A while back, DigiTimes reported that Taiwan Semiconductor Manufacturing Company (TSM -7.98%), a major contract chip manufacturer, planned to introduce an enhanced variant of its 16nm manufacturing technology dubbed "12nm."

On the chipmaker's most recent earnings call, an analyst asked  management about this potential new technology. The company seemingly confirmed its existence, though it's not clear if the technology will, in fact, be marketed as 12nm.

Let's look at just what management had to say about the tech, and why it matters to TSMC investors.

Image source: TSMC. 

A refinement of 16nm tech

On the call, TSMC Co-CEO C.C. Wei told analysts that its strategy is "continuously to improve every node in the performance, such as 28-nanometer." He went on to say that TSMC is "continuing to [improve] the 16-nanometers technology." Wei explained that its next revision of the 16nm technology may be worth calling 12nm because it will deliver improved "density, classical density, performance, and power consumption," according to a transcript by Seeking Alpha.

TSMC has, to date, announced several 16nm variants. The first was vanilla 16nm, which didn't seem to gain much traction as a performance-enhanced version of the technology quickly replaced it, branded 16nm FinFET Plus.

After introducing 16nm FinFFET Plus, TSMC rolled out yet another version of the technology, called 16FFC (with the 'C' standing for "compact") that allowed chipmakers to build smaller, more cost-effective chips.

The upcoming "12nm" technology looks like TSMC taking an additional step in its efforts to try to maintain technology leadership against competing 14/16-nanometer technologies, particularly as competition in those technologies heats up in the coming years.

Why it matters to TSMC investors

There are few chip manufacturing companies that can bring leading-edge technologies to market. However, over time, the weaker chip manufacturers bring out products that can compete with those the stronger companies debuted several years earlier.

Since contract chip manufacturers tend to generate significant revenues from older-generation manufacturing technologies (TSMC's 28-nanometer technology, first introduced in late 2011, accounted for 26% of the company's revenue in 2016), it is important for TSMC to remain cost/performance/feature competitive with these older technologies.

United Microelectronics (UMC -4.11%), for example, has said that it expects to begin "commercial production" of a 14-nanometer technology "by the second half of 2017," per EETimes.

China-based Semiconductor Manufacturing International (SMI), too, is planning to introduce a "14nm" technology at some point.

By continuing to enhance its 16nm technology, TSMC should be poised to defend its market share position against upcoming competitors while at the same time keeping its cost structure competitive and its average revenue per wafer as high as possible.

All that should ultimately translate into robust revenues and profitability on this technology. 

Looking out to 2017, TSMC management appears confident that it will be able to maintain its strong market share position in the contract chip manufacturing space. "I will say that we certainly do not think we will lose market share," Chang told analysts. "We're not going to grow less than foundry," he said, referring to the contract chip manufacturing, or semiconductor foundry, market.