Underground Empire by Henry Farrell & Abraham Newman

Author:Henry Farrell & Abraham Newman [Farrell, Henry & Newman, Abraham]
Language: eng
Format: epub
ISBN: 9781802062083
Publisher: Penguin Random House UK
Published: 2023-07-14T00:00:00+00:00

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LinkedIn wasn’t only useful for wartime defense. Shortly before the Ukraine war began, the Taiwanese semiconductor giant TSMC put up a help wanted notice54 on the service: “As our business continues to grow globally in scale and complexity, we are looking for a Business Intelligence Analyst who is interested in translating geopolitical and economic changes to impact on IC [integrated circuit] industry supply chain.”

The bland language belied the urgency of TSMC’s plea. TSMC’s leaders had reason to fear that geopolitics would devour their company.

TSMC had been founded as a bet on the globalized economy. Open markets and rapid communication allowed semiconductor companies to find their niche, specializing in one aspect of production rather than trying to do everything in-house. Companies like TSMC focused narrowly on the things they could do well, making sure they did them better than the competition. TSMC was a “pure play” fabrication (fab, for short) company, manufacturing semiconductors that were designed elsewhere. It could focus more easily on production improvements than integrated manufacturers such as Intel, squeezing out little innovations as well as big ones in regular increments.

In 1998, TSMC’s founder and then CEO, Morris Chang, laid out TSMC’s strategy in an internal document.55 He believed that if TSMC built deep relations with customers, learned what they wanted, and properly integrated sales and engineering, it would become the biggest silicon foundry in the world, more or less as a matter of course. To do this right, TSMC needed to solve two problems.

First, it needed to build trust with its customers, the technology companies that ordered specialized chips from TSMC. These companies competed furiously with each other—TSMC might make processor chips for many different phone manufacturers, each struggling to win or protect its own market share from the others. Each customer had to work closely with TSMC, providing highly sensitive information about their technological needs and business strategies to a company that also had close relationships with their most bitter adversaries. That was why Chang believed that TSMC had to credibly guarantee that it would keep their proprietary information secret.

TSMC would have to seem completely even-handed. Chang’s strategy document mandated that if TSMC provided a special “onetime” deal to one of its customers, it would offer “similar deals” to the customer’s direct competitors in the same field, to avoid any impression of favoritism. Such strategies allowed TSMC to become what the Wall Street Journal described as the “Switzerland of semiconductors,”56 working impartially with competitors like NVIDIA and Qualcomm to build their chips.

Second, TSMC needed to tech up, catching up with its competitors’ ability to produce sophisticated semiconductors, and eventually beating them. TSMC started by catering to niches that bigger competitors like Intel didn’t care to compete in. It grew by combining its own know-how with the information it got from customers from around the world. That allowed it to enter new markets. Customers didn’t just bring economies of scale, allowing TSMC to produce more cheaply. They brought economies of knowledge, providing TSMC with an unrivaled

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