The Taiwan Question: TSMC & Foundry Concentration

The semiconductor foundry market represents the physical heart of the digital economy. This stage has become a hyper-competitive arena dominated by Taiwan Semiconductor Manufacturing Company (TSMC). TSMC's stranglehold on advanced chips constitutes a critical geopolitical chokepoint, giving Taiwan immense strategic leverage over the global tech ecosystem.

TSMC's Unprecedented Dominance

Market Share and Scale

As of 2024-2025, TSMC held 62-71% of the global pure-foundry market share. This 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 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
• 1.4nm Process: In development for 2027-2028 deployment

Key clients accounting for over 70% of revenue include NVIDIA, Apple, Broadcom, Amazon, Google, and Meta— cementing deep economic interdependence between TSMC and the U.S. tech industry.

Geographic Concentration Risk

Taiwan's Vulnerability

Over 90% of the world's most advanced chips (7nm and below) are manufactured in Taiwan. This creates unprecedented geopolitical risk:

• Military Threat: China claims Taiwan and has not ruled out military reunification
• Natural Disasters: Taiwan is prone to earthquakes and typhoons
• 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 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 most advanced production remaining in Taiwan.