In a nutshell: Surging demand for artificial intelligence hardware is pushing global chip production to its limits, with ripple effects now spreading across the broader semiconductor supply chain. Broadcom is now contending with capacity constraints from its key manufacturing partner, TSMC – an illustration of how the AI boom is reshaping the production landscape for some of the world's most advanced components.
"We are seeing that TSMC is hitting [production capacity] limits," Natarajan Ramachandran, director of product marketing in Broadcom's Physical Layer Products division, told reporters. He noted that a few years ago he would have described TSMC's capacity as effectively infinite. Now, however, capacity expansion plans extend through 2027, and while TSMC is working to increase output, the constraint has become a bottleneck for the supply chain in 2026, he said.
TSMC did not immediately respond to an emailed request for comment. In January, the company said capacity was tight, as the boom in AI infrastructure buildout absorbed much of its advanced production capacity. It also said it was working to narrow the gap between supply and demand. The squeeze is particularly acute for cloud providers and AI developers that depend on TSMC's leading-edge nodes for accelerators and custom silicon.
Ramachandran said the supply pinch extends beyond semiconductors. "Even though there are multiple suppliers in the industry today, there is definitely a constraint in the laser space," he told reporters. He added that printed circuit boards have also emerged as an unexpected bottleneck, with both Taiwanese and Chinese suppliers facing capacity limits that are contributing to longer lead times. He did not identify specific companies.
The growing scarcity is prompting companies across the tech ecosystem to rethink procurement strategies. Many customers are now entering into multi-year agreements to secure guaranteed access to production, and some of these commitments span three to four years.
For buyers, such agreements effectively reserve portions of future output at a time when tightness is affecting wafers, lasers, and boards. For suppliers, they provide clearer demand visibility, supporting heavy capital investment in new production lines and advanced processes.
That approach mirrors moves by other chipmakers. Samsung Electronics said last week that it is working with major clients to adopt three- to five-year supply contracts, noting that extended commitments offer stability for both parties.