Pelosi Visit Highlights TSMC's Role as World Power

U.S. House Speaker Nancy Pelosi’s visit to Taiwan this week included a meeting with top officials from Taiwan Semiconductor Manufacturing Company (TSMC, NYSE: TSM), the powerhouse supplier of over half of the world’s semiconductors.

The meeting highlighted a growing controversy over the particulars of the CHIPS and Science Act, recently approved by both houses of Congress, which allocates $52 billion to companies that manufacture computer chips in the U.S. The bill is anticipated to be signed into law by President Joe Biden next week.

Pelosi reportedly got together with TSMC chairman Mark Liu and TSMC founder Morris Chang at a luncheon given by Taiwan President Tsai Ing-Wen on Tuesday. It seems the menu included chats about the influence of the CHIPS Act on TSMC’s future plans.

TSMC’s Future in China Threatened

TSMC is likely to get some CHIPS Act funding for its $12 billion fabrication facility in Arizona, north of Phoenix. But TSMC, along with rivals such as Intel (Nasdaq: INTC) and Samsung, will be subsidized on the condition that they not expand facilities for semiconductor chips more advanced than 28 nanometers in China or other countries “of concern” for 10 years.

The 28-nanometer bar is a low one because those chips, now over a decade on the market, are still widely used in CPUs, graphics processors, networking components, Internet of Things (IoT) sensors, and smartphones. But TSMC is already shipping transistors in the much tinier 5-nanometer space; in its most recent earnings report, 5-nanometer chips accounted for 21% of revenue and 7-nanometer chips for 30%. So chips more advanced than 28-nanometers basically include all innovations made after about 2011.

Will TSMC Cooperate?

It’s a question whether TSMC will make the concessions required by the CHIPS and Science Act. As Bloomberg reports, TSMC is making 28- and 16-nanometer chips in China for use in consumer products, such as Apple iPhones.

Still, while China’s market for consumer chips, which is fed by TSMC, is enormous, TSMC makes just 10% of its revenues from sales to China, according to Statista. In contrast, North America counts for 65% of TSMC sales.

But TSMC appears to have an interest in preserving both sides of its fab coin – limited but lucrative sales to China, with ongoing development in North America. In a recent interview with CNN, TSMC chairman Mark Liu noted the many interdependencies between TSMC and suppliers in all parts of the world, and he alluded to the need to maintain competition worldwide – supposedly also with China, whose interest in TSMC threatens Taiwan’s independence.

“How can we avoid a war?” Liu said. “How can we ensure the engine of the world economy will continue humming? Let’s have a fair competition on top of the platform. That’s what I think.”

Liu believes that TSMC’s status as a world power by itself is a guarantee of its protection against potential invasion by China. “If they [China] need us it’s not a bad thing… because our interruption will create great economic turmoil on either side.”

CHIPS and Science Act Controversy

TSMC isn’t the only company to question the wisdom of becoming a key ally in the U.S.’s technological competition with China. Intel also has interests in the China market and officials have expressed concern about abandoning development there. An Intel spokesperson told Bloomberg:

“Intel and many companies in our industry have come together with our trade association to provide input to policymakers in order to ensure that we have the best legislation possible and don’t inadvertently undermine the global competitiveness of companies that receive CHIPS funds.”

How the CHIPS and Science Act plays out on the world stage remains to be seen. It certainly has spotlighted the technological rivalry between the U.S. and China. Whether that escalates into all-out war could depend in part on the role of TSMC, a global superpower by itself.