2 graphs show how much the world depends on Taiwan for semiconductors

Taiwan’s outsized role in chipmaking has come to light as a global semiconductor shortage has forced several automakers to shut down production.

Countries like the United States and Germany have reached out to Taiwan to help reduce bottlenecks in chip production. The shortage was the result of increased demand for electronics during the Covid-19 pandemic, and was exacerbated by former President Donald Trump’s trade war with China.

Taiwan dominates the foundry or semiconductor manufacturing outsourcing market. Its subcontractors together accounted for more than 60% of the foundry’s total revenue globally last year, according to data from Taipei-based research firm TrendForce.

Much of Taiwan’s dominance can be attributed to Taiwan Semiconductor Manufacturing Co or TSMC, the world’s largest foundry that counts large tech companies like Apple, Qualcomm, and Nvidia as customers. TSMC accounted for 54% of the foundry’s total worldwide revenue last year, according to TrendForce data.

Semiconductors are essential components that power electronics from computers and smartphones to brake sensors in cars. Chip production involves a complex network of companies that design or manufacture them, as well as those that provide the technology, materials and machines to do so.

TSMC focuses solely on manufacturing and has been the go-to producer of many advanced semiconductors, Dan Wang, technology analyst at research firm Gavekal, said in a podcast from Singapore’s DBS Bank.

“So TSMC, if you take a look at the market share, I believe it manufactures about 50% of all semiconductor in the world. And I think that still underestimates how important it is, because these are some of the most advanced chips around, “Wang said.

Semiconductor designers and manufacturers are looking to make chips smaller and better. Currently, TSMC and its South Korean rival Samsung are the only foundries capable of making the most advanced 5-nanometer chips.

TSMC is already gearing up for the next-generation 3-nanometer chips, which are expected to begin production in 2022.

Some countries are planning to increase their own semiconductor production – and one of them is China, which aims to become more self-sufficient.

But China’s technological struggle with the previous U.S. administration is holding back its largest chipmaker Semiconductor Manufacturing International Corporation, or SMIC, said Paul Triolo, chief geotechnical practice at risk consultancy Eurasia Group.

Last year, the Trump administration put the minimum wage on a blacklist known as the entity list, which limits the company’s access to the technology and machinery it needs.

SMIC was the world’s fifth-largest semiconductor foundry by revenue in 2020 – behind Taiwan’s TSMC and UMC, South Korea’s Samsung and US GlobalFoundries, according to TrendForce data.

“The current goal is to be able to compete at the cutting edge of technology with companies like TSMC, Samsung and Intel,” Triolo told CNBC’s “Squawk Box Asia”.

“The problem that the minimum wage is currently in, the dilemma, is that the US government put them on the entity list,” he said. “But the big picture is that the minimum wage has been prevented, at least for the time being, from acquiring the state-of-the-art equipment it needs from ASML, which is a Dutch company.”

ASML manufactures so called Extreme Ultraviolet Lithography Equipment which is used to produce the most advanced chips such as those manufactured by TSMC and Samsung. Reuters reported last year that the Trump administration pressured the Dutch government to stop selling the machine at minimum wage.

Even if SMIC has access to ASML’s equipment, it would take years for the company to start producing high-end chips in large quantities, Triolo said.

Until then, it looks like TSMC would retain its leadership position.

“TSMC is so dominant. There isn’t really any competition at all on the high end anymore. And so, it took a while for this model to really work. But at this point it may indeed be a problem. very profitable business, ”said Wang of Gavekal.

– CNBC’s Eustance Huang and Arjun Kharpal contributed to this report.