'Nobody can control TSMC by force': Exec dismisses fears China could seize fabs
Chairman reminds world that production depends on comms with US, Europe and Japan
The chairman at TSMC – a company crucial to global chip supply – has considered tech industry fears of a Chinese military invasion of Taiwan, concluding such an event would render its fabs inoperable.
“Nobody can control TSMC by force,” Mark Liu said in an interview this week. “If you take a military force or invasion, you will render TSMC factory non-operable, because it is such a sophisticated manufacturing facility.”
The chairman of the world’s 11th most valuable company, with a market capitalization of $449.96 billion, was speaking during a rare interview with CNBC released earlier this week.
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Speaking of the fabs’ delicate ecosystem in the event of a hypothetical military incursion, he noted that Taiwan-based TSMC’s production facilities “depend on the real-time connection with the outside world: with Europe, with Japan, with the US."
The company needs to keep contact with outside engineers, creating an effective kill switch in the event something happens and communications are shut down.
"From materials to chemicals to spare parts to engineering software diagnoses... it [takes] everybody’s effort to make this factory operable. So, if you take it over by force, you can no longer make it operable."
Expanding on TSMC's work with the international semiconductor tech world, he noted: "Even in COVID times, our engineers use[d] augmented reality, they work with engineers in Netherlands, in California - and that’s how closely we work together."
US-China tensions escalate as US Speaker lands in Taiwan
Taiwan controls most of the world’s chip manufacturing capacity, a fact that hasn’t escaped the notice of US Commerce department.
- China 'must seize TSMC' if the US were to impose sanctions
- US Army journal's top paper from 2021 says Taiwan should destroy TSMC if China invades
- TSMC sees slowdown in demand for PCs, smartphones
- TSMC reports record profits as customers hoard chips
The situation is particularly sensitive at present as US House of Representatives Speaker Nancy Pelosi landed in Taiwan yesterday, with Reuters reporting that Chinese warplanes had “buzzed the line dividing the Taiwan Strait on Tuesday before her arrival” by way of warning by China’s leaders against the symbolism of Pelosi’s visit, which she said ”honors America’s unwavering commitment to supporting Taiwan’s vibrant Democracy.”
The act is seen by China, which under the one-China principle considers Taiwan part of its territory, as provocative.
“The situation in Taiwan has already led to cyber threat activity, some of which is apparent, like DDoS attacks on websites in Taiwan," explains John Hultquist, vice president of Intelligence Analysis at Mandiant. "Two Chinese information operations we track have shifted their narratives in recent days to a focus on US House Speaker Pelosi’s expected visit and the supposed dangers of the situation. We anticipate that Chinese actors are also carrying out significant cyber espionage against targets in Taiwan and the US to provide intelligence on the crisis.”
While Hultquist wasn’t speaking to the risks of a physical threat, he noted, "China is capable of significant cyber attacks inside Taiwan and abroad.”
China consumer segment ‘10 percent’ of TSMC’s business
"In terms of the China business, it today [comprises] about 10 percent of our business... we only work with consumer - we don’t work with with military – we only work [with the] consumer market, Liu says.
He adds that TSMC thinks "the consumer pulse is important and it is vibrant and if [China] needs us... it's not a bad thing."
"Because our interruption will create great economic turmoil on either side, in China, because suddenly their most component supply disappeared and it is an interruption, I must say, so people will think twice on this."
Liu hopes TSMC and Taiwan are not "discriminated against because we are close with China. No matter [what] your relationship [is] with China, Taiwan is Taiwan. You have to look at Taiwan as a vibrant society. We want to unleash innovation for the world ... and not to be scared because we have some dispute with our neighbors. That is not worth it."
Fears that China could invade Taiwan and seize its manufacturing plants, which are run by three of the world’s largest contract chip manufacturers – have become increasingly apparent since the chief economist for the China Center for International Economic Exchanges said just two months ago that China should "seize TSMC if the US were to impose sanctions".
Chen Wenling said in the same speech, however, that China and the US need to ease hostilities, and that a fight between the two would be "a disaster for humankind."
TSMC accounted for 53 percent of total foundry revenue globally last year, TrendForce data shows, expected to rise to 56 percent this year. When you separate out advanced process tech under 16nm, TSMC's piece of the pie goes up to about 60 percent, Trendforce estimates. The analyst doesn't give a breakout for bleeding edge sub-7nm process nodes, but TSMC's grip would be significant: in its most recent financial reports, TSMC said it made up 51 percent of quarterly wafer revenue.
While some of the most crucial tech is designed in the US, the country does not have enough leading-edge foundry services onshore. The Biden administration hopes to fix some of this with $50 billion of semiconductor funding via its $2 trillion CHIPS Act plan to fix US infrastructure. TSMC lobbied for some of this money, saying it would be important for its freshly built 5-nanometer semiconductor fab in Arizona, although it is not known how the funding will be distributed.
The Register understands these numbers have not yet been confirmed.
The FT reported this morning that Intel hopes to use $12 billion in grants set aside for contruction (a third of the total money for this), for the two fabs it is building in Arizona as well as two others in Ohio.
TSMC's $12 billion FAB 21 in Phoenix – the company recently completed construction on the shell of the building – is expected to begin producing Apple's A-series and M-series chips in the US from 2024.
Earlier this year, Liu admitted that tensions between the US and China had created challenges for the company.
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For its most recent quarter, calendar Q2 ended 30 June, TSMC’s profits were up 76 percent year-on-year to nearly $8 billion, with the topline up 43.5 percent to around $17.8 billion.
The increases came against the backdrop of price hikes as the cost of raw materials rose. TSMC reportedly increased its prices earlier this year.
The company said in its earnings presentation that 5-nanometer process technology contributed “21 percent of wafer revenue in the second quarter while 7-nanometer accounted for 30 percent.” Process tech of 7nm and below made up 51 percent.
Asked about the effect of a conflict with China on Taiwan's chip industry, Liu noted that although "the chip supply is a critical business to the economy in Taiwan, [should] there be a war in Taiwan, probably the chip is not the most important thing."
"People in Taiwan have earned their democratic system; they want to choose their way of life." ®