The Taiwan Question: TSMC & Foundry Concentration

The semiconductor foundry market represents the physical heart of the digital economy, where intricate chip designs are transformed into tangible silicon wafers. This stage has become a hyper-competitive arena dominated by a handful of colossal players, led by Taiwan Semiconductor Manufacturing Company (TSMC). TSMC's stranglehold on the market for advanced, leading-edge chips constitutes a critical geopolitical chokepoint, giving the island nation and its premier foundry immense strategic leverage over the global tech ecosystem.

TSMC's Unprecedented Dominance

Market Share and Scale

As of 2024-2025, TSMC held 62% of the global pure-foundry market share, a figure that grew to 63% in Q1 2024 and 71% in Q2 2025. In the broader "Foundry 2.0" market (including packaging and photomasks), TSMC commanded 35% share in Q1 2025. This concentration means that a vast majority of the world's most powerful processors— including GPUs from NVIDIA and AMD, Apple's A-series and M-series chips, and Amazon's custom AI accelerators— are manufactured exclusively at TSMC's fabs in Taiwan.

Process Leadership

TSMC's dominance is driven by its early and aggressive investment in cutting-edge technologies:

• 3nm Process: Reached full capacity in 2024, powering Apple's latest iPhones and Macs
• 2nm Process: On track for mass production in 2025, offering 10-15% performance gains and 25-30% power reduction over 3nm
• 1.4nm Process: In development for 2027-2028 deployment

TSMC's founder, Morris Chang, has stated that TSMC has no real competitors, noting that nearly all global AI chip customers are under its control. Key clients accounting for over 70% of revenue include NVIDIA, Apple, Broadcom, Amazon, Google, and Meta— cementing a deep economic interdependence between TSMC and the U.S. tech industry.

The Competition: Struggling to Keep Pace

Samsung Electronics

Samsung, traditionally TSMC's most formidable rival, has seen its foundry market share slip to 10% in 2024 and is projected to fall below 10% by 2025 due to technical yield issues and perceived lack of strategy. While Samsung produces a competitive 3nm process, it lags TSMC in adoption and volume. Samsung's challenges include:

• Lower yields on advanced nodes (3nm yields reportedly 10-15% below TSMC)
• Customer concerns about IP security (Samsung also designs competing chips)
• Less aggressive capacity expansion compared to TSMC

SMIC (China)

Semiconductor Manufacturing International Corporation (SMIC) faces severe constraints due to U.S. sanctions that limit its access to advanced equipment and technology. Despite this, SMIC reportedly produces Huawei's 5nm Kirin 9000S chip using 193nm immersion lithography— a remarkable feat of engineering under duress, though with low yields (estimated 50-60% vs TSMC's 90%+). SMIC's 6% market share is concentrated in mature processes (28nm and above).

GlobalFoundries and Others

GlobalFoundries exited the leading-edge race in 2018, focusing instead on specialty and mature processes. The company is investing $16 billion in U.S. fabs and packaging with CHIPS Act support. UMC, Vanguard, and other smaller foundries maintain niche positions in mature nodes and specialized applications.

Geographic Concentration Risk

Taiwan's Vulnerability

Over 90% of the world's most advanced chips (7nm and below) are manufactured in Taiwan, primarily at TSMC's fabs in Hsinchu, Tainan, and Taichung. This creates unprecedented geopolitical risk:

• Military Threat: China claims Taiwan as its territory and has not ruled out military reunification
• Natural Disasters: Taiwan is prone to earthquakes and typhoons that could disrupt production
• Water Scarcity: Chip manufacturing requires massive water supplies; Taiwan faces periodic droughts
• Energy Constraints: TSMC's fabs consume 5-7% of Taiwan's total electricity

The "Silicon Shield"

Taiwan's semiconductor dominance has been described as a "silicon shield"— the theory that China would not invade Taiwan because doing so would destroy the chip supply that China itself depends on. However, this logic has limitations:

• Military conflict would likely destroy fab infrastructure regardless of intent
• China is investing $150+ billion to build domestic chip capacity, reducing dependence
• Nationalist objectives may override economic calculations

Diversification Efforts

TSMC's Global Expansion

Under pressure from the U.S. government and customers, TSMC is building fabs outside Taiwan:

• Arizona (USA): Two fabs under construction with $40 billion investment, targeting 4nm/3nm production by 2025-2026
• Japan: Joint venture with Sony and Denso for 28nm/22nm chips, operational in 2024
• Germany: Planned fab for automotive chips, pending EU subsidies

However, these facilities will represent less than 10% of TSMC's total capacity by 2030, with the most advanced production remaining in Taiwan.

Intel's Foundry Ambitions

Intel is attempting to become a major foundry player through its Intel Foundry Services (IFS) division, backed by $19.5 billion in CHIPS Act funding. Intel aims to reach process parity with TSMC by 2025 (Intel 18A vs TSMC 2nm) and surpass it by 2027. However, Intel faces significant challenges:

• Limited foundry experience and customer relationships
• Yield and reliability concerns from potential customers
• Conflict of interest (Intel designs competing chips)
• Massive capital requirements ($100+ billion through 2030)

Strategic Implications

The concentration of advanced chip manufacturing in Taiwan represents the single greatest supply chain vulnerability in the global digital economy. A disruption to TSMC's operations— whether from military conflict, natural disaster, or other causes— would immediately halt production of:

• NVIDIA AI accelerators powering ChatGPT, Google Gemini, and other AI systems
• Apple iPhones, iPads, and Macs
• AMD processors and GPUs
• Qualcomm smartphone chips
• Amazon, Google, and Microsoft custom AI chips

This makes Taiwan's security and stability a paramount concern for the entire global economy, elevating a regional geopolitical issue to a matter of worldwide strategic importance.