Sat, Aug 12, 2023 page8

• TSMC to expand fabs globally

  • By Chiueh Tzi-cker 闕志克
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  Recently Taiwan Semiconductor Manufacturing Co (TSMC) announced it would create with Bosch, Infineon and NXP a new company called European Semiconductor Manufacturing Co (ESMC) in Dresden, Germany, to provide semiconductor manufacturing services for the integrated-circuit needs of the automotive and industrial sectors in Europe. TSMC is said to contribute 3.5 billion euros (US$3.8 billion) and is expected to own a 70 percent stake in the new venture. The EU is expected to chip in 5 billion euros, under the framework of the European Chips Act, with the three partner companies each controlling 10 percent.

  ESMC plans to build a 300mm fab that is expected to have a monthly production capacity of 40,000 12-inch wafers using TSMC’s 28/22 nanometer planar CMOS and 16/12 nanometer FinFET process technologies. Although these fabrication technologies are not the most advanced in TSMC’s portfolio, they fit precisely with ESMC’s target industry segments. The fab is expected to create 2,000 high-tech jobs, with construction to begin in the second half of next year, as well as reach volume production by the end of 2027.

  Establishing ESMC represents the final piece of the puzzle of TSMC’s global expansion, which it undertook reluctantly, as it is expected to have a significant presence in Taiwan, China, Japan, the US and Europe, all within the next five years. When TSMC was founded in 1987, Philips was the largest private shareholder, and its investments in the form of cash and patent rights boosted considerably the credibility of the fledgling TSMC. This investment was highly remunerative for Philips — it gained more than 300 times the original investment. Forty years later, it must be gratifying for NXP, a spin-off of Philips, that TSMC has grown into a world-leading semiconductor giant and is able and willing to return the favor.

  Besides TSMC’s advanced semiconductor fabrication technology, its famed militarized disciplines of rigorous plant operation procedures and high-intensity work ethic requirements also contribute significantly to its superlative production and yield rate. The distributed manufacturing model underlying TSMC’s global expansion plan would test these disciplines severely. Although they work for Taiwan and China, and even for Japan, it remains to be seen whether they could be applied to the US and Europe equally and effectively, without needing major overhauls. If TSMC were to crack the code of how to customize these disciplines in the US and Europe, it would validate the universality of the TSMC way, further widening the gap between TSMC and its competitors.

  Concurrently with the ESMC announcement, TSMC chairman Mark Liu (劉德音) declared during a New York Times interview: “China will not invade Taiwan because of semiconductors. China will not not invade Taiwan because of semiconductors.” This assessment suggests that China does not attempt forceful unification with Taiwan because of its semiconductor prowess, and would not back down from such attempt just because Taiwan’s semiconductor manufacturing is crucial to the world’s economy. That is, contrary to the US’ approach, semiconductors are not a major factor in China’s calculation of whether to invade Taiwan.

  The original “silicon shield” theory assumed that the US is fully capable of deterring China from invading Taiwan, and TSMC’s significant contributions to the US economy could strengthen its motivation and willingness to help defend Taiwan.

  However, if China’s increasing land-based missile power forces the US to gradually retreat from the first island chain, and TSMC’s factories remain concentrated in Taiwan, the US might instead treat these Taiwan-based factories as a threat that needs to be removed, should China occupy Taiwan. Suppose China decided to use a long-term blockade to subdue Taiwan without resorting to military clashes. To minimize the disruption to the global economy and thus reduce the willingness and excuses for a US’ military intervention, China could adopt a selective blockade strategy that allows, for example, only semiconductor goods to pass through the blockade. TSMC instead might then become a bargaining chip that China uses to blackmail democratic countries from getting militarily involved in Taiwan Strait conflict.

  Before 2016, the US seemed willing to give its blessing to the possibility that China could unify with Taiwan peacefully, but the Sino-US competition for hegemony drastically changed the calculus. In view of its economically strategic importance, TSMC might well become a factor in blocking the peaceful unification of China and Taiwan, because the US cannot afford to let TSMC go to the other camp.

  TSMC’s plan to expand its footprint further to Japan, the US and now Europe entails the effect of calming everybody down geopolitically. That is, by distributing TSMC’s semiconductor manufacturing expertise across the world, this expansion defuses the global tension and anxiety around TSMC, and gradually takes advanced semiconductor manufacturing off the equations involved in the geopolitical contentions and resolutions over the Taiwan Strait.

  Chiueh Tzi-cker is a professor in the Institute of Information Security at National Tsing Hua University.
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