Unlike manna, volcanic ash and exhausted birds, semiconductors don’t just fall from the sky. Production of such is an exceedingly competitive business, with the players at the top of the industry dictating much of technological progress for the world at large. A few companies own their foundries and brand chips with their own company name (e.g. Intel Corp. [INTC]), while others custom-build chips for their clients. This latter group includes one of the largest and most successful companies you might not have heard of.

Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) has been at the forefront of chip design since its founding in the 1980s, and today produces chips for some of the largest clients in the world. Among many others, the company produces chips for Apple (AAPL), for whom TSMC is the only company to make A-series chips. Apple is Taiwan Semiconductor Manufacturing’s largest client, accounting for one-fifth of sales – sales that exceeded $9.21 billion in Q4 2017.

In Your Ear and Elsewhere

Apple is just one of the hundreds of Taiwan Semiconductor Manufacturing customers, which can be divided into three classes. Integrated device manufacturers, “systems” companies, and fabless companies. That last one refers to firms that design and sell chips, but farm out the business of actually making the things to Taiwan Semiconductor Manufacturing itself. Even some giants of semiconductor production, such as Advanced Micro Devices, Inc. (AMD), have switched from the so-called pure-play model and started farming out the production of chips – to companies like Taiwan Semiconductor Manufacturing. Which, as a pure-play foundry, never uses its own brand name on its products. That’s much to the delight of its customers, Apple, and the over 440 others.

Taiwan Semiconductor Manufacturing sells chips to clients all over the developed world. Geopolitics does make an appearance in the company’s breakdown of its revenue by region. By far the company’s biggest market is in North America, which brought in 67% of total revenue in 2016. As a company sufficiently proud of its heritage to include “Taiwan” in its name, Taiwan Semiconductor Manufacturing officially lists its country of headquarters as the Republic of China – a seemingly trivial distinction yet one sure to anger forces in what the company refers to as Mainland China, where Taiwan is officially considered nothing more than a rogue province to one day be readmitted whether by agreement or force. As a practical matter for Taiwan Semiconductor Manufacturing investors, the distinction means that 2% of company revenue originating in “China” refers to both the free and communist varieties.

Smaller is Bigger, Up To A Point

Right now the industry standard is 28-nanometer system-on-chip production, in terms of volume (and dollar volume) of chips sold. 28-nanometer and its derivatives make up 42% of Taiwan Semiconductor Manufacturing revenue. The firm’s 28-nanometer processes are used in ultra-low-power applications, which include wireless keyboards and mice, Bluetooth-enabled blood glucose monitors and pulse oximeters, and literally thousands more.

The imagination of Taiwan Semiconductor Manufacturing’s customers – and to a lesser extent, the laws of physics – is the only limit. As astonishing as 28-nanometer process technology might sound – more than 35,000 gates across your thumbnail – it’s rapidly being supplanted by ever-smaller nodes. Far smaller nodes, in fact. The company either produces or is working on a 7-nanometer, 5-, and as of late 2017, a plan to get down to a mere 3nm tech. Taiwan Semiconductor Manufacturing has to not merely compete, but lead the charge as technology advances, to survive.

Taiwan Semiconductor Manufacturing is the archetype of a company that exploits Moore’s Law: the observation that transistors halve in size (or more accurately, double in performance per area) every two years. If we’re nearing the theoretical limits of Moore’s Law, no one bothered to tell Taiwan Semiconductor Manufacturing. The company has everything from 90nm tech to developing 5nm tech. The company hopes to have 3nm fabs ready in 2020, possibly spending a reported $20 billion on the tech

The Bottom Line

Few industries are more capital-intensive than chip manufacturing. Even with the prohibitive outlays required in getting a fabrication plant up and running, Taiwan Semiconductor Manufacturing still manages to enjoy high-profit margins. Gross profit margins were 50.1% in 2016, compared to 48.7% in 2015.