2 graphs show how much the world depends on Taiwan for semiconductors

Taiwan’s inordinate role in chip making has come into the spotlight as a global semiconductor shortage forced several car makers to shut down production.

Countries, including the US and Germany, reached out to Taiwan to help alleviate bottlenecks in chip manufacturing. The shortage was a result of the increased demand for electronics during the Covid-19 pandemic, and was exacerbated by former President Donald Trump’s trade war with China.

Taiwan dominates the foundry market or semiconductor manufacturing outsourcing. The contract manufacturers together accounted for more than 60% of total global foundry revenue last year, according to data from Taipei-based research firm TrendForce.

Much of Taiwan’s dominance can be attributed to Taiwan Semiconductor Manufacturing Co or TSMC, the world’s largest foundry that counts major technology companies such as Apple, Qualcomm and Nvidia among its customers. TSMC accounted for 54% of total foundry revenues worldwide last year, TrendForce data shows.

Semiconductors are critical components that power electronics from computers and smartphones to brake sensors in cars. The manufacturing of chips involves a complex network of companies that design or make them and provide the technology, materials and machines to do so.

TSMC focuses solely on manufacturing and is the go-to producer for many advanced semiconductors, said Dan Wang, a technology analyst with research firm Gavekal, in a podcast from the DBS bank in Singapore.

So TSMC, if you just look at the market share, I believe about 50% of all semiconductors in the world are produced. And I think that’s still underestimated how important it is, because these are some of the most advanced chips out there. are, ”Wang said.

Semiconductor designers and manufacturers are looking to make chips smaller and better. Currently, TSMC and its South Korean rival Samsung are the only foundries that can produce the most advanced 5 nanometer chips.

TSMC is already gearing up for the next generation of 3-nanometer chips, which will reportedly begin production in 2022.

Some countries plan to boost their own semiconductor manufacturing – and one of them is China, which is striving to become more self-reliant.

But China’s tech battle with the previous US government is holding back its largest chip maker Semiconductor Manufacturing International Corporation, or SMIC, said Paul Triolo, chief geotechnology at risk consultancy Eurasia Group.

Last year, the Trump administration blacklisted SMIC known as the entity list, which is limited the company’s access to technology and machines it needs.

SMIC was the world’s fifth-largest semiconductor foundry by 2020 sales – behind Taiwan’s TSMC and UMC, South Korea’s Samsung and GlobalFoundries in the US, TrendForce data showed.

“The goal right now is to compete on the cutting edge with companies like TSMC, Samsung and Intel,” Triolo told CNBC’s “Squawk Box Asia.”

“The problem SMIC is in now, the dilemma, is that the US government has put them on the entity list,” he said. “But the bigger picture is that SMIC, at least for now, has been cut off from purchasing the really advanced equipment it needs from ASML, a Dutch company.”

ASML makes the so-called extreme ultraviolet lithography equipment that is used to produce the most advanced chips, such as those from TSMC and Samsung. Reuters reported last year that the Trump administration has pressured the Dutch government to stop selling the machine to SMIC.

Even if SMIC has access to ASML’s equipment, it would take years to start producing high-end chips in bulk, Triolo said.

Until then, TSMC appears to maintain its leading position.

“TSMC is just so dominant. It doesn’t really have much competition at the upside. And so it took a while for this model to actually work. But at this point it can indeed be a very profitable business,” said Wang van Gavekal.

CNBC’s Eustance Huang and Arjun Kharpal contributed to this report.