TSMC Refuses To Disclose Clients' Data to the U.S. Govt, Taiwan to Back it Up

When you are the world's largest contract maker of semiconductors, it seems like you can say 'No' to the world's most powerful man, the president of the United States. Apparently, this is exactly what Taiwan Semiconductor Manufacturing Co. is going to do with the White House's recent request to disclose details about its relationships with suppliers and customers, including types of products it produces for clients, lead times, inventory levels and other information that is deemed confidential. The Taiwanese government is promising to support TSMC if needed.

Desperate Times Call for Desperate Measures

"We will definitely not leak our company's sensitive information, especially that related to our customers," said Sylvia Fang, TSMC's general counsel, reports Nikkei. "We are still at the stage of doing some preliminary research and evaluating the contents of the questionnaire [sent by the U.S. government]."  

Record demand for everything electronics (which includes parts for modern automobiles) in the recent quarters caused a massive deficit of various chips, including chips for cars. The automotive industry — which involves automakers, their subcontractors, dealers and services — employs tens of millions of people worldwide and when an automaker has to stop production of cars due to lack of chips, it becomes a significant economic problem. 

The U.S. automotive sector is one of the most important industries in the U.S. and therefore it is vital for the country's administration to keep U.S.-based auto factories working, which in this case means ensuring sufficient chip supply. In a bid to determine bottlenecks in the global semiconductor supply chain, the Biden administration recently asked semiconductor supply chain participants to voluntarily disclose loads of information about their business and even threatened to force them to make disclosures using a Cold War-era national security law. 

"We have other tools in our tool box that require them to give us data," said Gina Raimondo, the U.S. Secretary of Commerce, in an interview with Reuters. "I hope we don't get there. But if we have to we will."

Supply Chain Transparency or Trade Secrets Disclosure?

Since the U.S. automotive industry has suffered significantly from the ongoing chip shortage, the U.S. government wants to address the global chip shortage, and to do that it wants to understand how the global semiconductor supply chain operates, something the authorities call 'transparency.'

This involved the U.S. Department of Commerce sending a questionnaire to chipmakers, intermediate users of chips, and end users of chips. It, unfortunately, included a lot of asks for information that TSMC considers confidential. Here are some excerpts from the document: 

• For any integrated circuits you produce identify the primary integrated circuit type, product type, relevant technology nodes (in nanometers), and actuals or estimates of annual sales for the years 2019, 2020, and 2021 based on anticipated end use.
• For the semiconductor products that your organization sells, identify those with the largest order backlog. Then for the total and for each product, identify the product attributes, sales in the past month, and location of fabrication and package/assembly.
• List each product's top three current customers and the estimated percentage of that product's sales accounted for by each customer.
• For your organization's top semiconductor products, estimate each product's (a) 2019 lead time and (b) current lead time (in days), both overall and for each phase of the production process. 
• For your organization's top semiconductor products, list each product's typical and current inventory (in days), for finished product, in-progress product, and inbound product. Provide an explanation for any changes in inventory practices.
• Is your organization considering increasing its capacity? If yes, in what ways, over what timeframe, and what impediments exist to such an increase? What factors does your organization consider when evaluating whether to increase capacity?
• If the demand for your products exceeds your capacity, what is the primary method by which your organization allocates the available supply?

TSMC believes that it cannot answer these questions without disclosing private client information and its own commercial secrets. 

"Customer trust is one of the key elements to our company's success," said Fan, reports Reuters. "If this is to resolve supply chain issues, we will see how best we can do to help them. We have done so many things. For the part of auto chips, we've tried to increase output and prioritize auto chips to a certain degree." 

The Taiwanese government recently pledged to support TSMC if the U.S. government attempts to force the company do something that could potentially harm the foundry's relationship with its customers as well as its business.

"If our companies face unreasonable demands in international competition, the government will certainly provide necessary assistance and express concern to prevent Taiwanese companies from fighting alone in the international arena," said Wang Mei-hua, Taiwan's economy minister.

The End Game?

Modern supply chains are complex mechanisms that are hard to understand even for their participants. The global semiconductor supply chain is certainly one of the most complex (if not the most complex) supply chains that exists today. It includes high-purity chemistry produced in Japan; materials mined around the world; IP designed in the USA; process technologies developed in the U.S., Taiwan, or South Korea; production equipment made in Europe, Japan, and the U.S.; and test and packaging facilities in China and Malaysia.  

Even if the U.S. government determines the industry's bottlenecks, it is unclear whether it has the right tools to deal with them in a short period of time. 

Furthermore, plenty of economists hold complex supply chains operating in a market economy as self-healing organisms that tend to balance supply, demand, and investors' interests. Interventions from within can potentially resolve some issues, but if this is done at a cost of disbalance, they can do more harm than good.