Your smartphone contains billions of transistors packed into a chip smaller than your fingernail. Creating these microscopic marvels requires what may be the most complex manufacturing process humanity has ever devised—and one company now controls nearly two-thirds of the world's ability to make them.

The Silicon Foundation

Every computer chip begins as a silicon wafer, a perfectly circular disc sliced from a cylindrical crystal. These wafers travel through fabrication facilities—called fabs—in sealed pods filled with nitrogen. The nitrogen isn't optional. It prevents oxidation that would ruin the microscopic circuits being built layer by layer on the wafer's surface.

The manufacturing process uses photolithography, essentially photography at a nanometer scale. Light projects circuit patterns onto the wafer through masks. Then physico-chemical processes—thermal oxidation, thin-film deposition, ion implantation, etching—carve and build the transistor structures. For advanced chips at 14nm, 10nm, or 7nm nodes, this process takes 11 to 15 weeks. Each wafer passes through hundreds of individual steps.

The term "nanometer" refers to the process node, historically linked to the smallest feature size on the chip. Modern naming has become more marketing than measurement, but smaller numbers still mean more transistors packed into the same space. More transistors generally mean more computing power and better energy efficiency.

TSMC's Remarkable Rise

Taiwan Semiconductor Manufacturing Company didn't invent the semiconductor. When Morris Chang founded TSMC in 1987, Intel dominated the industry as the undisputed champion. IBM competed as a microelectronics pioneer. TSMC pioneered something different: the pure-play foundry model.

Before TSMC, most chip companies designed and manufactured their own products. Chang separated these functions. His foundries would manufacture chips designed by others—fabless companies that could focus entirely on design without building billion-dollar fabs. This specialization transformed the industry.

By Q3 2024, TSMC held 64.9% of the global semiconductor foundry market. Samsung, their closest competitor, managed only 9.3%. Intel's foundry services didn't crack the top ten. Through the 2010s, Intel led the industry in manufacturing technology. Now TSMC manufactures the most advanced chips available at scale.

TSMC's Q3 2024 revenue reached $23.53 billion, up 13% from the previous quarter. More remarkably, their gross profit margin hit 59.5% in Q3 2025. Their current operating margins equal what their gross margins were before the pandemic. That represents extraordinary margin expansion over five years—approximately 500 basis points from Q3 2023 to Q3 2025.

The Economics of Nanometers

These margins come despite enormous challenges in advancing to smaller process nodes. TSMC's 3nm process reached full capacity in 2024, driven by demand from Apple and Intel. Within one year, 3nm wafer revenue grew from 6% to 25% of total wafer revenue.

But new process nodes cost more and take longer to become profitable. The 3nm node takes 10 to 12 quarters to reach corporate average margins. Previous generations—5nm and 7nm—took only 8 to 10 quarters. TSMC set pricing for 3nm several years before production started, then experienced significant cost inflation. The path to profitability stretched longer than expected.

Still, the technology delivers impressive improvements. TSMC's 3nm FinFET chips reduce power consumption by 25-30% at the same speed compared to 5nm chips. Transistor density increases by 33%. These gains matter enormously for smartphones, data centers, and AI applications where power efficiency determines battery life or operating costs.

Samsung claims even better numbers for their 3nm process: 45% power reduction, 23% performance improvement, and 16% smaller surface area versus 5nm. Samsung uses GAAFET (gate-all-around) technology for 3nm, while TSMC still uses FinFET. Different architectural approaches make direct comparisons difficult, but Samsung's foundry revenue decreased 12.4% in Q3 2024. Technical specifications don't equal manufacturing success at scale.

Intel aims to leapfrog both competitors with their 18A process node (equivalent to 1.8nm), potentially surpassing TSMC's offerings by 2025. Whether Intel can deliver remains uncertain. Their recent struggles in both chip design and manufacturing have been well-documented.

The Pricing Power of Monopoly

TSMC's dominant position creates remarkable pricing power. Average wafer prices have increased over 15% annually since 2019. Their monopoly on leading-edge manufacturing means they can pass costs directly to customers—primarily US tech giants like Apple, Nvidia, and AMD.

When TSMC announced plans in 2016 for a 5nm-3nm fabrication plant, the investment totaled approximately $15.7 billion. That's for a single facility. Building cutting-edge fabs requires staggering capital investment that few companies can afford. This creates a natural barrier to competition.

Geographic expansion adds new cost pressures. TSMC is building fabs in the United States and Europe to satisfy government demands for domestic production. But labor, electricity, and water cost fundamentally more in these locations than in Taiwan. Overseas fab expansion caused 1-2% gross margin dilution in 2025, expected to widen to 3-4% as more facilities come online.

TSMC can pass these onshoring costs to customers. When you control nearly two-thirds of advanced chip manufacturing, customers have limited alternatives. Governments want domestic production for security reasons. Tech companies need cutting-edge chips to compete. TSMC sits at the intersection of these pressures with remarkable leverage.

What Comes Next

The industry continues pushing toward smaller nodes. TSMC's N2 (2nm) process has better structural profitability than N3, though it will still cause initial margin dilution when launched in 2026. Each new generation requires solving unprecedented engineering challenges in physics, chemistry, and manufacturing precision.

At some point, fundamental physical limits will constrain further miniaturization. Transistors are already so small that quantum effects interfere with their operation. The industry is exploring alternative approaches: new materials, different transistor architectures, 3D chip stacking.

For now, the semiconductor industry has consolidated around a remarkable fact: one company in Taiwan manufactures most of the world's advanced computer chips. This concentration creates geopolitical tension, given Taiwan's relationship with China. It creates economic tension as TSMC's pricing power grows. And it creates technological bottlenecks where innovation depends on one company's manufacturing capabilities.

The wafer fabrication process that seemed impossibly complex thirty years ago has become exponentially more sophisticated. TSMC has mastered this complexity better than anyone else. Whether this concentration proves sustainable—or desirable—remains one of technology's most important questions. For now, nearly every advanced device you use depends on silicon wafers emerging from TSMC's fabs, each one carrying billions of transistors built with the most precise manufacturing process humans have created.