What makes TSMC great?

TSMC's economic moat is based on a few key factors:

1. Advanced technology and manufacturing capabilities: 



TSMC invests heavily in research and development to stay at the forefront of chip-making technology. This has allowed the company to offer cutting-edge manufacturing processes and tools to its customers, making it difficult for competitors to catch up.



2. Scale and scope advantages: 

TSMC has economies of scale and scope that give it a cost advantage over its competitors. As the world's largest dedicated semiconductor foundry, TSMC can spread its fixed costs over a larger volume of output, reducing its unit costs. 

Additionally, TSMC's broad customer base and manufacturing capabilities allow it to generate revenue across many different markets, making it more resilient to changes in any one market.



3. Intellectual property:

TSMC has developed an extensive portfolio of intellectual property (IP) that it licenses to customers. This includes patents for chip-making processes, design libraries, and other technologies. TSMC's IP is highly valuable to its customers, as it can save them significant time and money in developing their own chip designs.



4. Brand recognition and reputation:

TSMC has built a strong reputation for quality, reliability, and innovation. Its customers trust the company to deliver high-quality chips that meet their specifications. TSMC's brand recognition and reputation make it easier for the company to attract new customers and retain existing ones.



All of these factors work together to create a formidable economic moat that has allowed TSMC to dominate the semiconductor foundry market. While other companies have tried to compete with TSMC, none have been able to match its combination of advanced technology, scale, IP, and reputation. As a result, TSMC has been able to earn above-average profits and generate significant shareholder value over the long term.

The question is, how does this economic moats translate into anything tangible? In our next post, let’s take a look at TSMC’s market share and you will be able to see its domineering power over the others.