TSMC: The most important company in the world
Welcome to our business, financial and economic newsletters and capital notes. Today’s menu: Chip shortages have raised Taiwan’s stakes, US GDP has skyrocketed, and Verizon has thrown towels into digital media. Follow this link to sign up for Capital Notes. Semiconductor shortages could save Taiwan Taiwan Semiconductor Manufacturing Company (TSMC), founded by Morris Chang from China in 1987, was the first “pure play” foundry to be a manufacturer of integrated circuits designed by other companies. did. Previously, chip designers manufactured their products in-house, but with the establishment of TSMC, the semiconductor industry has been reshaped, a “fabless” design company with no in-house manufacturing capacity, a pure founder that only manufactures, and manufacturing. The market has been divided among integrated device manufacturers. Do both. Thirty years later, TSMC has become one of the world’s leading semiconductor manufacturers. Today, in the midst of a global chip shortage, TSMC is arguably the most important company in the world. At the end of last year, automakers began warning that inadequate chip supply was constraining car production. The shortage quickly hit all producers, from industrial machinery to mobile phones. The seriousness of the shortage was clearly demonstrated when Apple, which accounts for one-fifth of TSMC’s revenue, told investors yesterday that supply constraints would reduce Mac and iPad sales by about $ 3 billion. It was. If the world’s most valuable smartphone company can’t process an order, no one will come out unharmed. Semiconductor orders usually have a waiting time of 4-8 weeks, ranging from 52 weeks, and it can take years for new production sites to come online, so both CEOs and policy makers should deal with constraints with brute force attacks. You can not. Intel recently announced plans to build two new fabs in Arizona, but they won’t be up and running until 2024. Also, given that the US market is only 10%, it is unlikely that the $ 50 billion allocated to semiconductor manufacturing under Biden’s infrastructure bill will move the needle. Share of chip production. This episode highlights the strategic importance of chip manufacturing capabilities, although supply shortages will eventually subside and can lead to oversupply if past semiconductor cycles are any sign. TSMC and Samsung alone dominate nearly 75% of the foundry market, providing input for a wide range of both high-tech and low-tech products. This means that most of the world economy depends only on two suppliers that cannot be easily exchanged. Companies may want to diversify their suppliers, but the amount of knowledge and capital needed to compete with the dominant chip makers is staggering. The Chinese government has invested hundreds of billions of dollars in domestic foundries to make little use, and US integrated device makers have seen market share steadily declining over the last three decades. Meanwhile, Beijing and Washington sparred over the fate of Taiwan, which China claims to be its territory. Over the past year, Beijing has been bending muscles in the Taiwan Strait and reportedly began orbiting military aircraft around the island in January, just days after Biden’s inauguration. Although the Trump administration has deepened its ties with the island, the United States still maintains a “strategic ambiguity” policy towards the island and provides support, but has not yet fully acknowledged the island’s independence. .. If the American alliance in the Middle East tells us something, it means that Washington will make great efforts to protect foreign economic assets. The battle for Taiwan was largely ideological, but the lack of chips added a new dimension. If Beijing attempts an invasion, it could scale towards US intervention. U.S. GDP Around Web Gross 6.4% in Q1 U.S. Economic Growth Pre-Pandemic In The First Three Months of 2021, Due To Large Fiscal Intensifications To Fuel Private Consumption And Loose Blockade Restrictions Has approached the standard of. According to the Commerce Department, gross domestic product rose 6.4% annually in the first quarter. According to a Refinitiv study, this exceeded economists’ expectations of 6.1% growth, the fastest growth in the first quarter since 1984. The chip shortage is getting worse. Honda Motor Co., Ltd. announced that it will stop production after a dizzying 12-hour stretch. At three factories in Japan. BMW AG has reduced shifts at its German and UK plants. Ford Motor Co. has lowered its full-year earnings forecast due to a chip shortage that will continue next year. Caterpillar Inc. later reported that it may not be able to meet the demand for machinery used in the construction and mining industries. Today, the companies themselves that have benefited from the surge in demand for phones, laptops and electronics during the pandemic that caused the chip shortage are in a pinch. After the blockbuster second quarter, Apple Chief Financial Officer Luca Maestri warned that supply constraints were squeezing iPad and Mac sales. These products were particularly strong at the time of the blockade. Maestri said this would reduce third-quarter revenue from $ 3 billion to $ 4 billion. After a big acquisition of Yahoo! and AOL, Verizon throws towels into digital media Verizon Communications Inc. sells assets such as Yahoo and AOL as telecommunications giants try to break out of expensive and unsuccessful bets on digital media I’m looking for. Sales processes, including private-equity fund Apollo Global Management Inc., can lead to deals worth $ 4 to $ 5 billion, according to people familiar with the matter. I couldn’t learn any other details. Verizon has invested billions of dollars to build a portfolio of once-dominant websites, such as AOL in 2015 and Yahoo in 2017, and has paid a total of over $ 9 billion to acquire pairs. .. Last month, the Random Walk Financial Times gave an overview of TSMC and how it combined scale and process knowledge to build large, competitive moats. [TSMC] It is becoming more dominant in all new process technology nodes. The node used to produce most car chips, which accounts for only 40-65% of the revenue in the 28-65nm category, accounts for almost 90% of the market. The most advanced node currently in production. “Yes, the industry is very dependent on TSMC, especially at the cutting edge, which is very risky,” said Peter Hanbury, a partner at Bain & Company in San Francisco. “Twenty years ago there were 20 foundries, but now the most advanced ones are on one campus in Taiwan.” All new nodes in process technology have more challenging development and new production capacity. Due to the greater investment required in, other chip makers have begun to focus on design for many years, leaving production to dedicated foundries such as TSMC. As the cost of new manufacturing units skyrocketed, other chip makers began outsourcing and TSMC’s competitors in the pure foundry market dropped out of the race. One solution is to diversify the supply chain by globally distributing TSMC fabs. That’s why the Trump administration succeeded in opening a TSMC factory in Arizona, but it’s not a complete solution. According to analysts, one of the reasons the company is so efficient and profitable is its concentration of manufacturing in Taiwan. “TSMC’s major sites in Taiwan are close enough that TSMC can flexibly mobilize engineers to support each other as needed,” said TSMC spokeswoman Nina Kao. People near the company estimate that US production costs are 8 to 10 percent higher than Taiwan. Therefore, TSMC is not ready to distribute its manufacturing operations around the world. “In the United States, we promised to build a fab after authorities revealed that it would subsidize the cost gap. In Japan, our investment is in the key technology areas of our future. We are focused, “said TSMC’s senior executives. “But in Europe, this case is not so strong, [the Europeans] You really need to understand what they really want and whether they can achieve it with their own chipmaker. — Follow this link to sign up for DT Capital Notes.