TSMC risks and disadvantages in Taiwan

Table of Contents

TSMC’s risks and disadvantages

In the past, when TSMC was smaller, the operational risks and disadvantages faced by TSMC were not strictly examined. But as chips become more and more important, when “165 billions investment, TSMC moat and competitiveness is fragile“, the operational risks and disadvantages faced by TSMC have been fully exposed.

Geopolitics

Any rational investor cannot ignore the geopolitical and potential military conflicts facing TSMC. After all, no one expects that the stocks they buy have a high probability of plummeting or even becoming wallpaper in the future, right?

In my post of “Is Buffett no longer hold for long haul? TSMC, HP, and US Bancorp cases study“, Buffett was cited as to why he sold TSMC, which was briefly the tenth largest holding in Berkshire’s investment portfolio.

According to his own later statements, he would sell mainly geopolitical risks, and therefore regretted and sold out TSMC after holding it for a very short period of time, which is a rare investment behavior of Buffett.

It is rare for Buffett to hold such a large number of shares in a company and then almost completely sell them off in less than a year (86% of TSMC shares were sold in the fourth quarter of 2022). If TSMC is not the only case, it is a rare case.

Earthquakes often occur in Taiwan

Wafers to be damaged and scrapped by Earthquakes

No matter how good the equipment, technology, production capacity, orders, and market are; precision wafer factories are most afraid of earthquakes. Once an earthquake occurs, the production line will need to be shut down for a comprehensive inspection if it is minor, and every wafer on all production lines must be scrapped if it is more serious. You can read it in my post of “How many fabs and houses does TSMC have currently and in the future?“, count how many wafer fabs TSMC has in Taiwan, the production capacity of each fab, and then multiply it by the cost of each wafer, and you will know how much money will be lost in an earthquake.

According to TSMC’s 2023 business overview, the 12-inch wafer equivalent shipments in 2024 will be approximately 13-14 million pieces. A wafer costs thousands of dollars or tens of thousands of dollars. For detailed quotes, please see my other post “The TSMC cost, sell price, and R&D cost of chip foundry“

Damaged three times in a year and a half

The following lists three media reports of major earthquakes in Taiwan in the past year and a half, as well as TSMC’s damage:

On January 21, 2025, TSMC experienced a 6.4 magnitude earthquake in the South Taiwan Science Park. TSMC’s 18 and 14 plants in the South Taiwan Science Park were reported to be severely damaged. The supply chain revealed that the number of fragments was as high as 60,000, and some equipment was displaced. When TSMC announced its January revenue on the 10th, it also made a rare statement about the impact of the January 21 earthquake on its first-quarter financial forecast, recognizing earthquake losses of NT$5.3 billion (US$165.63 million) in the first quarter.
On November 22, 2024, a magnitude 5.4 earthquake occurred in Tainan. According to the Southern Science Park Administration, some personnel in the clean room of TSMC’s Fab 18 were evacuated.
Within 10 hours of the main shock of the earthquake on April 3, 2024, the equipment recovery rate had exceeded 70%, and the recovery rate of the new plant had reached 80%. On April 18, TSMC announced the impact of the Hualien earthquake on April 3, and preliminarily estimated that it would recognize approximately NT$3 billion (approximately US$100 million) in earthquake-related losses in the second quarter after deducting insurance claims.

Wall Street is very concerned

On April 3, 2024, a magnitude 7.2 earthquake occurred in Taiwan, the strongest earthquake in 25 years. Disasters occurred all over Taiwan, 9 people were killed, and it attracted international attention. The headline under the CNN report is: Frequent earthquakes, geopolitical tensions; TSMC’s chip manufacturing is “concentrated in Taiwan” with high risks.

TSMC is located in Taiwan, where earthquakes often occur. In addition to the two major risks of geopolitics and possible military conflict in the Taiwan Strait, it is the operating risk that Wall Street is most concerned about. This is an operational risk that cannot be avoided in Taiwan.

Taiwan is already short of everything TSMC needs

The reason why it was forced to set up factories in the United States is not difficult to see for anyone in the semiconductor industry who lives in Taiwan: Taiwan was able to create TSMC in the past, and a very important reason is that Taiwan can provide TSMC with what it needs to grow and develop.

Government support

Since the establishment of TSMC, the Taiwanese government has provided endless policy support and relevant legislative amendments. But TSMC is now so large that it has caused dissatisfaction in the United States, and sooner or later it will impose antitrust measures against TSMC. Do you think the Taiwan government can protect TSMC with its capabilities? Let me remind you that there have been similar cases with HTC, Via, AU Optronics and Chi Mei Optoelectronics. The results were all tragedy. Please refer to my post of “The evil US, How did Japan, Alstom, Toshiba, HTC and Taiwan’s panel industry collapse ?“

Power shortage

Because the ruling party has made anti-nuclear power its policy, depite countries around the world have vigorously promoted nuclear power generation in recent years, ignoring the fact that Taiwan has been short of power in recent years and the cost of power generation has risen, after Taiwan will shut down its last nuclear power plant this year, power outages will occur more frequently in Taiwan, and the power shortage situation will become more severe───Even though the American Chamber of Commerce in Taiwan, the European Chamber of Commerce in Taiwan, and various Taiwanese business groups have repeatedly reported to the highest authorities in power, they remain unmoved.

Last year, TSMC revealed at its quarterly earning report conference that Taiwan’s electricity prices are the most expensive in the world. For a detailed discussion, please see my post of “Taiwan’s abandoned nuclear hit TSMC hard, profit margins decrease 1% by electricity price increase“

Water shortage

Semiconductor factories require a large amount of water, but Taiwan’s wastewater recycling rate is notoriously low in the world, and industrial areas across Taiwan have been competing for water with agricultural areas. In short, Taiwan’s water resources are not only in short supply, but there are fundamental problems with their use, and there is no long-term plan or solution. For this part, please refer to my post of “Why is TSMC’s profit margin much greater than competitors?” .

Lack of labor

The number of people taking college entrance exams in Taiwan now is about one-third, even only a quarter of what it was thirty years ago. Foundries need more advanced manpower. TSMC and Taiwan’s technology sector need more engineers every year, and the number of science and engineering students graduating each year in Taiwan is almost insufficient.

In addition, the Taiwanese government is not like the government of thirty years ago that would carry out long-term planning, it has allowed the situation to escalate especially in past 2 decads. For a long time, there have been legal restrictions and rampant bureaucracy, no complete supporting plan, which have set limits on the import of senior white-collar workers from abroad, and the application process is cumbersome and cannot provide any immediate relief. According to statistics from a human resources website, the shortage of engineers in Taiwan’s semiconductor industry will exceed 26,000 in 2024.

Shortage of land

Except for a few prosperous areas in the United States, the cost of land access is very low and there is no shortage of land at all. However, Taiwan’s land resources are limited. The land required for wafer fabs is not ordinary large, and it cannot be too remote. There are many inherent limitations, and Taiwanese people like to protest and boycott to get benefits. Otherwise, why did TSMC’s expansion project in Taoyuan fail in the cradle?

However, Taiwan lacks all of these things now; from the perspective of business development, what choice will Taiwan make? The answer is easy.

Losses at U.S. plants widen

According to TSMC’s 2024 annual report, the loss of TSMC Arizona Corporation, its Arizona subsidiary, will expand from NT$10.925 billion (US$320 million) in 2023 to NT$14.298 billion (US$447 million) in 2024. In comparison, TSMC’s Nanjing plant in China will make a profit of NT$26 billion (US$813 million) in 2024. The gap between the two is quite huge.

risks and disadvantages — credit: ProjectManagers.net

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