Semiconductor Industry
30-Second Overview: TSMC begins mass production of 2-nanometer (2nm) chips by the end of 2025, leading the world by 2-3 years. The utilization rate for 3nm processes has reached 100%, with advanced process revenue accounting for 69%. From Morris Chang's "foundry model" bet in 1987 to today's global tech lifeline—Taiwan holds the most advanced chip manufacturing technology on Earth.
In the afternoon of 1985, State Councilor Lee Kuo-tung approached Morris Chang, who had just returned to Taiwan to assume the presidency of the Industrial Technology Research Institute (ITRI). Lee Kuo-tung got straight to the point: "We want to create a mega integrated circuit manufacturing company. You will lead it."
Morris Chang was taken aback. He thought he was only there to serve as the institute's president, but two weeks later, he was pulled in to found a company with a business model that no one had ever attempted commercially.
This conversation changed the world.
1987: An Unprecedented Bet
The Prelude to RCA Technology Transfer
The story begins in 1973. That year, ITRI spent $4.5 million to acquire integrated circuit technology from the US RCA company, sending 19 engineers to the US for training. At the time, no one could have imagined that this "tuition fee" would become the first cornerstone of Taiwan's semiconductor kingdom.
In 1980, ITRI spun off United Microelectronics Corporation (UMC), giving Taiwan its first semiconductor company. But Lee Kuo-tung was not satisfied—UMC was too small, and its technology could not catch up with international standards. Taiwan needed a bigger breakthrough.
Morris Chang's Crazy Idea
On February 21, 1987, Morris Chang established Taiwan Semiconductor Manufacturing Company (TSMC) in the Hsinchu Science Park, pioneering an unprecedented business model: pure foundry.
This idea sounded crazy at the time. All semiconductor companies worldwide were vertically integrated—handling everything from design to manufacturing. How could one company only do manufacturing without doing design? Would clients hand over their most confidential design blueprints to you?
Morris Chang's logic was simple: The semiconductor industry is becoming increasingly complex; design and manufacturing are two completely different specialties. Rather than doing everything and mastering nothing, it is better to focus on doing one thing well—making chip manufacturing the best in the world.
Clever International Cooperation
TSMC's initial equity structure was clever:
- Government investment: 48.3% (ensuring national strategic status)
- Private investment: 24.2% (participation of Taiwanese capital)
- Philips (Netherlands): 27.5% (introducing international technology and customers)
Philips' participation was key. At the time, the semiconductor industry was dominated by the US and Japan, and Europe urgently needed alternative suppliers. Philips not only invested but also handed its chip orders to TSMC, becoming the first major client.
The Foundry Model: Reshaping the Global Semiconductor Ecosystem
Revolution in Industrial Division
TSMC's foundry model triggered a major division of labor in the semiconductor industry:
- IC Design Companies focus on designing chips (e.g., Qualcomm, NVIDIA, MediaTek)
- Foundries focus on manufacturing chips (TSMC, UMC, GlobalFoundries)
- Packaging and Testing Plants handle downstream processes (ASE, SPIL)
This model allowed more companies to enter the semiconductor industry. Previously, only giants like Intel and IBM could afford the astronomical investments in wafer fabs. Now, any new startup with a good idea can design a chip and hand it over to TSMC for manufacturing.
Building a Trust Mechanism
The core of the foundry model is trust. Clients must believe that TSMC will not steal their designs, leak trade secrets, or compete with them.
TSMC established strict "trust rules":
- Technology Neutrality: Never design chips for itself.
- Equal Treatment of Clients: All clients receive the same technology and services.
- Confidentiality Agreements: Top-level information security protection.
- Capacity Allocation: Fair allocation of advanced process capacity.
These rules have been enforced for nearly 40 years without exception.
Process Technology: An Eternal Arms Race
Chasing Moore's Law
In 1965, Intel co-founder Gordon Moore proposed "Moore's Law": the number of transistors on a chip doubles every 18 months. This law has driven the development of the semiconductor industry for over 50 years and serves as the track for TSMC and global competitors.
Starting from the 3-micron process in 1987, TSMC has been catching up:
- 1990s: 1.2 microns, 0.8 microns, 0.6 microns
- 2000s: 0.35 microns, 0.25 microns, 0.18 microns, 0.13 microns, 90 nanometers
- 2010s: 65 nanometers, 40 nanometers, 28 nanometers, 20 nanometers, 16 nanometers, 10 nanometers, 7 nanometers
- 2020s: 5 nanometers, 3 nanometers, 2 nanometers
The Arrival of the 2-Nanometer Era
In the fourth quarter of 2025, TSMC began mass production of the 2-nanometer process, with main production lines located at Hsinchu Hsinshan Fab 20 and Kaohsiung Fab 22. This is the new limit of human manufacturing technology—2 nanometers is equivalent to the diameter of 20 atoms, approaching the theoretical boundary of physics.
TSMC estimates that by the end of 2026, the monthly capacity for 2nm process wafers will reach 100,000 units. First customers include Apple's A-series chips and NVIDIA's AI chips.
What is even more despairing for competitors is that TSMC is already researching the 1.6-nanometer (A16) process, expected to be mass-produced in the second half of 2026. While the rest of the world is still chasing 3nm, TSMC is already sprinting toward the Angstrom level (below 1 nanometer).
The Cost of Technological Leadership
The R&D costs for advanced processes are growing exponentially:
- 28nm process: $1 billion
- 7nm process: $3 billion
- 3nm process: $10 billion
- 2nm process: Estimated over $20 billion
This astronomical investment means fewer and fewer companies can keep up with this game. Currently, only three companies in the world—TSMC, Samsung, and Intel—are still in the advanced process arms race, with TSMC leading its competitors by 2-3 generations.
The Sacred Mountain of Protection: A New Geopolitical Chip
The Silicon Shield Effect
TSMC's technological advantage has inadvertently become Taiwan's "silicon shield" in geopolitics. Global tech giants all rely on TSMC's advanced processes:
- Apple: Core chips for iPhone, iPad, Mac
- NVIDIA: AI training and inference chips
- AMD: CPU and GPU chips
- Qualcomm: 5G mobile chips
- Tesla: Autonomous driving chips
If TSMC stops production for one week, the global tech supply chain would paralyze. This strategic status gives Taiwan unprecedented influence in international politics.
The Scramble by Various Countries
Because TSMC is so important, various countries want to move this technology to their own homes:
US Arizona Plant (2025-2028):
Investing $40 billion, expected to produce 5nm and 3nm chips. However, capacity is limited, and the symbolic significance outweighs the practical significance.
Japan Kumamoto Plant (Production started in 2024):
Cooperating with Sony and Toyota to produce 22nm to 28nm automotive chips. These are not the most advanced processes, but they are sufficient to meet the needs of the Japanese automotive industry.
Germany Dresden Plant (To be commissioned in 2027):
Cooperating with BMW and Bosch, focusing on the European automotive electronics market.
But the key to these overseas plants is: The most advanced process technology remains in Taiwan. Cutting-edge technologies such as 2nm and 1.6nm will not be moved out in the short term. Taiwan remains the heart of global semiconductor technology.
The AI Wave: An Unexpected Second Spring
Transition from Mobile to AI
Before 2020, TSMC's main customers were mobile chip manufacturers. But after ChatGPT went viral in 2022, AI became a new growth engine.
AI training and inference require massive computing power, driving a surge in demand for high-end chips. NVIDIA's H100 and H200 AI chips are all produced using TSMC's 4nm and 5nm processes. Apple's M-series chips have also incorporated more AI features.
Data from 2024 shows that revenue from advanced processes (7nm and beyond) has reached 69% of TSMC's total wafer sales. This proportion continues to rise.
Breakthrough in CoWoS Packaging Technology
AI chips need to process massive amounts of data. A single chip is no longer enough; multiple chips must be "stacked" together. TSMC's CoWoS (Chip-on-Wafer-on-Substrate) packaging technology has become the key technology of the AI era.
NVIDIA's H100 chip uses CoWoS technology to package GPU chips and high-speed memory together. This technology has a very high barrier to entry, and currently, only TSMC can mass-produce it.
Competitors: Samsung's Tight Pursuit and Intel's Struggle
Samsung's Korean Offensive
Samsung is TSMC's main competitor, adopting a completely different strategy:
- Vertical Integration: From memory, chip foundry to mobile phone manufacturing in one go.
- Huge Investment: Investing $230 billion from 2022 to 2026.
- Government Support: The Korean "K-Semiconductor Belt" plan provides full support.
However, Samsung still lags behind TSMC in advanced process yield. In 2023, Samsung's 3nm process yield was about 60%, while TSMC had reached over 90%. In an industry where precision determines everything, the yield gap is worlds apart.
Intel's Transformation Struggles
Intel was once the global leader in semiconductor technology but stalled at the 10nm process for years, missing the best opportunity to compete with TSMC.
In 2021, Intel proposed the "IDM 2.0" strategy, aiming to operate both its own chip design and foundry business. But by 2025, Intel's foundry business had not yet secured major clients. Ironically, some of Intel's own high-end chips are now also produced by TSMC.
Taiwan's Semiconductor Ecosystem: Not Just TSMC
Advantages of a Complete Industrial Chain
Taiwan's semiconductor industry competitiveness comes not just from TSMC, but from the entire ecosystem:
IC Design: MediaTek (Global Top 3), Novatek, Realtek, Pixart
Wafer Foundry: TSMC (Global No. 1), UMC, Vanguard
Packaging and Testing: ASE (Global No. 1), SPIL, Kyocera
Equipment and Materials: Nan Ya, Winbond, Vanguard
This complete industrial cluster forms a powerful synergistic effect. A chip can go from design to completion in a loop within Taiwan, without needing cross-border transportation.
Talent Agglomeration in Hsinchu Science Park
Established in 1980, after more than 40 years of development, Hsinchu Science Park has become one of the most important semiconductor clusters in the world. There are over 500 companies in the park, with more than 170,000 employees.
More importantly, there is talent mobility. Engineers may spend a few years at TSMC, then jump to MediaTek to design chips, and then move to ASE to handle packaging. This talent circulation continuously raises the technical level of the entire industry.
Future Challenges: Physical Limits and Geopolitical Risks
The End of Moore's Law
2nm is already approaching the physical limits of silicon-based semiconductors. To continue shrinking, new materials (such as carbon nanotubes, graphene) or new architectures (such as quantum computing, photonic computing) may be required.
TSMC is researching "Angstrom-level" processes (below 1 nanometer), where the technical difficulty grows exponentially. The cost of each transistor may actually increase, challenging traditional economic logic.
The Double-Edged Sword of Geopolitics
TSMC's strategic status is both protection and risk. The US-China tech war leaves Taiwan caught in the middle, requiring balance between two superpowers:
- US Pressure: Requiring TSMC to comply with technology sanctions against China.
- Chinese Market: Still a major source of TSMC's revenue.
- Supply Chain Risk: The risk of production being overly concentrated in Taiwan.
The Talent War
The world is competing for semiconductor talent. The US CHIPS Act, the EU CHIPS Act, and Japan's semiconductor strategy all offer huge subsidies to attract talent. TSMC must maintain competitiveness in the global talent market.
Imagination for 2030: Beyond Moore's Law
The New Era of Heterogeneous Integration
When it is no longer possible to continue shrinking transistors, the semiconductor industry is turning to "heterogeneous integration"—integrating chips with different functions into the same package:
- Processor Chips: Responsible for computing
- Memory Chips: Responsible for storage
- Sensor Chips: Responsible for perception
- RF Chips: Responsible for communication
TSMC's 3D IC technology allows chips to be "vertically stacked," packing more functions into a limited area.
The Challenge of Quantum Computing
Companies like Google, IBM, and IonQ are developing quantum computing, claiming to solve complex problems that traditional computers cannot handle. If quantum computing truly breaks through, it may overturn the entire semiconductor industry.
But TSMC is also laying the groundwork. The company is collaborating with IBM to develop manufacturing technologies for quantum computing, preparing for the next wave of technological revolution.
Conclusion: The Eternal Race of the Tech Island
From Morris Chang's adventure in 1987, TSMC has spent nearly 40 years turning Taiwan into the lifeline of global technology. This is not just the success of one company, but a strategic miracle of the entire island.
Today, when you send a message on an iPhone, ask ChatGPT for an answer, or activate Tesla's autonomous driving, you are actually using Taiwan's technology. 69% of the world's most advanced chips are manufactured on this small island.
But how long can this advantage last? Technological leadership has no end; every day is a new beginning. TSMC must continue to invest, continue to innovate, and continue to lead to maintain its position in this eternal tech race.
For Taiwan, the semiconductor industry is not just an economic pillar, but a survival strategy in the era of globalization. As geopolitics becomes increasingly complex, technological advantage may be the most powerful talisman for a small country.
Taiwan's story is still being written. And the next chapter will be the challenge of Angstrom-level processes.
Further Reading:
Mountain Makers: The Bet of the Century — Hsiao Ju-chen 2025 Documentary, five years of interviews with 80+ semiconductor veterans, entering three CHIPS Act investment hubs: Purdue/Wisconsin/Michigan in 2026
Wu Ta-You — While Taiwan was building semiconductors in the 1980s, serving as President of the Academia Sinica, he insisted on the importance of basic science, laying the foundation for Taiwan's scientific research system.
Taiwan's Robotics Industry — Why is the island that is number one in semiconductors a catch-up student in the era of robotics? Looking at the industrial gap from the unveiling of NCAIR.
Taiwan Stock Market and Capital Market — How the entire supply chain ecosystem supporting Taiwan's stock market as the world's 6th largest in 2026 is presented in the capital market.