From: acquiredfm
TSMC has adopted a business strategy that involves giving up current profits for anticipated future gains [00:00:04].
Objectives of the Strategy
The primary aim of this approach is to secure future revenues [00:00:09]. This can be achieved through:
- Customer loyalty: Retaining existing customers [00:00:11].
- New customer acquisition: Attracting new clients [00:00:14].
The expectation is that more customers and increased revenue in the future will lead to greater differential returns [00:00:17].
Scale Economies
This strategy relies on the presence of scale economies within the semiconductor industry [00:00:25]. TSMC is argued to possess an “unusual type of scale economy” [00:00:30].
Unusual Industry Characteristics
The semiconductor industry exhibits several unique characteristics that influence TSMC’s strategic choices:
Large, Lumpy Capital Investments
The construction of a new fabrication plant (fab) requires substantial capital investment, estimated at $10 billion or more [00:00:37].
Predictable Performance Advances (Moore’s Law)
The industry benefits from predictable material performance advances, often associated with Moore’s Law [00:00:49]. This allows for a high assurance that making the correct technology choices will lead to significant improvements, such as a “10x improvement in 18 months” [00:01:03]. This level of predictability is considered “very unusual” in most industries [00:01:10] and is contingent on making the right technological decisions [00:01:13].
Reliance on Upstream Suppliers
Technological advantages within the semiconductor industry are significantly driven by upstream suppliers, such as ASML [00:01:21]. This reliance necessitates making difficult choices regarding technological pathways, as seen in historical debates within semiconductor companies about adopting technologies like X-ray lithography, which involved considerable investment in research [00:01:27].