With the West’s energy supply chain with Russia broken, much of the world is now preparing for a breakdown of the semiconductor supply chain emanating from Taiwan (something that will be become inevitable if China attacks Taiwan): “…intensified US-China tension over technology — and especially semiconductors — has shifted electronics supply chains in slow but significant ways. Foxconn’s Wisconsin facility is far smaller than initially promised, but TSMC, Taiwan’s most valuable company and the world’s biggest producer of processor chips, will soon open a new facility in Arizona. Previously, almost all of TSMC’s recent investment was in Taiwan or China. Now it is diversifying its fabrication footprint, building a new chip fab in Japan and exploring one in Singapore, too. TSMC’s change in tack is driven by subsidies from these governments as well as political pressure to reduce the concentration of chipmaking along the Taiwan Strait.”
Two other factors are also playing a role in reshaping tech supply chains. Firstly: “Subsidies are also changing the industry’s structure. Attention has focused on recently passed US legislation to incentivise semiconductor manufacturing, leading TSMC and South Korea’s Samsung to build new facilities in Arizona and Texas respectively. Europe, Japan and India are rolling out their own semiconductor subsidies, too. As the location of semiconductor fabrication shifts, the production of chipmaking materials and supplies will, too.”
Secondly, China too has accelerated its efforts to beef up its own semiconductor industry: “The biggest semiconductor subsidy programme, however, is China’s, where the national government, as well as provincial and local authorities, continue to pour funds into the chip industry. A wave of new facilities producing low-end processor chips is about to come online, which will depress prices in this segment and spark dumping allegations and trade disputes.”
The result of this is that in a splintering world, companies are increasingly likely to make the same product using different supply chains depending on which end market the product is destined: “China’s subsidies and America’s chip choke are forcing change downstream, too. Apple, whose finely tuned supply chains shape how the entire industry sources components, is increasing device assembly in Vietnam and India. The biggest signal is that Apple may use different components for phones intended for Chinese customers than those sold abroad. Apple has told US legislators that it will only use YMTC’s memory chips in phones it sells within China. Operating separate “China” and “non-China” supply chains is the definition of decoupling.”
If you want to read our other published material, please visit https://marcellus.in/blog/
Note: the above material is neither investment research, nor financial advice. Marcellus does not seek payment for or business from this publication in any shape or form. Marcellus Investment Managers is regulated by the Securities and Exchange Board of India as a provider of Portfolio Management Services. Marcellus Investment Managers is also regulated in the United States as an Investment Advisor.
Copyright © 2022 Marcellus Investment Managers Pvt Ltd, All rights reserved.
Get weekly insights on our investment strategies and more...