TSMC are a critical piece of the world's infrastructure. The fact that car makers are grinding to a slowdown and for particular assemblies, a complete halt, is very telling. The automakers themselves now fully appreciate just how critical TSMC really are. If they weren't critical, then they'd already have an alternate supply ready right now. But they don't. Its TSMC being pressured to increase production capacity, not an eager competitor taking up the slack. They wouldn't be furloughing employees otherwise. The Germans and many others wouldn't be sending letters to Taiwan requesting higher production. So TSMC is critical.
Does this mean there are absolutely no alternatives? Likely not, but TSMC are essentially the only game in town. At scale. At quality. With a useful track record of known production characteristics.
TSMC isn't the only one, there are still a few big players in the semiconductor fab market. The problem is its an extremely inelastic industry. Creating a new foundry is a very slow and expensive process. If you had predicted this and starting building one in 2019 to take advantage of the demand you still wouldn't be in business yet.
The combination of it being a very specialized and expensive industry with high upfront costs, extremely high RnD, cut throat competition and patent landmines means that as time has gone on ther have been fewer and fewer players. The only ones really capable of filling orders for chips using process tech from the last 5 or so years would be TSMC, Samsung, Global Foundries and Intel. Intel just recently opened up to third party production so they wont have an effect on the global supply for awhile.
The stuff car makers buy doesn't solely rely on TSMC and can also be produced by GloFo or Samsung or maybe even other smaller fabs. No everything needs bleeding edge. It's a more general trend.
It's interesting to think about what the solutions to this problem are. The advantages of buying from TSMC are presumably they have a lead in both technology and cost that will make your product better and cheaper. The disadvantages are that in natural disaster or war/military event the chips won't be available and you'll have difficulty shipping your products.
It's very hard for a company to take the latter seriously (like the supply chain issues that arose due to covid) when it is a very rare event that will likely have other large effects on your market and your competitors also.
Governments stepping in to subsidise/force use of other companies will likely reduce the short term profitability or commercial appeal of your product.
The investments needed to improve processes have been going up every year. There can only be so many companies that can pour billions of dollars into R&D each year.
If you want to sustain a local cutting-edge manufacturer even when its capacities are redundant or too small to be economical then the pot of subsidies would have to increase yearly and not be spent wastefully. Is there a precedent for that?
The solution is to collectively, clearly, and politely tell the Communist Party of China to get fked. A lot of companies will lose money and a lot of things will get expensive, but it’s either rip the bandaid off now or amputate a limb later. Does the world have the courage to do it?
Here is another one. World relies on only one relatively obscure dutch company for its EUV lithography equipment. For DUV the market is divided between 3 players two in japan and the aforementioned one. Apps market for semiconductors is also cornered by two companies. This whole space has consolidated in last decade or so. Everyone wants to have full control over their supply chain, so everyone is trying to buy their entire supply chain.
South Korea is not 100 miles from China and has a massive US military presence. This article is about the very real danger that China invades Taiwan - which it has already stated it wants to do (in case the military flyovers were not convincing) - and cuts off the world from the best silicon.
East Asian IC supply chains in general, PRC/TW/JP/SKR accounts for ~75% of global IC capacity. Losing TSMC in war over TW will set the world back 1-2 nodes and ~10 years. Having expansive regional war (i.e. US trying to defend TW from JP/SKR bases) that knocks out the regions semi will set world back decades of capex. It's almost like MAD for semiconductors until enough gets reshored away from east asia.
China will not attempt to invade Taiwan (at least not now).
But the threat of invasion will be continued to played up in US politics in order to support increased military spending and aggressive industrial policies towards US allies (in particular Taiwan but also South Korea).
Japan, South Korea, Taiwan, Isreal. The US reliably puts its money in places that are under threat.
That's not something a profit - driven free market would normally do. It is US setting the geopolitical stage.
Been thinking about this for a few weeks. Taiwan is profiting immensely from semiconductors, that means demand for semiconductors is very high. This was also the case before 2020. So, manufacturing semiconductors is profitable.
It is clear to me that if semiconductor production was doubled overnight, many new industries making use of the newly available cheap chips could arise and bring innovation. Why only Taiwan? Those factories are very expensive. Think of what Taiwan has to offer so that we can compare the rest of the world:
- Access to sea
- 20% corporate tax
- (comparatively) sober, stable politics. The rules don't change much.
Then I thought about where I would build one, given this profitable circumstances:
1. Cannot be in (most) of Europe, due to high taxes and advanced and advancing work regulations. Standards are too strict to allow for innovation. Most of low tax Europe are tax heavens unsuitable for high scale industries. Estonia and Georgia give some breathing room, but are friendlier to services.
2. I cannot build it in Africa: high taxes, extreme corruption and high risk of politics affecting the company.
3. I might be able to build it in the US. Being close to the client is not as important as having access to sea. US politics are turbulent and if corporate tax is raised, then there's no competition to be made.
4. South America is a bag. Almost all SA countries have corrupt governments at every layer, but there are a few business friendly ones. Most countries cannot be considered. Panama is already focusing in other things, Uruguay (25% corporate) and Brazil (~34%) cannot compete.
5. I'm unsure about Middle East, I don't see anything there
6. Asia is massive:
6.a. China could happen.
6.b. South East Asia is too erratic compared to Taiwan, investors will go to Taiwan instead, or invest in something else. Singapore is too small.
6.c. Japan is an stagnant economy and there is too much bureaucracy and regulation involved.
7. Australia ~26% corporate tax rate is not going to make the cut. I'm not knowledgeable about regulations.
I probably have missed something, I tried to put onto words my thinking process on why Taiwan might still be the most profitable place to make these industries. The whole world is in the middle of a shortage of this material, yet alternatives to Taiwan don't seem to arise.
I don't think it has anything to do with corporate tax rates (at least no to the extent you suggest it is). It has everything to do with access to cheap skilled labor, resources (water), incentives, and supply chain. Taiwan offers all four through years of honing this industry. After all TSMC is pretty much critical to Taiwan's economy and national security.
Secondly, TSMC is so far ahead of the curve that any competitor will take years and billion of dollars to get to where they are right now. ASML develops the technology in close collaboration with TSMC and I suspect TSMC owns many of the patents required to operate EUV successfully.
The industry is happy with the status quo because TSMC offers the best technology at the best prices.
The (first) Foundation was set up on a small, insignificant planet, surrounded by belligerent powers. Its continued existence was made possible only by playing those powers off against one another.
And the Foundation itself: highly advanced technology that those very powers came to rely on...
TSMC is in the process of installing foundries in both the US and Japan. Imagine where we'd be if they weren't in existence. And how many decades they've been doing their thing. What a stupid assertion around risk. The WSJ should do an article about how the fact that most bicycles are manufactured in Taiwan poses global a risk to public health and transport (or whatever you fit in the blank).
“Taiwan invested a hundred billion dollars into semiconductor R&D. To remain competitive and guard our national security interests, we also require investment in the same scale, from which we would profit handsomely.”
Why is news like this not driving the stock price up?
I mean to me this sounds as if TSMC could easily raise prices and increase profits and their customers will still buy the exact same amount... Because they have to.
The risk TSMC faces is that competitors will bring up new capacity and deal with improved performance, the stock projects the value of profit "forever" not just for the next couple years.
Not at the level that TSMC does. TSMC gets their lithographic machines from ASML, which leads the industry by a large margin. So far, China has not been able to acquire its most cutting-edge machines. They are currently relegated to using older fab generations.
I wonder if China will invade. If the last few years have told us anything, it's that China can do whatever it likes. The rest of the international community is fractured like never before. There may never be a better time, if and only if China can get it done quickly and reliably. Xi (Winne the Pooh) is in a strong place to do it politically.
I suspect China is overestimating the strength of their hand. Their economy is dependent on foreign corporations voluntarily choosing to manufacture there. If they start acting like a third-world kleptostate, they'll be branded as unreliable business partners and have to go back to sorting trash.
[+] [-] haspoken|4 years ago|reply
[+] [-] JosephK|4 years ago|reply
[+] [-] dlsa|4 years ago|reply
Does this mean there are absolutely no alternatives? Likely not, but TSMC are essentially the only game in town. At scale. At quality. With a useful track record of known production characteristics.
[+] [-] thereddaikon|4 years ago|reply
The combination of it being a very specialized and expensive industry with high upfront costs, extremely high RnD, cut throat competition and patent landmines means that as time has gone on ther have been fewer and fewer players. The only ones really capable of filling orders for chips using process tech from the last 5 or so years would be TSMC, Samsung, Global Foundries and Intel. Intel just recently opened up to third party production so they wont have an effect on the global supply for awhile.
[+] [-] consp|4 years ago|reply
[+] [-] Koiwai|4 years ago|reply
[+] [-] helsinkiandrew|4 years ago|reply
It's very hard for a company to take the latter seriously (like the supply chain issues that arose due to covid) when it is a very rare event that will likely have other large effects on your market and your competitors also.
Governments stepping in to subsidise/force use of other companies will likely reduce the short term profitability or commercial appeal of your product.
[+] [-] qwerty456127|4 years ago|reply
[+] [-] the8472|4 years ago|reply
If you want to sustain a local cutting-edge manufacturer even when its capacities are redundant or too small to be economical then the pot of subsidies would have to increase yearly and not be spent wastefully. Is there a precedent for that?
[+] [-] skhr0680|4 years ago|reply
[+] [-] ksec|4 years ago|reply
Although arguably NAND and DRAM are commodities, and US already has a back up strategy ( Micron ).
[+] [-] newswasboring|4 years ago|reply
[+] [-] epberry|4 years ago|reply
[+] [-] Archio|4 years ago|reply
[+] [-] dirtyid|4 years ago|reply
[+] [-] _carbyau_|4 years ago|reply
While not 100% watching it I feel as though China<-->US relations have whole strategies around Taiwan.
Of course, if war over Taiwan breaks out, I plan to hit up my local computer shop, preferably within the hour.
[+] [-] kmonsen|4 years ago|reply
[+] [-] throwaway4good|4 years ago|reply
But the threat of invasion will be continued to played up in US politics in order to support increased military spending and aggressive industrial policies towards US allies (in particular Taiwan but also South Korea).
[+] [-] christkv|4 years ago|reply
[+] [-] shadofx|4 years ago|reply
[+] [-] baybal2|4 years ago|reply
You will hit up your local draft station instead.
Even if an immediate retaliation would not not happen, it will within years.
[+] [-] greenforer|4 years ago|reply
Then I thought about where I would build one, given this profitable circumstances: 1. Cannot be in (most) of Europe, due to high taxes and advanced and advancing work regulations. Standards are too strict to allow for innovation. Most of low tax Europe are tax heavens unsuitable for high scale industries. Estonia and Georgia give some breathing room, but are friendlier to services. 2. I cannot build it in Africa: high taxes, extreme corruption and high risk of politics affecting the company. 3. I might be able to build it in the US. Being close to the client is not as important as having access to sea. US politics are turbulent and if corporate tax is raised, then there's no competition to be made. 4. South America is a bag. Almost all SA countries have corrupt governments at every layer, but there are a few business friendly ones. Most countries cannot be considered. Panama is already focusing in other things, Uruguay (25% corporate) and Brazil (~34%) cannot compete. 5. I'm unsure about Middle East, I don't see anything there 6. Asia is massive: 6.a. China could happen. 6.b. South East Asia is too erratic compared to Taiwan, investors will go to Taiwan instead, or invest in something else. Singapore is too small. 6.c. Japan is an stagnant economy and there is too much bureaucracy and regulation involved. 7. Australia ~26% corporate tax rate is not going to make the cut. I'm not knowledgeable about regulations.
I probably have missed something, I tried to put onto words my thinking process on why Taiwan might still be the most profitable place to make these industries. The whole world is in the middle of a shortage of this material, yet alternatives to Taiwan don't seem to arise.
[+] [-] nicoburns|4 years ago|reply
[+] [-] blueblisters|4 years ago|reply
Secondly, TSMC is so far ahead of the curve that any competitor will take years and billion of dollars to get to where they are right now. ASML develops the technology in close collaboration with TSMC and I suspect TSMC owns many of the patents required to operate EUV successfully.
The industry is happy with the status quo because TSMC offers the best technology at the best prices.
[+] [-] fractallyte|4 years ago|reply
The (first) Foundation was set up on a small, insignificant planet, surrounded by belligerent powers. Its continued existence was made possible only by playing those powers off against one another.
And the Foundation itself: highly advanced technology that those very powers came to rely on...
[+] [-] jimmont|4 years ago|reply
[+] [-] Koiwai|4 years ago|reply
[+] [-] ZoomerCretin|4 years ago|reply
[+] [-] fxtentacle|4 years ago|reply
I mean to me this sounds as if TSMC could easily raise prices and increase profits and their customers will still buy the exact same amount... Because they have to.
[+] [-] riffraff|4 years ago|reply
[+] [-] qwerty456127|4 years ago|reply
[+] [-] robgibbons|4 years ago|reply
[+] [-] Koiwai|4 years ago|reply
TLDR: not there, at least yet.
[+] [-] Proven|4 years ago|reply
[deleted]
[+] [-] LatteLazy|4 years ago|reply
[+] [-] zero_deg_kevin|4 years ago|reply