Taiwan Semiconductor Manufacturing Co. kicked off mass production of next-generation chips December 29, ensuring the island remains the linchpin of a critical technology fought over by governments from Washington to Beijing.

The primary chipmaker for Apple Inc. began bulk production of advanced 3-nanometer chips at its Tainan campus in southern Taiwan. In doing so, TSMC follows Samsung Electronics Co. in gearing up on production of a technology that’s expected to control the next lineup of cutting-edge devices from iPhones to internet servers to supercomputers.

TSMC is moving ahead on the next generation of chipmaking as companies with less clout experience cratering demand, amid fears of recession and uncertainty over the impact of U.S. sanctions on China’s economy. TSMC in 2022 reduced its capital spending plans by at least 10% to $36 billion, and some analysts warn it may further delay expenditure on expansion in 2023.

On December 29, TSMC Chairman Mark Liu expressed confidence in the longer-term outlook for chip demand and promised to build future generations of 2nm chips in the Taiwanese cities of Hsinchu and Taichung.

“The semiconductor industry will grow rapidly over the next decade, and Taiwan will surely play an even more critical role in the global economy,” Liu said. Demand for the 3nm chips is “very strong.”

Taiwan is home to more than 90% of the manufacturing capacity for the world’s leading-edge chips. Global policy makers and customers are increasingly leery of their technological reliance on an island Beijing has threatened to invade, and have pushed TSMC to shift some production abroad.

The rollout of the high-performance chips follows the TSMC’s announcement that it will offer 4nm chips at a new Arizona plant from 2024 and 3nm chips at a second U.S. plant in 2026. The company is also ramping up capacity in Japan and exploring sites in countries such as Germany.

TSMC’s recent move to diversify production overseas has raised alarms in Taiwan that this would undermine the island’s strategic importance over the long term. Taiwanese President Tsai Ing-wen said December 27 that moves by TSMC to build factories overseas is a sign of Taiwan’s power abroad, rather than a threat to local industry. TSMC’s plan to domestically produce 2nm chips is a nod to calls that the island’s firms continue to keep the most advanced chipmaking technology at home.

Samsung began mass production of 3nm semiconductors in June, in a bid to catch up to TSMC in the contract chipmaking business and meet growing demand for high-performance devices that consume less power.
Chips carrying transistors with smaller line widths are generally more capable and power-efficient. TSMC said its 3nm processes offer better performance than its 5nm chips, while requiring about 35% less power. The 3nm technology will help create end products with a market value of $1.5 trillion within five years, Liu said.

TSMC’s growing dominance of high-end chipmaking coincides with U.S. sanctions on China’s semiconductor industry, intended to curb Washington’s geopolitical rival.

China claims Taiwan as part of its territory and regularly threatens to invade to prevent its formal independence. 

Recent military exercises held by Beijing around Taiwan have reignited concerns about the world’s dependence on the island for semiconductors. That’s because China claims Taiwan as part of its territory and regularly threatens to invade to prevent its formal independence.