It has become a very familiar story now, but TSMC, the Taiwan Semiconductor Manufacturing Company, as of 28 April 2026, TSMC’s share price is already up over 20% for the year. This is on the back of another set of blockbuster earnings reported for the first quarter of 2026. The company reported TW$ 1.13 trillion (US$ 35.9 billion) in revenue for the quarter, up 40.6% for the same quarter year on year. For a deep dive into TSMC’s market capitalization, profit, and revenue growth you can visit the TSMC stock summary page.
The more interesting story however is the long term one. How did TSMC establish this position, and maintained it for decades? What do they actually do?
TSMC has a virtual monopoly on the manufacturing of the most advanced chips – those with a diameter of less than 7 nano-meters. The smaller the chip, the shorter the distance the electrons have to travel between transistors. For NVIDIA, this is important as smaller chips means that it can pack more computing power into its GPU’s used to train large language models. Each of its GPU’s will be able to crunch more data, faster, because it can squeeze more transistors into each unit.
For Apple, smaller chips are a key component of maintaining vertical integration. It allows their software and hardware to do things competitors can’t. Your iPhone 18 will run on a 2-nonometer chip, of course, manufactured by TSMC. Apple has been said to buy out 100% of TSMC’s capacity for the first 6-12 months after TSMC develops a new generation of chips, continuously keeping itself ahead of competitors.
How did TSMC get into this position?
At the 2023 Berkshire Hathaway shareholder meeting, Warren Buffett described TSMC as one of the most important and best managed companies in the world. He did however add that he does not like its location. Interestingly, the founder of TSMC, Morris Chang, worked at Texas Instruments for 25 years between 1958 to 1983. He was passed over for the CEO role and returned to Taiwan to start TSMC. In retrospect, TSMC could have been the Texas Semiconductor Manufacturing Company.
Before TSMC, the semiconductor industry ran on the integrated device manufacturer model. TSMC’s competitors such as Intel, Texas Instruments and Motorola designed and manufactured their own chips. What differentiates TSMC, other than being the best at manufacturing chips, is that it only makes the chips. Its clients such as Apple and Nvidia designs them and then TSMC manufactures them. This gives clients the flexibility in design for its unique products. TSMC maintains strict manufacturing walls between company designs. Apple’s designs are ignored when manufacturing chips for NVIDIA. This gives TSMC a significant advantage against competitors such as Samsung who competes with Apple in the smartphone business. Apple does not have to be concerned that TSMC will use its designs in their smartphones.
What happens inside a TSMC fab?
Manufacturing a 2-nanometer chip has been called one of humanities most complex achievements. The process involves thousands of steps and can take 3-4 months from start to finish. The process starts with sand. Common quartz sand is purified into nearly 100% pure silicon. The silicon is melted into a large heavy cylinder called an ingot. This ingot is then sliced and polished into the flattest surface on earth. The sliced wafer is spun at high speeds while a light sensitive liquid (photoresist) is dropped onto it. Centrifugal force spreads the liquid into an ultra thin and perfectly even layer across the wafer.
This is where the ASML machine steps in. ASML was founded in 1984 as a joint venture between Phillips and ASM international in Eindhoven, Netherlands. The ASML machine – the High NA Extreme Ultraviolet (EUV) scanner – is considered the single most complex piece of machinery ever created. Each machine costs close to $400m. The machine “manufactures” EUV light with a wavelength of 13.5nm. It has to manufacture light that doesn’t exist naturally on earth. This light then passes through a Numerical Aperture (NA) mirror system. The mirror system is used to focus the light. Normal mirrors are useless here as the EUV light passes straight through them.
The light hits the wafer coated with photoresist. The wafer is taken out of the ASML machine and dipped in a developer solution. This liquid washes away the parts of the photoresist that were hit by the light. In order for the “printing” to be accurate, the machine checks its position 20,000 per second.
The end product is a silicon wafer – a thin circular disk of silicon with potentially thousands of integrated circuits patterned onto it.
