Where do those profits go? Presumably TSMC doesn't just sit on it. Surely they either invest it back into their business to stay competitive or deal it out as compensation.
TSMC isn’t a purely monetary profit driven company, though your right usually they do business as if they were. Because 100% of something is much different than 99% in B2B and at this scale. Though of course TSMC is a bit special because they are comfortably ahead on something that the only possible competitors are even more unlikely to do exclusivity.
There was an interesting slide from a few years back that showed the net profit (less investment) of all the leading edge contract foundries since the founding of TSMC. It was very easy to see that since then, TSMC has earned more than the total net profit of the industry. Everyone else invests a lot of money to maybe stay somewhat competitive and still lose money, while TSMC is swimming in it.
One factor you are missing in that analysis: TSMC is very profitable—about $5 billion per quarter. Better working conditions don't have to mean more expensive products; it could instead mean reduced profits.
TSMC has a long history of increasing double digit profit margins, in the range of $10B+ per year, and is amongst the most profitable businesses in the world. I would err on the side of TSMC deciding not to pay sufficiently to incentivize labor (which may still be the optimal move for TSMC).
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