TSMC shifts west, dodging geopolitical headwinds

By Bolaji Ojo for the Ojo & Yoshida Report – Rising economic nationalism is causing fissures in the global semiconductor supply chain. The rifts are threatening the IC market at a time of rapid growth, when it most needs to retain the collaborative and unified structure that has driven its expansion over several decades.

Rising economic nationalism is causing fissures in the global semiconductor supply chain. The rifts are threatening the IC market at a time of rapid growth, when it most needs to retain the collaborative and unified structure that has driven its expansion over several decades. As economic powers like China, the EU, and the United States move to militarize the global electronics supply chain to achieve their geopolitical objectives, companies like Taiwan Semiconductor Manufacturing Co. Ltd. are caught in the fray. How TSMC and its competitors respond to these geopolitical pressures will determine whether the industry will continue to grow unhindered or enter a phase of extreme uncertainty and uneven product development.

Taiwan Semiconductor Manufacturing Co. Ltd. faces an existential problem as it struggles to find the right survival and growth strategy in a fractious geopolitical environment dominated by China and the United States — two economic powers locked in a tug of war over the direction of the global electronics market.

TSMC appears to have come up with a drastic solution. Put bluntly, it is placing a huge bet on the West, pacifying the U.S.-led Western alliance with promises of multibillion-dollar investments in their territories and temporarily allaying their concerns that the pendulum of the international supply chain has swung too hard toward China. The Hsinchu, Taiwan-based foundry giant’s decision, however, has the potential to trigger further Chinese enmity toward the island, which Beijing insists is an integral part of China’s territory.

Industry analysts and observers who spoke with the Ojo-Yoshida Report, some of them off the record due to the sensitivity of the subject, say TSMC may have found a “poison pill” solution to the persistent fears that a takeover of Taiwan by China could threaten the company’s viability. First, placing more fabs in the U.S. and other Western locations would shore up the Western supply chain in a way that would also reduce incentives for China to attack Taiwan for the primary purpose of seizing TSMC fabs. Second, the strategy safeguards the survival of TSMC’s business in the event of a Chinese attack on Taiwan by assuring that TSMC’s overseas units could be spun off as independent entities, leading to the creation of mini-TSMCs in Europe, North America, and parts of Asia, including Japan.

“The diversification of TSMC’s fabs is part of its answer to the geopolitical and other changes in its market,” Jean-Christophe Eloy, CEO at semiconductor consulting firm Yole Développement (Lyon, France), said in an interview. “Moving fabs abroad is a good way to kill two birds with one stone. It avoids potential problems linked to the tension between Taiwan and China and gets closer to customers, especially in the U.S., where [TSMC’s decision is considered] a good political move.”

Other Taiwan-based chipmakers, component suppliers, and OEMs flustered by the recent flare-up in geopolitical tension between China and the U.S. may consider adopting similar strategies. But TSMC and its customers and competitors should not assume the company has found the perfect solution to the China-U.S. conundrum… Full article