INTERVIEW/Despite challenges, TSMC's global plan a must to stay on top: Author

By Alison Hsiao, CNA staff reporter

Taiwan Semiconductor Manufacturing Co. (TSMC) did not have a physical presence at the recently ended star-studded Computex 2024, but it was still on everybody's mind.

The top bosses of tech giants such as Nvidia, Intel and AMD repeatedly paid homage to the world's largest contract chipmaker, describing it as their indispensable partner and a critical factor in advancing their technologies.

The company's importance, however, extends beyond individual corporate partners, as countries vie for TSMC investment in the wake of the COVID-19 pandemic, which squeezed the global supply chain of semiconductors and laid bare the indispensability of chips.

Some have questioned whether TSMC's overseas expansion will benefit either it or Taiwan, but not Lin Hung-wen (林宏文), a Taiwanese journalist and analyst who has been reporting on TSMC since 1993, the year before TSMC went public in Taiwan.

He wrote about the company's culture, history, and outlook in a book published last year at the height of the hullabaloo over TSMC's overseas investments.

In a recent interview with CNA, he shared his thoughts on how TSMC can and should go even more international, not just geographically but also in terms of its mindset, even if there are bumps in the road, as has been the case in the United States.

When TSMC confirmed in 2020 that it would build an advanced fab in Arizona, skepticism abounded. Many people, including Lin, suspected it was a geopolitical move forced on TSMC rather than a business decision, given the high cost of production of "Made in America."

Even TSMC founder Morris Chang (張忠謀) questioned the idea, describing U.S. efforts to increase onshore manufacturing of semiconductors as an "expensive exercise" and "futile" in an interview with the Brookings Institution in 2022.

Chang also highlighted the difference in what he called the "work culture" in the U.S. and Asian countries.

TSMC's challenges in going global

Lin told CNA that TSMC has indeed built its success on the back of the hard work and dedication of Taiwanese workers and its foundry strategy of only making chips for other companies.

"TSMC is both a manufacturer and a service provider. It needs to keep the equipment in operation around the clock in order to quickly respond to customers' demands," Lin said.

Equipment can amount to 70 percent of TSMC's capital expenditure, with one extreme ultraviolet (EUV) lithography machine for highly advanced chipmaking costing close to US$400 million, which is also the reason why these machines have to be run constantly, he said.

The process demands steady monitoring, and TSMC engineers can be called for help in the middle of the night, a phenomenon Chang once praised as the "competitive edge" of Taiwanese engineers.

That "competitive edge" is unlikely to remain for long, however, even in Taiwan, Lin cautioned.

"The company's average employee turnover rate is about 4 to 5 percent, but the first year turnover rate was 18 percent in 2022 and 15 percent in 2023, three times the average," he said, a sign that Taiwan's younger generation is not taking to the "culture" well, either.

That work culture dilemma will therefore be a challenge for TSMC not only overseas but for its next generation of employees in Taiwan, the author argued, necessitating a more global outlook.

Culture shifts

In fact, Lin said, TSMC has been making tentative changes, including relying more on information technology.

"Remote control of the machines could be one solution, according to the TSMC people I've talked to, because with TSMC's global expansion, when workers in one time zone are off work, others in a different time zone could take over," Lin added.

The imperative for Taiwan's most competitive multinational company is to make adaptive moves in a world that is changing from "work hard" to "work smart," Lin wrote in his book.

Another challenge to be overcome is language, he said, citing Japanese complaints once voiced to him personally about Taiwanese co-workers speaking Mandarin when those present in the meeting are mostly Taiwanese with only a few non-Mandarin speakers.

TSMC's relations with its suppliers could also face clashes of culture, Lin said, noting that TSMC's demands are met immediately and unquestioningly in Taiwan but perhaps will not be in other countries.

He quoted Kirk Yang (楊應超), chairman of private equity firm Kirkland Capital and a veteran analyst, as depicting TSMC as "royalty" in Taiwan.

That is not how it works in the U.S., Lin said. He suggested that the delay in building TSMC's first fab in Arizona, largely because of friction with suppliers and American workers, was likely a key reason why Mark Liu (劉德音) retired earlier than expected as TSMC chairman.

Japan vs. U.S.

In contrast, TSMC's operations in Japan seem to be proceeding smoothly, with one fab already built despite breaking ground later than its first Arizona fab, and that is no coincidence, according to Lin.

Unlike TSMC going it alone in the U.S., TSMC is working with local partners in Japan, bringing in Sony Semiconductor Solutions Corporation as a partner in TSMC's majority-owned joint venture Japan Advanced Semiconductor Manufacturing (JASM).

"It was one of the reasons why the fab in Japan could be built much sooner," in addition to the Japanese government's proactive support, Lin said.

Also playing a factor is that the Kumamoto fab "was definitely more driven by economics than geopolitics, as TSMC had to go global and utilize resources outside Taiwan," he noted.

Even then, however, the TSMC's Arizona presence is important and should not be a major drag on TSMC's operations given that it will at best account for less than 20 percent of the company's global advanced process capacity.

With about 60 percent of TSMC's customers being American, it would be a greater risk if TSMC did not take action, Lin argued.

"For any CEO, the greatest risk is making zero investment," he said.

He said TSMC will adopt a differentiation strategy for chips made in the U.S., such as supplying chips mainly for military or sensitive uses, such as high-performance computing (HPC) and AI chips, Lin wrote in his book.

"Surely the price American customers will have to pay for U.S.-made chips will be higher," Lin told CNA, but "TSMC also has more flexibility than its competitors to absorb some cost increases" because of gross margins as high as 50 to 60 percent.

Moreover, TSMC will have the edge within the U.S. compared to Samsung, which has also received U.S. subsidies to expand its capacity there, or even Intel, which may have better backing from the U.S. government, by making better chips and having better yields, Lin said.

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