Why a Rising TSMC Challenger Could Reshape the Chip Foundry Landscape

Taiwan Semiconductor Manufacturing (NYSE: TSM) has dominated the advanced chipmaking business for years. But a Japanese start-up is hoping to grab a piece of the third-party foundry business, and it's making some ambitious promises.

Rapidus, which is backed by the Japanese government and working with IBM, wants to begin mass-producing advanced 2-nanometer chips in late 2027 or early 2028. CEO Atsuyoshi Koike recently reaffirmed that timetable, although reports suggest the company is having trouble meeting important technical milestones.

Rapidus also wants to compete on price. Earlier this year, the company indicated that it could charge approximately $21,000 per wafer for its 2-nanometer process, compared with reported pricing of roughly $30,000 for TSMC's 2-nanometer technology.

Image source: Taiwan Semiconductor Manufacturing.

That's a potentially substantial discount. But can Rapidus actually deliver and cut into TSMC's overwhelming market share?

Rapidus still has plenty to prove

Rapidus has begun trial production at its facility in Hokkaido, Japan, and has reportedly held discussions with more than 60 potential customers. Japan has also committed billions of dollars to the project, hoping to rebuild its domestic semiconductor manufacturing industry.

However, manufacturing advanced chips is extraordinarily difficult, and Rapidus is already encountering problems.

Bloomberg reported this week that the company has yet to successfully produce functioning static random access memory cells, an important milestone it must achieve en route to a fully realized 2-nanometer manufacturing process. Japan's Jiji Press news agency also reported that a delay of approximately one year is being discussed. Rapidus says its timetable remains unchanged.

But even if the company meets that deadline, it will need to demonstrate it can reliably deliver chips at a suitable profit margin. Offering lower prices won't accomplish much if too many of those chips are defective, or if the company can't turn a profit.

TSMC has a considerable head start

Meanwhile, TSMC is already manufacturing 2-nanometer chips and currently holds roughly 73% of the global third-party chip foundry market. The company's revenue in the third quarter was a whopping $46.7 billion, up 41.2% from a year ago. Gross margins were 66.4%.

TSMC said that 8% of its wafer revenue came from 2-nanometer technology -- up from 3% in the second quarter. That's important, because it shows TSMC is already growing revenue from a manufacturing process that Rapidus hasn't brought into commercial production. Every day, TSMC will build on that lead while Rapidus seeks to catch up.

TSMC's relationships with major technology companies give it another advantage. Customers designing expensive, sophisticated chips need dependable manufacturing partners, not merely the lowest possible price. TSMC reported that it made more than 12,600 different products in 2025, using 305 separate processes.

I don't expect Rapidus to become a threat to TSMC's leadership in cutting-edge chipmaking anytime soon. It's not surprising that companies want to challenge TSMC and pull some of its massive market share away from it, considering how lucrative a mature foundry business can be. But as Intel is also learning, starting a foundry business is hard and expensive. TSMC will continue to ride high.

Patrick Sanders has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Intel, International Business Machines, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.