Why There’s An ‘Extremely Fierce’ Battle For TSMC's Limited Chip Manufacturing Capacity
TSMC faces unprecedented demand for chip manufacturing capacity from AI companies, with competition extremely fierce among giants like Nvidia, Apple, and AMD. The company allocates limited wafers through a combination of long-term relationships, demand forecasting, and strategic bets on emerging players, while expanding capacity globally through massive CapEx investments.
Summary
The transcript explores the critical bottleneck of semiconductor manufacturing capacity at Taiwan Semiconductor Manufacturing Company (TSMC), the world's largest chip manufacturer producing over 90% of advanced semiconductors. TSMC's North America President Sajiv Dalal receives at least ten calls daily about wafer capacity, illustrating the intense competition among chip companies to secure production space.
The competition for TSMC's capacity operates on two fronts: logic chips (GPUs and CPUs for AI workloads) and memory chips. For logic chips specifically, the battle is particularly acute because chips are custom-designed and non-interchangeable, requiring long-term planning. TSMC shipped 15 million 300mm wafers in 2025 but is expanding capacity by 10-20% to reach 120,000 wafer starts per month by year-end.
TSMC's customer structure heavily favors large players: its top ten customers account for 78% of net revenue, with the largest customer representing 19% and the second-largest at 17%. Companies like Nvidia and Apple receive the most favorable pricing due to their massive volume commitments at advanced nodes. Kevin Zhang, TSMC's senior VP of global sales, serves as the central gatekeeper for wafer allocation decisions.
For small startups and emerging companies, getting TSMC capacity requires a multi-pronged approach: building long-term relationships (exemplified by D-Matrix's head of operations who has visited TSMC since 1992), providing detailed demand forecasting and end-market targeting, demonstrating complex chip designs that yield good margins, and in some cases, aligning with established priority customers. OpenAI's Jalapeno chip, for instance, gained capacity through partnerships with priority customers AMD and Broadcom.
Another critical bottleneck exists in advanced packaging technology (CoWoS), where Nvidia already reserves most of TSMC's advanced capacity. Companies must make early commitments to secure both wafer and packaging resources.
To meet this unprecedented demand, TSMC is expanding at massive scale: investing $265 billion in Arizona fabs alone (with potential additional Texas facilities), building new manufacturing hubs in Taiwan and Japan, and committing to ASML's $400 million High NA EUV lithography machines. Globally, 102 new fabs are projected to come online by 2029, with China driving most growth. The U.S. is receiving only 15 of these new fabs, prompting increased government and private investment in American manufacturing, particularly at Intel and Samsung's Texas facility.
Key Insights
- TSMC's top ten customers account for 78% of net revenue, with the largest customer at 19% and second-largest at 17%, meaning the vast majority of capacity is locked in by a handful of mega-customers
- Kevin Zhang, TSMC's senior VP of global sales, is described as the most strategically important person on the planet because all companies must go through him to understand their wafer allocation prospects
- TSMC's wafer allocation decisions for startups are driven by demand-driven data and long-term forecasting rather than just current orders, because the company wants to avoid customers who buy capacity and then disappear
- New entrants like OpenAI gain TSMC capacity by aligning with established priority customers (AMD and Broadcom) rather than securing it directly, creating a tiered access system
- To add 10-20% capacity by year-end, TSMC is not building new cleanrooms (which would take too long) but instead purchasing additional manufacturing tools, reflecting confidence in long-term demand signals
Topics
Transcript
[0:03] Getting space on factory lines at the world's biggest chip manufacturer, Taiwan Semiconductor, has become an increasingly difficult task. So I came to one of TSMC's rare U.S. events, the Open Innovation Platform Ecosystem Forum, here in Santa Clara, California, where more than 100 customers and partners gathered for technical sessions, but also to rub elbows with executives who can be difficult to reach at the Taiwanese company that makes more than 90% of the world's most advanced semiconductors, where every chip company from Apple to Nvidia to [0:35] small startups needs space on the manufacturing lines. It's a bit of a battle with companies like Broadcom and Nvidia and even Apple and AMD. The competition is extremely fierce.…
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