Intel’s history of fab
Intel’s network of factories operate like a contract chip-making operation, taking orders from both Intel engineers and external chip companies on an equal footing. Intel has historically used its factories almost exclusively to make its own chips.
Cost of fabs vs chips
Fabs are incredibly expensive to build, while chips are extremely cheap; to put it in economic terms, fabs entail massive fixed costs, while chips have minimal marginal costs.
Building a fab is the most capital intensive part of a semiconductor company
the biggest thing that stopped them from leaving those companies was that they couldn’t raise enough money to form their own company. Because at that time, it was thought that every company needed manufacturing, needed wafer manufacturing, and that was the most capital intensive part of a semiconductor company, of an IC company.
Why Morris Chang started TSMC
So I thought that maybe TSMC, a pure-play foundry, could remedy that. And as a result of us being able to remedy that then those designers would successfully form their own companies, and they will become our customers, and they will constitute a stable and growing market for us.
Nvidia, Qualcomm, Apple’s fab play
Nvidia was started in 1993 with only $20 million, and never owned its own fab. Qualcomm, after losing millions manufacturing its earliest designs, spun off its chip-making unit in 2001 to concentrate on design, and Apple started building its own chips without a fab a decade later.
Chang saw a gap in the market
the entire reason why Chang saw a market in being just a manufacturer was because every company that proceeded TSMC had done both out of necessity, because a company like TSMC didn’t exist.
Why China didn’t build its own fabs
China’s manufacturing prowess is centered on traditionally labor-centric components; even though Chinese labor is now much more expensive than it was, and automation much more common, path dependency matters, and China’s capability is massive but in some respects limited.
China could also buy high-precision capital-intensive goods abroad
At the same time, globalization also meant that China could buy high-precision capital-intensive goods abroad: it didn’t need to build them itself to get the benefits immediately. By the same token high-precision capital-intensive goods are exactly what Western countries like the U.S., Germany, Netherlands, Japan and Taiwan invested in, in part because they couldn’t compete with China on labor.
Taiwan, TSMC and geopolitics
This point applies to semiconductors broadly: as long as China needs U.S. technology or TSMC manufacturing, it is heavily incentivized to not take action against Taiwan.