What could TSMC's earnings reveal about opportunities across Asia's chip sector?

Understanding the semiconductor value chain

The semiconductor industry operates through a globally distributed value chain spanning design, production and assembly. Each stage requires specialised expertise and significant capital investment, creating distinct opportunities for investors.

Understanding where value is created helps identify promising investment opportunities. Asian firms have established dominant positions in manufacturing stages that US companies cannot easily replicate.

The following sections break down each stage and highlight the key players shaping the industry's future.

Figure 1: Infographic showing key players within the semiconductor value chain

Stage 1: design

Semiconductor design represents the most research-intensive phase where chips are conceptualised using specialised software. Companies employ Electronic Design Automation (EDA) tools and intellectual property (IP) cores to create chip architectures.

This stage demands significant engineering expertise and innovation. While US firms like Nvidia lead in cutting-edge chip design, Taiwan's MediaTek has carved out a substantial position in mobile and automotive chips.

Design companies typically operate with high margins due to their intellectual property advantages. However, they depend entirely on manufacturing partners to produce physical chips.

Stage 2: wafer production

Silicon wafer production creates the base material for all semiconductor chips. Manufacturers produce pure silicon cylinders, slice them into thin wafers and polish them to perfect smoothness.

These blank wafers serve as the canvas upon which circuits are printed during fabrication. The process requires extraordinary precision and purity standards.

Japan's Shin-Etsu and SUMCO together supply more than half the world's silicon wafers. Their dominance in this foundational material gives them significant influence over global chip production capacity.

Wafer suppliers benefit from steady demand across all semiconductor segments, making them relatively defensive plays within the sector.

Stage 3: front-end manufacturing

Front-end manufacturing represents the most capital-intensive stage where actual chips are fabricated on silicon wafers. This process involves repeated cycles of deposition, lithography, etching and polishing.

Producing advanced chips requires over 1000 steps spanning four to six months. Modern fabrication facilities cost billions of dollars to construct and equip.

Fabrication and foundry services

Taiwan's TSMC commands approximately 70% of global foundry revenue, manufacturing chips for Apple, AMD, Nvidia and many more. The company pioneered high-volume production of 3nm chips, cementing its technological leadership in the world's most advanced chips.

South Korea's Samsung Electronics operates the second-largest foundry business, whilst China's SMIC ranks fourth globally.

Memory chip dominance

South Korea is home to memory chip giants Samsung and SK Hynix, which dominate the global DRAM and NAND flash memory markets. Together, they control more than 70% of DRAM market share.

Memory chips are found in virtually every computer, smartphone and data centre worldwide. However, demand can be cyclical, closely tied to consumer electronics upgrade cycles and data centre expansion.

Materials and equipment suppliers

Japanese firms hold commanding positions in photoresists and photomasks essential for printing circuit patterns onto chips. Hoya and Shin-etsu are key players in these specialised materials markets.

Manufacturing equipment represents another crucial dependency. Tokyo Electron supplies deposition tools and etching equipment, whilst Advantest provides testing systems that no modern foundry can operate without.

Raw materials form the foundation of semiconductor production. China controls 69% of global silicon production and 98% of gallium production according to US Geological Survey data. These raw materials represent powerful bargaining chips in trade negotiations.

Stage 4: assembly, test and packaging

After fabrication, wafers are cut into individual chips, tested for defects and packaged into protective frames for circuit board mounting. This back-end manufacturing stage is more labour-intensive than fabrication.

Taiwan's ASE dominates outsourced assembly, test and packaging (ATP) services globally. China's JCET and Tongfu Microelectronics have rapidly expanded their market share in recent years.

The shift towards artificial intelligence (AI) computing has increased demand for complex packaging solutions, benefiting established players with technical expertise.

TSMC earnings spotlight

TSMC released third-quarter revenue data earlier this month showing 30% year-on-year (YoY) growth, exceeding market expectations. Today's full earnings report is expected to reveal record net income of NT$408.4 billion (26% YoY growth).

Investors will scrutinise revenue contribution from advanced nodes (7nm and below) to gauge demand for AI chips. The management's strategy to handle volatile US trade policies will also be a focal point. TSMC has already committed to build facilities worth $165 billion in Arizona.

Performance comparison across the value chain

Valuation metrics and performance vary significantly across different semiconductor segments, reflecting their distinct roles within the value chain and investor sentiment. Investors should look beyond US and European companies to capture the full potential of the semiconductor industry.

Source: LSEG as of 15 October 2025. Past performance is not a reliable indicator of future performance.

Investment implications for traders

East Asian firms in China, Japan, South Korea and Taiwan account for 71% of global semiconductor gross output according to OECD data. This concentration creates compelling alternatives to heavily traded US semiconductor stocks.

Diversification across the value chain can reduce exposure to any single country or technology node whilst maintaining semiconductor sector participation.

Traders can either consider single stock opportunities after analysing individual companies, or use basket solutions such as ETFs (e.g. BetaShares Asia Technology Tigers) to participate in the broader regional theme.

• _{This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}