Bottleneck of the global tech industry

Why the global AI world depends on a single chip company from Taiwan

Without TSMC, the AI world comes to a standstill: the Taiwanese chip giant is recording billion-dollar profits thanks to demand from Nvidia and Apple. But the global dependence carries enormous risks. All the facts, figures and background at a glance.

Stefan Weinzierl Editor-in-chief
Published Modified
Chip-Boom: Der weltgrößte Auftragsfertiger TSMC steigerte seinen Gewinn im dritten Quartal gegenüber dem Vorjahr um 69 Prozent auf rund 763 Milliarden Taiwan-Dollar (umgerechnet etwa 21 Mrd. Euro).
Chip boom: The world's largest contract manufacturer TSMC increased its profit in the third quarter by 69 percent compared with the previous year to around 763 billion Taiwan dollars (equivalent to about 21 billion euros).

Key takeaways

  • Record in the billions: TSMC increased its profit in the third quarter by 69 percent to the equivalent of around 21 billion euros on revenue of 41.6 billion euros. Revenue of up to 48.5 billion euros is expected for the final quarter.

  • The business model: As the world's largest pure-play contract manufacturer (“foundry”), TSMC manufactures the chips developed by companies such as Nvidia (AI processors) and Apple (iPhone processors).

  • Uncatchable lead: Manufacturing the most advanced semiconductors requires decades of development and billions in investment; hardly any competitor can produce chips in comparable quantities and quality.

  • Economic engine for Taiwan: Driven by chip exports, Taiwan's GDP grew by 12.9 percent in the second quarter. The central bank forecasts growth of 11.5 percent for the full year (highest value in almost 40 years).

  • Geopolitical & economic risks: The heavy concentration of manufacturing in Taiwan entails immense dangers for the global economy in the event of disputes with China. Diversification efforts in the U.S. and Germany (Dresden) are underway, but they need time.

The invisible power behind the AI boom: TSMC breaks all records

Whether chatbots, image generators or modern smartphones - the global boom in artificial intelligence requires gigantic computing power. While U.S. tech giants dominate the headlines, the actual engine of this development is being built away from the spotlight: at the Taiwanese group TSMC (Taiwan Semiconductor Manufacturing Company).

What distinguishes TSMC from Intel or Nvidia?

There is a strict division of labor in the semiconductor industry:

  • Fabless companies (e.g. Nvidia, Apple): They design and develop highly complex chip architectures, but do not own their own chip factories.

  • Pure-play foundry (TSMC): TSMC focuses purely on contract manufacturing. The company does not develop its own chips, but instead produces its customers' designs in mass production with the highest precision.

The current business figures underscore the group's exceptional position: In the third quarter, profit climbed by 69 percent compared with the previous year to around 763 billion Taiwan dollars (approx. 21 billion euros). Revenue reached about 41.6 billion euros. For the fourth quarter, TSMC is already expecting another record revenue of up to 48.5 billion euros.

Why heavyweights like Nvidia and Apple have no chance without Taiwan

The principle of the modern chip industry is based on specialization. The U.S. group Nvidia develops the leading processors that are used worldwide to train and operate AI systems - but the physical manufacturing is handled by TSMC. Apple also has the core components of its iPhones and MacBooks manufactured by the specialists in Taiwan.

That TSMC holds such a dominant position is due to the extreme hurdles of semiconductor production. On the tiniest silicon surfaces, many billions of electronic switching elements must be placed. Even the smallest impurities or deviations render a chip unusable. Through decades of experience and research worth billions, TSMC has a manufacturing lead that competitors are unlikely to catch up with for the foreseeable future.

Economic miracle in Taiwan - but doubts about AI returns are growing

The enormous demand for chips is turning all of Taiwan into an economic powerhouse. In the second quarter, the gross domestic product (GDP) of the island republic rose by 12.9 percent year over year. For the full year, Taiwan's central bank expects an increase of 11.5 percent - that would be the strongest economic growth in almost four decades.

CEO Che-Chia Wei was optimistic when presenting the figures: The latest developments are very positive for the long-term demand outlook in the AI sector. Nevertheless, there are also skeptical voices in the market. Tech companies are currently investing hundreds of billions in new AI data centers. It remains unclear when these expenditures will pay off. If the spending of the tech giants were to stall, that would also directly affect TSMC.

The business model at a glance

  • Nvidia: Develops AI processors -> TSMC manufactures them.

  • Apple: Develops iPhone processors -> TSMC manufactures them.

  • Role of TSMC: World's leading contract manufacturer (“foundry”) for the most advanced semiconductors.

Geopolitical bottleneck: The danger of a global chip traffic jam

The biggest risk of the extreme dependence on TSMC is geopolitical in nature. The majority of the most advanced semiconductors continue to be produced on the island of Taiwan. Since the leadership in Beijing regards the island as its own territory and does not rule out a forcible annexation, a military conflict in the region would suddenly paralyze the global high-tech industry.

To reduce the concentration risk, TSMC is building new production sites outside Taiwan:

  • USA: Building new manufacturing capacities for the most advanced chips.

  • Germany (Dresden): Joint construction of a plant with partners, aimed primarily at the automotive industry and industrial applications.

  • Challenge: The geographic dispersal of the production of the very latest high-end chips will still take many years.

The most important financial figures & key metrics of TSMC

IndicatorValue / Trend
Q3 Profit~21 billion euros (+69% year-over-year)
Q3 Revenue~41.6 billion euros
Q4 Revenue ForecastUp to 48.5 billion euros
Forecasted GDP Growth in Taiwan (Full Year)11.5% (highest level in nearly 40 years)

With material from dpa

Frequently asked questions about TSMC and the AI chip industry

What exactly does TSMC do? - TSMC (Taiwan Semiconductor Manufacturing Company) is the world's largest pure-play contract manufacturer of microchips. The company produces processors on behalf of other tech corporations that do not own their own factories.

Why are AI giants like Nvidia dependent on TSMC? - Nvidia and other companies do develop the architecture of AI chips, but they do not have the highly complex factories for mass production. At present, only TSMC has the know-how and the capacities to manufacture these high-end processors in the required quality and quantity.

How strongly is TSMC benefiting from the current AI boom? - In the third quarter, TSMC increased its profit by 69 % to around 21 billion euros. Quarterly revenue rose to 41.6 billion euros.

Why does the concentration on Taiwan pose a risk? - Since a large share of the most advanced chips is manufactured in Taiwan, a geopolitical conflict with China could cause the global supply chains of the entire technology sector to collapse.

Is TSMC also building chip factories in Europe? - Yes, TSMC is building a plant in Dresden together with partners. It is intended to supply primarily specialty chips for the automotive and industrial sectors. Additional plants are also being built in the U.S.

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economy top story top stories taiwan semiconductor manufacturing company tsmc ai chip manufacturer nvidia chip manufacturing metaverse foundry model tsmc geopolitics tsmc dresden tsmc

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