It’s been called Taiwan’s Silicon Shield, and without it much of modern life would cease.
Taiwan Semiconductor Manufacturing Co., or TSMC, makes more than half the world's contracted semiconductor chips and lies at the center of the technology supply chain, churning out circuitry found in iPhones, Amazon cloud computers, graphics processors that power popular video games and even military drones and fighter jets like Lockheed Martin’s F-35.
But TSMC is confronting problems it had never anticipated when a Taiwanese American engineer, who spent 25 years at Texas Instruments and is revered here like a hometown Bill Gates, founded it in the late 1980s. The company has been drawn into an increasingly bitter — and at times dangerous — rivalry between the U.S. and China that is forcing nations and corporations to choose sides in an era that is redefining the global order.
The competition for technology and geopolitical sway between the two superpowers is a threat to TSMC and this self-ruled island democracy of 24 million, which Beijing considers part of China and has hinted it might invade to reclaim. The company has encountered cyberattackers and had its engineers wooed away in a strategy by China to accelerate its own technological growth.
“There is a saying that if China attacks [Taiwan], TSMC is the safest place to be since what they do is so valuable,” said Kenny Yang, a former engineer at the company.
TSMC's technical prowess is virtually unrivaled. It specializes in manufacturing the industry's smallest chips — transistors with parts measuring 5 nanometers, the equivalent of two strands of human DNA. Work has already begun on 2-nanometer chips, which also require one of the most complex feats in engineering, an interplay of lasers, molten tin plasma and mirrors known as extreme ultraviolet lithography that a TSMC executive described as "close to black magic."
Once viewed benignly as an electronic commodity, semiconductors are now vital national security assets in the global race for tech supremacy. Last month, TSMC’s board approved a plan to open a $12-billion foundry in Arizona by 2024, a move seen as a way to placate Trump administration and Pentagon officials who grew uneasy over TSMC’s trade relationship with China.
By clashing over something as ubiquitous as chips, China and the U.S. risk sparking a conflict that could end-up being far more disruptive than the one that erupted last year over China’s 5G ambitions. U.S. restrictions on exports shattered Chinese-owned Huawei’s plans to roll out 5G networks worldwide and hobbled its once-thriving smartphone business.
Whoever wins access to the leading semiconductors gains a critical advantage in technologies that will define the coming age including A.I., quantum computing and the “internet of things.” These will affect everything from missiles to autonomous vehicles to cybersecurity to the development of new drugs.
“Semiconductors underpin all the ‘must win’ technologies of the 21st century,” said Ashley Feng, a China and Taiwan expert formerly at the Center for a New American Security. “To both the United States and China, being able to dominate in the semiconductor space is crucial to winning the next generation of technology.”
TSMC is entangled in this escalating struggle at a time when China, propelled by rising nationalism at home, regards the U.S. and other Western nations as in decline. The Trump administration has seized on semiconductors as a choke point to slow China’s progress. This year, it announced licenses would be required to export chips that contain American intellectual property, which most silicon wafers do, to Huawei and China’s top chipmaker, Semiconductor Manufacturing International Corp.
Washington this month blacklisted Semiconductor Manufacturing International Corp., accusing it of being a front for the Chinese military and cutting it off from American equipment and investment. That raises the specter of Chinese retaliation against an American company such as Apple, which would in turn hurt TSMC.
Beijing's suggestion that it might invade Taiwan and return it to Chinese dominion could further imperil TSMC's freedom. China has long yearned for a company as advanced as TSMC. It has invested billions of dollars and poached hundreds of Taiwanese engineers in a national Manhattan Project-like bid to catch up to Taiwan, South Korea and the U.S. Despite those efforts, China remains years behind and must import all but 15% of its semiconductors, spending more on the technology than on foreign crude oil each year.
The U.S. and other countries are working to keep China at a disadvantage. Washington forced TSMC to cut exports to Huawei’s chip design subsidiary, HiSilicon Technologies, which was its second-biggest customer after Apple, analysts said. And the Trump administration reportedly pressured Taipei to curtail TSMC’s business in China, which accounts for a fifth of the company’s revenue and where it maintains a small foundry.
TSMC is caught in between two superpowers. It needs China for future growth and the U.S. for its technology and its biggest customers today.
Dan Wang, analyst at GaveKal Dragonomics in Beijing
TSMC and the office of Taiwanese President Tsai Ing-wen have denied facing pressure from the White House.
Founded in 1987 by Morris Chang, a Harvard- and MIT-educated engineer, TSMC has thrived by trying to be the neutral chip foundry of the world. But national interests and global economic pressures have rattled the $412-billion chip industry, which was born out of Silicon Valley in the 1950s and is now dominated by a few deep-pocketed giants such as TSMC, Samsung and Intel, which are able to spend billions each year on research and development to compete.
Those budgets are required to keep pace with what’s known as Moore’s law: the general industry rule that the amount of transistors on a chip doubles every two years, allowing producers to pack more processing power into less space. It’s why the iPhone 12 is 50% faster than the iPhone 11.
If relations between Washington and Beijing remain sour — as they’re expected to under the Biden administration given the bipartisan appeal of a hard-line China policy — experts say an intricate network of chip designers, software programmers, equipment builders and chip assemblers will begin to unravel under mounting pressure to choose between U.S. and Chinese supply chains.
“TSMC is caught in between two superpowers,” said Dan Wang, an analyst at Gavekal Dragonomics in Beijing. “It needs China for future growth and the U.S. for its technology and its biggest customers today.”
The company acknowledges trade tensions have made things harder but remains confident it can come out ahead. By continuing to make advanced chips at a scale no other company except Samsung can replicate, TSMC believes its business can thrive regardless of the geopolitical troubles.
"At the end of the day, you want to be working with the best companies," said Rick Cassidy, a senior vice president at TSMC. "Nothing in the geopolitical [arena] has any impact on what we're doing."
Others don't share that view. The threat of losing the Chinese market is filling the boardrooms of semiconductor firms with dread, said a U.S.-based executive who spoke on condition of anonymity because he wasn’t authorized to speak to the media.
“It’s very hard for companies to say I’m going to pick a side. Some are hoping they can pick both sides and remain in the middle,” he said. “But in order for us to be commercially competitive, we need access to the China market.”
Nowhere will a chip war be felt more acutely than in Taiwan, where the semiconductor industry accounts for 15% of the economy and the threat of a Chinese invasion looms. The island, which is roughly the size of Maryland and about 100 miles off the coast of China, was occupied by the mainland's fleeing Nationalist government in 1949 after it was defeated by Mao Zedong’s communist army.
Beijing’s economic and diplomatic muscle has compelled all but a few small nations to shun Taiwan and abide by the one-China policy. The U.S. recognizes that policy in theory, but tensions have soared this year as the Trump administration’s adversarial relationship with Beijing has drawn Taipei and Washington closer.
The U.S. has sold weapons to Taiwan, and Health and Human Services Secretary Alex Azar this year became the highest-ranking U.S. official to visit Taipei since 1979.
TSMC has tried to be the Switzerland of the chip industry, but those days are over.
Craig Addison, author
China’s military has expanded training for a possible assault and flown increasing numbers of warplanes across the Taiwan Strait to exhaust the island’s air defenses. Beijing’s recent crackdown on freedoms in Hong Kong has also eroded what little support remained in Taiwan for unification with the mainland.
TSMC sits on this volatile fault line. Tensions could be further exacerbated if the U.S. maintains pressure on the firm to starve Chinese companies of its valuable chips. If China ever succeeded in uniting with Taiwan — whether peacefully or by force — it could place a stranglehold on Apple and U.S. chipmakers such as Nvidia, Qualcomm, Xilinx and AMD that rely on TSMC's fabrication plants, or fabs, to produce their designs.
"China could use the disabling of TSMC's wafer fabs on Taiwan to inflict a heavy blow on the U.S. tech economy, given that all of the U.S. fabless chipmakers, as well as major tech brands like Apple, rely on TSMC for advanced wafer fabrication," said Craig Addison, author of "Silicon Shield: Taiwan's Protection Against Chinese Attack." "TSMC has tried to be the Switzerland of the chip industry, but those days are over."
If we were not around, billions of people around the world would live differently than they do now.
Morris Chang, TSMC's founder
Chang, TSMC’s founder, is accustomed to conflict. Born in Ningbo, China, in 1931, he lived through the Sino-Japanese war, World War II and the Chinese civil war before fleeing for British-controlled Hong Kong and eventually attending college in the U.S. when he turned 18.
After a long career in the U.S. semiconductor industry working for Sylvania and Texas Instruments, where he headed the company’s chip business, he was recruited by the Taiwanese government to run its Industrial Technology Research Institute in 1985.
Taiwan was about to emerge from decades of martial law and needed to innovate its economy. Chang was tasked with upgrading its semiconductor industry. He envisioned a company specializing solely in building chips instead of also designing them under one roof like other firms at the time.
"It was thought that every company needed manufacturing … and that was the most capital-intensive part of a semiconductor company," Chang said in a 2007 interview with SEMI, a chip industry association. "So I thought that maybe TSMC, a pure-play foundry, could remedy that."
In doing so, Chang created the world’s first dedicated semiconductor foundry, where American companies could outsource chip production and forgo the heavy cost of building manufacturing facilities. Cassidy, the TSMC North America president, said he knew Chang had something special when he was a customer of the Taiwanese upstart in the 1990s trying to take an American semiconductor fabless.
"I could buy a wafer from TSMC at a price lower than my internal cost," said Cassidy, a West Point graduate who joined TSMC in 1997. "It included quality, reliability, delivery and service and no charge for process R&D. When I thought about that, it was profound."
TSMC would lead Taiwan’s emergence as a powerhouse in technology hardware. Chang, who retired in 2018, is regarded in Taiwan as a Steve Jobs- or Bill Gates-type figure and often asked to step in as a statesman on economic affairs. His presence at a banquet for Keith Krach, U.S. undersecretary of State for economic growth, hosted by the Taiwanese president in September underscored the company's significance.
"If we were not around," Chang once said of his company, "billions of people around the world would live differently than they do now."
The tumult in the industry has not hurt TSMC’s bottom line. The company quickly recouped its lost business in China, and its stock price has more than doubled since March. The firm has even embarked on an unprecedented recruitment drive, aiming to make around 8,000 new hires to add to its 50,000-strong workforce.
“They’re the leader in the semiconductor industry and critical to so many big tech firms," said Charlie Yeh, 22, a student at National Tsing Hua University who attended a recent recruitment drive. "They have the most advanced process in the world. Apple can make the iPhone 12 because of TSMC.”
Whether that success will fall victim to China's designs remains to be seen. But Chang seemed to have a sense of unease when he delivered a speech at TSMC’s annual employee sports day in November 2019. He warned his former charges that the company could soon be dragged into a contest between major powers.
“When the world is not at peace,” he said, “TSMC will become a key battleground."
Times staff writer Pierson reported from Singapore and special correspondent Yun from Hsinchu.
This is the sixth in a series of occasional articles about the effect China’s global power is having on nations and people’s lives.
This story originally appeared in Los Angeles Times.