveraged its natural ones. Morris Chang worked for 25 years at Texas Instruments, one of the leading semiconductor companies at the time, and oversaw the company’s entire semiconductor business. He realized that American companies were beginning to lose interest in the cost-intensive task of producing these microchips and, in the late 1980s, moved back to Taiwan. There, he had the idea of creating a new kind of company that had never existed up until that point: a company that wouldn’t compete with its American counterparts in designing chips, which could antagonise the American government, but would rather focus on the expensive task of manufacturing them. With this company, Taiwan would secure American support in the event of an invasion due to the importance of the manufacturing process.