The Business Of

Semiconductors | TSMC | What Do They Do?

Morning All!

Hope you had a great weekend! Last week, in the first part of our The Business Of Semiconductors series, we explored the business model of Nvidia. And looked at how the chip designer has become the 7th largest company in the world.

This week we’re moving away from chip designers. And shifting our focus to chip manufacturers. And where else to go - but the largest chip manufacturer out there. It’s the Taiwanese giant, TSMC!

Now, I’m uncertain how many readers will have actually heard of TSMC. I know I hadn’t heard of them when I was at uni! But the company is currently the 14th largest company in the world. And even though we may not know it, we are literally all users of TSMC products.

If you haven’t heard of TSMC (and even if you have), this week will be a cracker for your commercial awareness. I can’t stress enough, how different the world would look without TSMC. So, without further ado, let’s jump into what the company does!

Nvidia Is TSMC’s 6th Largest Customer

So, first thing’s first. Let’s talk about how TSMC fits into the whole semiconductor puzzle. As we saw last week, Nvidia is a chip designer. When a customer, like Dell, wants specific GPU chips for their laptops. They’ll go to Nvidia (or Intel or AMD) and ask them to design the chips. Nvidia will do all the intricate designing and map out which transistors should be where. So that the laptops will function how Dell wants.

But as we showed using the graphic below, Nvidia doesn’t do the actual manufacturing of the chip. They outsource this to their friends in Taiwan, TSMC.

And this is how TSMC makes money. When chip designers like Nvidia, AMD and Intel ask them to manufacture their chips, TSMC will do that for a fee. And so Nvidia is actually a customer of TSMC.

In fact, Nvidia is TSMC’s 6th largest customer! Tomorrow, we’ll dive into more detail of how TSMC makes money and who their main customers are. Because if Nvidia is one of the largest chip designers in the world. But is only 6th on TSMC’s list… who on Earth are the bigger customers? Well, tomorrow’s email reveals all!

The Silicon Shield

Now, I don’t talk much about politics in these newsletters. But for TSMC, it would be an oversight not to mention the political side of things. Because although TSMC is vitally important globally for a lot of products we use. They are also vitally important on a geopolitical level.

TSMC’s home, Taiwan, is the center of a lot of political drama. Basically, China believes that Taiwan is a breakaway province and should be under China’s control. Taiwan believes that they were originally separate from China and so should continue to be separate. Here’s a great, digestible resource to get you up to speed. But where does TSMC fit into this?

Well, many commentators believe that the one of the main reasons why China aren’t being more aggressive towards Taiwan is because of TSMC! China, like the rest of the world, is so reliant on TSMC for the semiconductor chips that are the brains of modern economies. And if China was to attack Taiwan, TSMC would obviously stop supplying chips to China. Which would be detrimental for China’s economy.

TSMC basically acts as a shield for Taiwan. And hence, why they get the nickname - The Silicon Shield! (Because remember, semiconductor chips are made of silicon)! Joe Biden and the US are also keen on supporting Taiwan because they’re well aware that if China controls Taiwan. They’ll control semiconductors. Which could leave the rest of the world in a precarious position…

Career Talks: A Double Header!

So, last week we disappointed you all by not having a Career Talk. But hopefully this week we’ll redeem ourselves. Because we have two brilliant professionals joining us this week!

I’ll be chatting to my friends, Candace Tang (London Business School, incoming-McKinsey) and Katerina Strycharczyk (University of Bristol, KPMG) about:

• what consulting actually is,

• how they got into their roles at McKinsey/KPMG,

• examples of projects they’ve worked on, and,

• advice they’d give students wanting to get into this industry.

You don’t want to miss these!

8th May 2023

Nigel Jacob CFA