Taiwan is home to more than 90% of the world’s most advanced semiconductor manufacturing capacity, according to a 2021 Boston Consulting Group report. Pictured is a TSMC building in Taiwan on April 8, 2022.
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BEIJING – When it comes to semiconductors, China needs Taiwan more than vice versa.
Beijing stops some trade with the island this month following the controversial trip of US House of Representatives Speaker Nancy Pelosi to Taiwan.
Notably, the bans do not touch electronic devices. Taiwan is home to more than 90% of the world’s most advanced semiconductor manufacturing capacity, according to a Boston Consulting Group’s 2021 report.
Pelosi’s itinerary includes a visit with Taiwan Semiconductor Manufacturing Co, the world’s largest and most important chip manufacturer. Its products are an integral part of everything from consumer products to military aircraft.
But only 10% of TSMC’s revenue comes from China, according to the company. More than half of its revenue comes from the United States.
“As we’ve said, the status quo is that these chip companies may not be as dependent on China as they are,” said Patrick Chen, head of research at CLSA in Taiwan.
“I think the real challenges for these companies still come from end-to-end demand, rather than what is happening in terms of geopolitics,” he said.
American chip maker Micron and Nvidia has warned in recent weeks of falling demand for products that use its chips.
The important role of TSMC
Pelosi’s Taiwan trip came despite Warning from Beijing, which considers the democratic self-governing island part of its territory, does not have the right to conduct foreign relations independently. The United States recognizes Beijing as China’s sole legitimate government and maintains unofficial relations with Taiwan.
In addition to some trade bans, Beijing has stepped up military exercises around the island of Taiwan, raising concerns about the risk of global access to vital chips.
Analysts stress that Taiwan-made chips, especially those from TSMC, are too important for the world and for China to be for any major disruption on the chip front.
“If you look at the factors driving secular demand, cloud infrastructure, electric vehicles, the next generation of public facilities,” said Mehdi Hosseini, tech hardware analyst at Susquehanna. industry, all of which require chips to be manufactured at TSMC.”
“God forbid, if TSMC’s facilities in Taiwan can’t function, I think the global economy will slow down more than what Covid has done [to growth]”he said.
CLSA’s Chen describes TSMC as being in “a league of its own”, Taiwanese semiconductor companies UMC and US GlobalFoundries as tier two chipmakers and China’s SMIC and Hua Hong Semiconductor falling into tier three. .
“Competitively, coming from China, that is not a real and meaningful threat,” he said.
China’s chipmakers are still behind
Beijing has ramped up its chip-building efforts over the past few years, with supporting policies draw a overflowing with private capital. State-owned chip company Tsinghua Unigroup is heavily in debt and defaults on debt shows how easy the system is to go to waste, despite the recent growth and technological developments at another Chinese chip giant, Semiconductor Manufacturing International Joint Stock Company.
However, it took SMIC 15 years to reach TSMC’s position 10 years ago, Hosseini said in a phone interview last week.
“China does not have access to leading edge equipment,” he said. “It will take a long time to get the technical know-how.”
Under the Trump administration, The US has essentially banned Chinese tech giants Huawei and SMIC from using US technology, including its chip manufacturing equipment.
That means that as of the end of 2020, TSMC can no longer produce semiconductors for Huawei.
According to David Hsu, vice president at S&P Global Ratings, TSMC’s China revenue has grown from 2018 to 2020 to nearly 20% of total revenue.
But in 2021, TSMC’s exposure to China falls back to about 10% of total revenue, similar to the level seen in 2017, Hsu said. “After the Huawei ban, [TSMC] has transferred its capacity to other companies. “
TSMC’s business is still going strong. Company, is a Apple supplier, report second-quarter revenue was about $18 billion, up more than 40% from a year ago.
That shows how much bigger TSMC is than SMIC, reports revenue for the same quarter was $1.9 billion, also up more than 40% from a year ago.
A balancing act with the US
The US is also trying to increase access to key semiconductor technology. US President Joe Biden signed into law this month the Science and Chips Act, which provide subsidies to chip manufacturers to produce in the US
Bernstein analysts said in a report this month they expect a “warm” impact on TSMC.
“Strategically, TSMC is ‘everyone’s base’ to diversify its customer base to reduce risk and scale, and will strive to remain neutral,” the report said. “Considering these things, we think TSMC will likely continue to expand overseas capacity over the next few years even with the encouragement of the CHIPS Act.” now.”
About 10% of TSMC’s capacity is in mainland China, compared with a smaller portion in the US, according to Bernstein’s estimates for the fourth quarter.
TSMC spending 12 billion dollars to build a factory in Arizona. In Mainland China, the company operates in Shanghai and Nanjing.
However, CLSA’s Chen said the Arizona facility will focus on more advanced technology, while Taiwan’s restrictions on chipmakers’ investment in China mean production in China. that will still focus on older technology, which has a large market on the mainland.
– CNBC’s Michael Bloom and Arjun Kharpal contributed to this report.
