Today’s Taiwan looks nothing like it did in the 1970s when a major oil crisis hobbled the country’s economy and left everyone scrambling to find a new industry to lead its growth. Now, the shimmering city of Taipei stands as a testament to the success of that new industry—semiconductors.
Taiwan is responsible for exporting over half of the world’s chips. Perhaps more importantly, the island is home to the fabs that produce the vast majority of today’s most advanced chips. However, this industrial prowess didn’t happen overnight.
Taiwan’s chip industry has been built through decades of hard work, innovation, and efficiency. These factors would eventually coalesce to make the island what it is today: a silicon superpower.
In the early 1970s, the U.S. was in the fledgling stages of its semiconductor revolution. IBM, Intel, and Burroughs Corporation led the way in computing at the time, and today’s largest chipmaker, TSMC, wasn’t even an idea yet. Flash forward to the end of the decade, and a team of bright young electrical engineers from Taiwan launched the Industrial Technology Research Institute in Hsinchu.
The institute’s first commercial venture, United Microelectronics Corporation (UMC), was launched in 1980 with great success. It would set the groundwork for what would become the world’s most noteworthy chip hub in Hsinchu, a small city south of Taipei that would soon be in the global spotlight.
Seven years later, TSMC was born, and former Texas Instruments guru Morris Chang was placed at the helm. Now known as the father of Taiwan’s chip sector, Chang led TSMC with a novel approach. Rather than directly competing with U.S. and Japanese chip titans, the company focused on manufacturing chips designed by others.
This strategy couldn’t have come at a better time. Across the ocean, Silicon Valley was incubating numerous startups, including Nvidia, Apple, and Qualcomm. Though it may seem laughable through today’s lens, none of these firms could afford foundries of their own at the time. TSMC filled the void, giving them a reliable, affordable option for chip production that wasn’t beholden to the capacity restraints of existing chipmakers who were busy manufacturing their own designs.
TSMC has held firmly to this strategy over the years and now makes roughly 57% of the world’s chips and around 90% of the most advanced semiconductors. As of 2022, the firm’s annual capacity topped 15 million 12-inch equivalent wafers.
Of course, a unique approach to chip production isn’t the only factor behind Taiwan’s rise to chip dominance. As highlighted in a recent BBC article, the country’s efficient high-volume production is vital to its success.
In the early days of chip manufacturing, yields were as low as 10%. While that figure has risen dramatically, chipmakers still agonize over ways to improve yield by even the smallest percentage. The greater the yield, the more profits a chipmaker collects and the less materials it wastes during production. TSMC routinely posts the best yield rates across nodes (minus Samsung’s reported 60-70% yield for the newest 3nm process), giving it a substantial edge over competitors.
However, the reason for the incredible efficiency of Taiwanese chipmaking remains shrouded in mystery and has been since the beginning. Early on, an experimental chip fab in Taiwan featuring equipment licensed from a U.S. firm outperformed the original plant. Not only was the Taiwanese fab more efficient, but it also achieved this result with lower costs.
While the exact influences aren’t public knowledge, the expertise of Taiwan’s engineering workforce built over decades of hard work is indisputably at play. Their diligence allows fabs to continuously improve their operations through trial and error until the most optimal result is found.
In a sense, this is a microcosm of the wider chip industry. Only through dedicated work and innovative thinking can chip technology continue to advance. For years, Taiwan has led the rest of the world’s chip players in this regard and is now enjoying the results of its efforts.