The Story of How TSMC Came to Dominate the World

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:17)

And I'm Tracy Alloway.

Joe Weisenthal (0:18)

So obviously, Tracy, we've been talking a lot about chips lately, but for all the episodes we've done, we haven't hit like what is sort of, I guess I would say, the elephant in the room or the gorilla in the room that keeps coming up over and over again.

Tracy Alloway (0:36)

Yeah, we've been going at it, I would say from a US perspective, very focused on the troubles at Intel, but we haven't really talked about the success story that is Taiwan Semiconductor Manufacturing Company, better known as TSMC.

Joe Weisenthal (0:53)

Yeah, exactly right. So every episode that we do, it sort of comes back to them, what a juggernaut they've become. And of course, the sort of basic story is that manufacturing chips is extremely hard, it's extremely expensive, and it's very difficult to do at scale. Intel is one of the rare companies that designs and manufactures its own chips, but that for a lot of these companies that are sort of exploding, gaining market share, they're having Taiwan Semi manufacture them, and Taiwan Semi is getting extremely good or is extremely good at manufacturing and maybe pulling away from Intel to some extent in terms of its manufacturing capabilities.

Tracy Alloway (1:41)

Right. And I think they actually invented the Foundry model, which this idea of just manufacturing chips, which keeps coming up over and over and over again in all of our conversations as one reason the entire semiconductor industry has changed and one reason why Intel is struggling. But the thing I find kind of amazing, like in 2021, we all take it for granted that TSMC is this massive player in the semiconductor industry in the world really.

But I find it really, really noteworthy and somewhat surprising in retrospect that what is a single company on an island has emerged to really dominate chips that are now vital to all sorts of things. So computers, smartphones, cars, everything. I think TSMC manufactures a little over half of the world's chips. So it's not quite a monopoly, but again, like they are the juggernaut in the room, as you put it.

Joe Weisenthal (2:41)

Yeah, absolutely. And it's such a, I mean, it's such a pivotal company for a lot of reasons.

I mean, you mentioned cars. There was just a story this week, recording this January 12th, by the way. There was just a story this week about how car manufacturers around the world are actually running into supply constraints because they can't get chips, because the chip manufacturers decided to reduce their production of automotive chips during the crisis in the spring on the expectation that demand wasn't going to be there and now they haven't ramped up. Taiwan Semi, they're going to, they're actually reporting earnings this week, expected to be very strong. Earnings are soaring, the stock is soaring.

And then of course, because it's in this strategic position and because Taiwan itself is in this strategic position, obviously between the US and China and the rollover its status, it's just an incredibly central player and sort of necessary to understand the story.

Tracy Alloway (3:37)

Right, a big player in tech, a big player across multiple supply chains in a bunch of different industries and certainly a player in geopolitics as well.

Joe Weisenthal (3:46)

So we really got to talk more Taiwan Semi and we have the perfect guest to do that. Someone who knows all about the company, who's been covering them for a long time, since long before they were the dominant player they are today. We're gonna be speaking to Tim Culpan. He is a tech columnist at Bloomberg Opinion. He's been with us at Bloomberg for 15 years and he's actually been covering the tech industry from Taipei specifically for the last 21 years to know everything about Taiwan Semiconductor, where it came from, how it got to be this important player.

So Tim, thank you very much for joining us.

Tim Culpan (4:26)

Hey, thanks for your time, guys. Good to talk to you.

Joe Weisenthal (4:28)

Tim, how would you describe the importance of Taiwan Semiconductor in the world right now?

Tim Culpan (4:36)

Well, as you assessed just saying, they are so huge. Tracy pointed out they create such a large share of the world's chips.

There is probably not a single device in the world that doesn't have TSMC in there somewhere. Whether it's a car, the iPhone, of course, famously, but even some really unimportant boring things like a temperature sensor here or some LED light array there, they do so much of the world's products. They're basically everywhere. And so if they were to stop production tomorrow, I think the global technology industry would grind to a halt very, very quickly.