How AI works

Why Taiwan makes the chips

One small island makes about 9 in 10 of the most advanced chips. It did not happen by luck. In 15 minutes, you learn the story and the idea behind it, so you can explain it to a friend.

Foundry: A chip factory that builds chips for other companies, from their designs.
Pure-play: A foundry that only builds chips for others. It never sells a chip of its own.
Fabless: A company that designs chips but owns no factory. It pays a foundry to build them.

This lesson builds on From sand to AI chip in 6 steps. There you saw the steps. Here you see why one island runs most of them.

01 · The question

The uncle with the newspaper

At a family lunch, your uncle taps the newspaper. "Taiwan is a small island. Why does it build the chips for the whole world? America is rich. Why not build them at home?"

Nobody answers. You use an AI app every day. But you cannot say where its chip is made, or why.

After this lesson, you can answer in one minute.

First, a quick guess.

02 · Your guess

Out of 10 of the world's most advanced chips, how many are made in Taiwan?

A wrong guess costs nothing. Guessing first helps you remember the answer. Pick one to open the next part of the lesson.

03 · The story

How an island became the chip workshop

Press Next step to follow the story in 6 steps. Think of one big kitchen that rents its stations to many chefs.

1Hire an expert

2Found TSMC

3Make a promise

4Share the kitchen

5The US picks design

6Taiwan today

04 · Remember

TSMC is a shared kitchen. It never opens its own restaurant.

That one rule is the heart of the story. Chefs from many companies cook in the same kitchen. They trust it, because the kitchen never sells its own food.

TSMC opened in1987

Top chips made in Taiwan~9/10

Customers in 2025534

In the kitchen

Picture a big shared kitchen in a city. Fifty chefs rent stations there. The owner cooks nothing for sale. So every chef shows the owner a secret recipe and feels safe.

On the road

Think of a courier company. It carries parcels for many shops. If it also opened its own shop, other shops would stop sending their best goods.

Why the US did not just build it at home

A different bet. Many US firms chose to design chips and let others build them. Nvidia and Apple are examples. TSMC says its model helped this "fabless" way to grow.
Trust. TSMC promised on day one never to compete with its customers. So designers send it their secret plans.
Time. Taiwan's government has backed chips since the mid-1970s. The US made about 1 in 3 chips in 1990 and about 1 in 10 in 2020. In 2022, it passed the CHIPS Act to change that.

How did it end up in Taiwan?

In 1985, Taiwan's government asked Morris Chang to help build its chip industry. He had worked at Texas Instruments in the US. In 1987, he started TSMC. The government paid about half of the first $200 million. The Dutch company Philips paid $30 million. Other Taiwan firms paid the rest.

05 · Two checks

Pass two checks to finish

A miss is fine. Each miss gives you a new case.

Check 1 of 2 · Which word fits?

06 · Tell a friend

Your one-minute answer at lunch

Say it in your own words. Here is a version you can use:

The one-minute version

"In 1985, Taiwan's government asked Morris Chang to build a chip industry. In 1987 he started TSMC. It makes chips for other companies and promised never to design its own. So Apple and Nvidia trust it with their secret plans. Many companies share its factories, so the machines work all year. Taiwan's government backed chips for decades. About 9 in 10 of the most advanced chips now come from Taiwan. The US cannot copy that fast, because it needs the people, the suppliers and the trust."

TSMC	Taiwan. A pure-play foundry. Builds chips for others.
Morris Chang	Founded TSMC in 1987.
Nvidia	USA. Designs AI chips. Pays TSMC to build them.
Apple	USA. Designs phone chips. TSMC builds them.
CHIPS Act	US law, 2022. $39 billion to help build chip factories.

Try it today: ask an AI "Which company designed the chip in my phone, and which company built it?" Then check the answer against this lesson.

This lesson explains how the industry works. It is not advice to buy or sell any stock.

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