Taiwan Semiconductor Manufacturing Company Limited or TSMC is the largest semiconductor manufacturer in the world in terms of production output and market capitalization or valuation. Headquartered in Taiwan, in addition to numerous production facilities in different countries, it caters to most of the prominent fabless chipmakers in the world, and its products power most of the consumer electronic devices of today. This article explores and analyses the business standing of TSMC using the SWOT framework.
Situational Analysis of TSMC Based on the SWOT Framework: A Look Into its Notable Strengths, Weaknesses, Opportunities, and Threats
It became the first dedicated semiconductor foundry in the world when it was founded in 1987 and has since remained the most valuable semiconductor company in terms of market capitalization and the largest dedicated semiconductor foundry in the world. TSMC is both a dominant industry incumbent and a reputable market leader.
Below are the specific strengths of TSMC:
• Superior Manufacturing Capabilities: It is the only semiconductor company in the world that has all three advantages essential to competition and market leadership. These are manufacturing capability, process technologies, and scale.
• Pure-Play Semiconductor Foundry: Another strength of TSMC is its value proposition that centers on being a pure-play semiconductor foundry that gives its business customers the advantage of focusing on hardware design.
• Notable Technologies and Innovation: The company has been acknowledged for introducing the first mass-produced chip based on the 5nm process node and the first commercially available extreme-ultraviolet lithographic process.
• Dedication to Research and Development: A team of engineers and scientists is tasked to work on developing new materials, equipment, and techniques. It allocates resources to pursuits aimed at advancing its process technologies.
• Strong Adherence to Non-Competition: It does not manufacture products that might become a direct competition to the products of its business customers. This means that it can work with whatever entities or business organizations.
• Has a Prominent Customer Base: TSMC has a customer base made of prominent tech companies. These include leading fabless companies such as AMD, Apple, ARM, Broadcom, Marvell, MediaTek, Qualcomm, and Nvidia.
Semiconductor manufacturers need to be acquainted with the latest technological developments while also introducing innovations to remain relevant. TSMC has demonstrated innovative capabilities but it still struggles in certain areas such as artificial intelligence and its subfields such as machine learning due to problems attracting capable talents.
Below are the specific weaknesses of TSMC:
• Capital-Intensive Business Operations: One of the main weaknesses of TSMC is its high capital expenditure. It has a capital-intensive operation because it needs to make significant investments in equipment and new technologies.
• Acquisition of Next-Generation of Talent: It has a strong pool of talent but it still needs to acquire and retain new breeds of talent that have novel sets of skills needed to implement and introduce innovations in chipmaking.
• Hiring Standards and Rigorous Process: Another possible weakness of TSMC is its high standards and rigorous hiring process. It wants to hire the best and the brightest in their fields. This creates a problem in attracting appropriate talents.
• Concentration of Facilities in Taiwan: The company has manufacturing facilities in mainland China and in the United States but about 90 percent of its production output still comes from facilities operating in different parts of Taiwan.
• Exposure to Cyclical Industrial Dynamics: Demand for semiconductors depends on the consistent production schedules observed across the consumer electronics industry and the boom and bust phases of the economic cycle.
The semiconductor industry is expected to grow further due to the continuous proliferation of mobile personal computers and smartphones, increasing demand for data centers, novel technologies such as the expanding practical applications of artificial intelligence, and the emergence of next-generation consumer electronic devices.
Below are the specific opportunities for TSMC:
• Competition in Consumer Electronics: The further intensification of competition in the consumer electronics industry and the expanding market of electronic devices would mean more business opportunities for TSMC.
• Growth of Internet of Things Market: IoT or Internet of Things and smart systems such as home automation are driving the demand for small and power-efficient chips that can be used in a wide range of smart and connected devices
• Expanding Practical AI Applications: Artificial intelligence is disrupting the tech sector and specific advancements in the subfields of AI will create new classes of products and services that would require novel processing capabilities.
• Growth of the Global Semiconductor Market: TSMC is well-positioned to benefit from the further expansion of the global semiconductor market which is expected to reach more than USD 700 billion in value in 2024.
• Operations of Regional Facilities: Another opportunity for the company is the expansion of its production facilities outside Taiwan. This will allow it to minimize risks while also creating a presence in established regional markets.
• Access to Capital Through the Stock Market: It remains a growth company with a potential for higher valuation that can translate to better access to capital. Its stock is traded on Taiwan Stock Exchange and the New York Stock Exchange.
Competition might not be a serious threat to TSMC in the present but it is still important to factor in the possible impacts of other semiconductor foundries and manufacturers in its prospect. Furthermore, aside from the competitive environment, the biggest threats to the company come from unfavorable economic and political events.
Below are the specific threats to TSMC:
• Other Notable Semiconductor Players: The United States wants to reduce its dependence on chips manufactured in Taiwan. SMIC of China and Samsung of South Korea aspire to become relevant market forces.
• Phase of Technological Advancements: Chipmakers need to keep up with the latest developments and develop new process technologies and manufacturing techniques to remain relevant and aligned with current and future trends.
• Supply Issues and Supply Chain Risk: Access to raw materials is another threat to TSMC. Some of its production inputs are rare materials. Disruptions in the supply chain can also affect its production schedule and entire value chain.
• Uncertainties From Geopolitical Conflict: The longstanding conflict between China and Taiwan threatens the operations of TSMC. About 80 percent to 90 percent of its production outputs come from production facilities in Taiwan.
• Impacts of Macroeconomic Factors: Periods of high inflation can affect the cost of doing business while also reducing demand for consumer electronic products. Economic downturns or recessions will also sales and revenues.
FURTHER READINGS AND REFERENCES
- Chien, C. F., Shih, C., and Chang, J. 2009. “The TSMC Way: Meeting Customer Needs at Taiwan Semiconductor Manufacturing Co.” Harvard Business School Technology & Operations Mgt. Unit Case No. 610-003. Available online
- Neuman, Rob. 2023. “TSMC Stock: Advantages and Disadvantages.” Fincier. Available online
- Pineda, Mathew Emmanuel. 2023. “The Business Strategy of TSMC.” Profolus. Available online
- Windham, P. 2003. “The Taiwanese Approach.” In National Research Council, Securing the Future: Regional and National Programs to Support the Semiconductor Industry. The National Academic Press