TSMC: Industrial Espionage and Missle Strike Threat on Taiwan

Risks of Industrial Secrets and China Threat

TSMC (Taiwan Semicondutor Manufacturing Company), the world’s leading cutting-edge chipmaker, remains dominant despite recent threats from U.S. tariff rhetoric and a corporate-espionage investigation. The company fired employees suspected of trying to obtain cutting‑edge manufacturing secrets (reportedly around 2‑nanometer tech), prompting arrests and a national-security probe in Taiwan. While President Trump had threatened steep new tariffs, TSMC won an exemption for its U.S. investments and continues major expansion plans—critical to U.S. AI and tech ambitions. The episode highlights the immense costs and barriers to catching TSMC in advanced-node manufacturing, the ongoing risk of talent poaching and IP theft, and the geopolitical importance of Taiwan’s semiconductor lead.

Advanced-node know‑how (e.g., 2 nm) is extremely costly to develop and difficult to shortcut; rivals (Samsung, Intel, Japan’s Rapidus) face major barriers. TSMC’s U.S. expansion supports U.S. tech and AI goals, strengthens Taiwan–U.S. ties, and complicates domestic political debate in Taiwan about safeguarding core technology.

Recently, TSMC sued its retired vice‑president Lo Wei‑Jen in Taiwan’s intellectual property court, alleging he breached his contract and is likely to have disclosed trade secrets to Intel after joining the U.S. chipmaker. The move underscores geopolitical and commercial tensions in the race for advanced semiconductor manufacturing, where TSMC currently dominates. Intel denies any reason to believe the allegations and says it enforces strict IP controls.  Key points: 

• TSMC filed suit seeking damages, claiming Lo likely used, leaked or transferred confidential TSMC technology to Intel after retiring in July.
• Lo joined Intel after a 21‑year career at TSMC; he previously led core R&D and overall technology development strategies.
• Intel says it has strict policies against using third‑party IP and sees no basis for the allegations; industry talent moves are common, it added.
• The case reflects broader geopolitical concerns: Taiwan’s semiconductor dominance is viewed as a national security asset amid China‑Taiwan tensions and U.S. efforts to bolster domestic chip capacity.
• TSMC has pursued similar legal action previously against former staff who joined rivals (e.g., SMIC, Samsung) and is part of wider investigations into alleged technology transfers.

In another incident, Taiwan prosecutors indicted three people, including a former TSMC employee now at Tokyo Electron, for allegedly stealing TSMC trade secrets related to its 2-nanometer chip process and conspiring to use them to win supplier deals for Tokyo Electron. Prosecutors recommended a combined 14-year sentence for the ex-employee under Taiwan’s trade secrets and national security laws — the first such case under the National Security Law. TSMC said it has zero tolerance for trade-secret breaches and will strengthen protections; Tokyo Electron had no immediate comment but later confirmed that a later confirmed it was a former employee of its Taiwan subsidiary.  Main points:

• Three people indicted for stealing TSMC trade secrets; one defendant is a former TSMC employee who joined Tokyo Electron.
• Alleged aim: help Tokyo Electron compete for supplier deals for TSMC’s 2-nanometer process.
• Prosecutors seek a combined 14-year prison term for the ex-employee; case is first under Taiwan’s National Security Law for core tech theft.
• TSMC vows strict action and stronger internal safeguards; Tokyo Electron did not immediately comment.

Chinese Missle Strikes on TSMC and Taiwan Chip Hub

A long-term geopolitical risk and national security threat is a potential strike on Taiwan, especially the Chip Hub center where TSMC is located in Taipei. To mitigate this risk, Taiwan seeks stronger air defenses. The implications for global companies are huge. For example, a missle strike would devastate iPhone shipments for up to three years.

In summary Taiwan faces rising security risks from China that threaten the island’s crucial advanced semiconductor industry concentrated in Hsinchu Science Park. Experts warn a direct attack could disrupt global advanced chip supply for years, with severe economic fallout. Taiwan is boosting defense spending and developing new air- and drone-defense systems, while startups and authorities work on protective measures and international cooperation. Key points:

• Hsinchu Science Park houses ~600 companies (including TSMC) and is central to global chip manufacturing; TSMC alone contributes roughly 9% of Taiwan’s GDP and about 70% of global contract chip production.
• Researchers warn a missile strike on Hsinchu could halt chip output and take up to three years to restore, risking major global supply-chain shocks and significant GDP losses worldwide.
• China claims Taiwan and U.S. intelligence assesses Beijing aims to have the capability to invade by 2027, raising urgency for defenses.

In conclusion, TSMC is faced with a continuous threat of industrial espionage due to its cutting-edge manufacturing knowhow.  In addition, event risk exist in the form of a future missle strike by China.  Both risks certainly affect the valuation of stock.  However, the market is not accounting for these risks to valuation.