Why and how is it that two companies dominate the production of advanced semiconductor chips?

The two Companies I am thinking of are TSMC (Taiwan Semiconductor Manufacturing Company) in Taiwan, which Nicholas Kristof recently wrote about in The New York Times, and ASML Holding in the Netherlands. TSMC is a foundry, producing semiconductor chips designed by other companies, such as AMD, Apple, ARM, Broadcom, Marvell, MediaTek, Qualcomm and Nvidia. They manufacture the most advanced chips. ASML manufactures the most advanced photolithography machines in the world; those are the machines used to fabricate semiconductor chips.

These two companies are, at the moment, unique. Why? I’m guessing – and that’s all it is, a guess – that it is because the knowledge required in both cases does not travel well. Both companies are profit-making businesses and I assume that they do the various things that manufacturing companies do to protect their businesses. They’ve got proprietary knowledge and they take steps to protect that knowledge.

That’s not what I have in mind by saying that their manufacturing knowledge does not travel well. Even if they took no steps to protect their knowledge, that knowledge would not travel well. I’m saying that the knowledge is carried in cultures local to these two firms. Those cultures exist in the minds, bodies, and working relationships between the employees of the two companies. It’s not a matter of one, or seven, or 20 or 50 trade secrets, though there are no doubt trade secrets involved, patents as well. I’m talking about a whole cultural formation.

We’re dealing with very complex physical processes that must be executed to nanometer precision (billionth of a meter). The nature of the industry demands that the level of precision increases on a yearly basis. You can’t create a process and then run it for 10 or 15 years. Everything must be reconceived and reengineered on a continuing basis. That requires a high level of cooperation and coordination within a large network of people processing a wide range of knowledge and skills. Much of the knowledge will necessarily be of the tacit kind that cannot be committed to instructions, formulas, drawings, and procedures writable on paper. It exists only in the minds and habits of interaction of the workers.

How do you transfer such a complex socio-cultural formation from one organization to another? Short of cloning the whole team, you can’t. And so these two companies are, for now, unique.

As I said, I’m just guessing on this. I don’t really know. But this is the only kind of explanation that makes sense to me. 

c. 13:15:

Narrator: Before EUV, chipmakers had three companies they could choose from for their photo lithography tools: ASML, Nikon and Canon. Nikon, in Japan, is still a competitor for DUV, but ASML is the only option for EUV. Experts say it could take decades for any other company to catch up, not only because of ASML's proprietary tech, but because it's built complex, often exclusive, deals with nearly 800 suppliers.

Peter Wennink, ASML CEO: And we're unique to our customers, like some of our suppliers are unique to us. And those almost symbiotic relationships, some people say are worse than being married because you cannot divorce.

c. 15:41:

Wennink: It means that we need to ship our machines sooner, earlier, and at higher volume. So it means we need to hire more people in the U.S. It's talent, it's people. I think that's where the biggest challenge will be.