TSMC dominance heightens second-source risk

TSMC’s grip on advanced chipmaking is becoming more visible just as governments and customers are spending heavily to reduce dependence on Taiwan. The company said in March 2025 it would raise its planned U.S. investment to $165 billion, adding three more fabs, two advanced packaging facilities and an R&D center in Arizona. Yet Taiwan still accounts for more than 90% of leading-edge chip manufacturing, according to the U.S. Commerce Department, leaving the supply chain concentrated even as capacity expands. ### Why are people calling TSMC a “toll booth” for advanced chips? TSMC sits at the center of the customer list for the most advanced processors used in smartphones, AI accelerators and high-performance computing. TechNode reported on May 19 that TSMC is planning a 1-nanometer-era roadmap and as many as 12 new fabs, with first 2nm chips expected to enter production later this year. TSMC’s 2025 annual report said it manufactured 12,682 products for 534 customers in 2025 and offers advanced packaging alongside leading-edge logic. (pr.tsmc.com) The concentration is not just about market share. The U.S. Commerce Department said Taiwan accounts for over 60% of global foundry revenue and more than 90% of leading-edge chip manufacturing. The Global Taiwan Institute, citing TSMC’s role in the sector, said the company accounts for more than 90% of the world’s advanced semiconductor manufacturing capacity. (technode.com) ### If Arizona is expanding, why does the second-source problem remain? TSMC’s Arizona project is large, but it does not recreate Taiwan’s full manufacturing ecosystem overnight. TSMC said on March 4, 2025 that the expanded U.S. plan would include six fabs in total, two advanced packaging facilities and an R&D center. Arizona officials said the project had grown into a $165 billion investment after an initial approach to TSMC in 2013. (trade.gov) Advanced packaging is part of the gap. TSMC’s annual report highlights CoWoS, InFO and SoIC as core technologies for high-performance chips, and outside reporting has said wafers made in Arizona still need back-end assembly and testing links that are more developed in Taiwan. That means a second source is not only about front-end wafer capacity; it also depends on packaging, testing and logistics. (pr.tsmc.com) ### How much more expensive is U.S. capacity? Western fab construction remains slower and costlier than Taiwan’s, according to industry executives and outside reporting. TechSpot, citing ASML former executive Tomi Blaschitz, reported that building a wafer fab in the West costs about twice as much and takes twice as long as in Taiwan. TSMC Chief Executive C.C. Wei said in April 2024 that customers asking for manufacturing outside Taiwan would need to share the higher costs. (investor.tsmc.com) The premium shows up in operations too. Reporting in late 2024 said Arizona-made wafers could cost about 30% more than Taiwan output, while AMD Chief Executive Lisa Su said customers would pay more for Arizona production and described that premium as an investment in resiliency. Those figures vary by product and source, but they point in the same direction: geographic diversification is expensive. (techspot.com) ### What does that mean for Apple and other customers? Apple has not publicly laid out a separate “second-source” strategy for its most advanced application processors, but the manufacturing logic is straightforward. A customer can diversify some risk through domestic assembly, local advanced packaging, alternate validation paths and geographically distinct production, even if the near-term unit cost rises. TSMC itself said it expects customers to share the added cost of overseas manufacturing, underscoring that resiliency is being priced into supply agreements. (techpowerup.com) The constraint is that no rival foundry today matches TSMC’s combination of scale, yield history, node cadence and packaging breadth at the leading edge, based on the sources reviewed here. That leaves customers trying to build redundancy around TSMC rather than replace it outright. ### What should readers watch next? TSMC’s next milestones are concrete. TechNode said first 2nm production is expected later in 2026, and TSMC’s March 2025 announcement said Arizona will add new fabs, packaging plants and an R&D center over time. (xatakaon.com) Those projects will show whether the U.S. buildout can reduce dependence on Taiwan at the margin, even if it does not remove it. (technode.com)