Opinion | Musk Isn't Trying to Beat TSMC. He's Trying to Surround It

On April 7, while global attention fixed on the Strait of Hormuz, Intel confirmed it would join Terafab — Elon Musk's bid to build a rival semiconductor ecosystem on American soil. Markets noticed. The strategic implications, however, were widely misread.

The project, which also involves Musk's SpaceX, xAI, and Tesla, aims to build massive annual computing capacity — primarily for AI and robotics applications. TSMC's share priceclimbed on the news; Intel surged more than 4%.

Most observers were skeptical. NVIDIA CEO Jensen Huang noted publicly that building semiconductor fabs is extraordinarily difficult. Semiconductor manufacturing has never beena strong suit for the United States, production costs there are higher, and the technology gap between Intel and TSMC in advanced process nodes remains enormous. On the surface, Terafab looks like a losing bet.

It isn't. But not for the reasons Musk's supporters claim.

Musk is not positioning Terafab as a direct technological competitor to TSMC. What he is constructing looks far more like a classic coalition strategy — assembling weaker players to collectively constrain the dominant one.

The logic recalls an ancient statecraft principle: when a dominant power cannot be defeated head-on, weaker rivals form coalitions to constrain it collectively. That is precisely the structure Musk is assembling. In today's global semiconductor foundry industry, TSMC plays the role of that dominant power.

The global foundry market divides broadly into two tiers. In advanced process nodes — below 7nm, including the 3nm-class chips that power modern AI — only three to five companies worldwide can compete. TSMC controls more than 70% of this segment and generates outsized profits. Samsung's foundry division is its closest rival. Intel Foundry Services, whose most advanced process node is only now entering risk production — roughly two to three generations behind TSMC's N2 — is still catching up. GlobalFoundries has exited the leading edge entirely.

The mature process tier — 28nm, 40nm, 90nm, and older nodes — supports automotive chips, power management ICs, and microcontrollers. It includes players such as UMC, SMIC, Hua Hong, Tower Semiconductor, and PSMC. This tier is large by volume but far less profitable than advanced nodes.

In the AI era, competitive advantage is determined at the advanced node level. And there, TSMC stands nearly alone.

TSMC's dominance rests on three structural pillars — and Intel remains significantly behind on all three.

Capital scale.Advanced semiconductor manufacturing demands sustained, massive capital expenditure. A single ASML extreme ultraviolet lithography machine costs hundreds of millions of dollars. TSMC's willingness to invest continuously and aggressively is precisely what allowed it to pull away from Intel during the years when Intel hesitated on capital deployment.

Customer co-development.Purchasing equipment is only the beginning. Achieving high yields in advanced fabrication requires engineers from both the foundry and its customers to work in close, sustained collaboration — tuning process parameters over years. TSMC built this capability over three decades alongside Apple, NVIDIA, and Qualcomm. Samsung has struggled to replicate it, in part because customers are reluctant to share their most sensitive process parameters with a company that also competes with them in chip design.

Yet TSMC is not without vulnerability here. Customers that rely on a single foundry for their most critical chips face structural risk — and some have begun quietly working with Intel to develop alternative manufacturing options. TSMC's most significant long-term competitive threat may not come from Intel itself, but from its own customers' determination to reduce dependence on a single foundry.

Engineering talent.Taiwan's engineering workforce combines high skill, disciplined work culture, and compensation levels that remain well below equivalent roles in the United States or Europe. This is a core reason TSMC achieves faster yield improvement than its rivals. It is also a structural advantage that TSMC's Arizona operations cannot readily replicate.

Judged against these three pillars, Terafab and Intel are nowhere near ready to challenge TSMC head-on.

That is precisely why the coalition approach matters. If a direct challenge cannot succeed, the alternative is to assemble a credible alternative ecosystem that gradually loosens TSMC's grip on its most important customers.

TSMC's top five customers in 2025 and 2026 reflect the AI era's priorities. NVIDIA has surpassed Apple as the largest customer, followed by Apple, Broadcom, AMD, and Qualcomm. NVIDIA's relationship with TSMC is particularly deep — the two are tightly bound by years of process co-development.

Terafab is probing whether any of those relationships can be partially redirected. If even one of TSMC's major customers begins allocating meaningful volume to the Musk-Intel coalition, the structural coalition takes on real significance.

The Intel partnership is not the only piece of this picture. According to multiple reported meetings, Musk and Samsung chairman Jay Y. Lee appear to have developed a supply chainpartnership with genuine strategic depth. Samsung is positioned to supply AI chip fabrication and automotive sensing components to Musk's companies, while SpaceX and Samsung are collaborating on direct-to-device satellite communications.

For Musk, Samsung offers a geographically diversified manufacturing option — including its Texas facility — that reduces dependence on Taiwan. For Samsung, Tesla represents a high-profile advanced-node customer that strengthens its case as a credible TSMC alternative. Both parties benefit.

Which additional partners join Terafab over the coming months will be worth watching closely.

Musk is not naive about the gap that separates Intel and Samsung from TSMC. Terafab's  purpose is not to replace TSMC — it is to build a coalition that gradually reduces TSMC's
position as the sole indispensable option in advanced semiconductor manufacturing.

For TSMC, this is not an immediate crisis. Its technical lead, capital base, and customer relationships remain formidable. But the pattern taking shape points to a more fundamental shift: in the AI era, competitive advantage is no longer determined solely by who makes the best chips. It is increasingly determined by who builds the more resilient alliance around them.
That contest is only beginning.​

​Original Article in Chinese

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