Note: the post just before this has a brief description of TSMC.
new restrictions on TSMC
Last week the Trump administration announced that foreign users of American-made semiconductor design software or production equipment will need permission from Washington to use these to fashion chips for Chinese telecom company Huawei, the world leader in 5-G wireless technology.
At the same time, TSMC announced that it will be opening a new $12 billion fab in Arizona in 2024, its second in the US. No details yet on why, although presumably Washington is footing the bill.
Huawei is TSMC’s second-largest customer, after Apple. 60% of TSMC’s output goes to the US, 20% to China.
I’m a fan of TSMC as a company but not of TSM as a stock. This is because I don’t have any edge in evaluating TSM. I find Taiwanese accounting opaque and I believe a ton of local knowledge is needed to be successful in sizing up that market. While the latter is true just about everywhere, Taiwan is, for me, an extreme case.
I wonder how this new Trump rule can/will be enforced.
What would I do if I were TSMC? I’d see if I could rearrange assembly lines to avoid making Huawei chips using US-sourced machines. My ultimate goal, however, would have to be to minimize the threat to my business by transitioning away from US equipment suppliers. This might mean giving extra assistance to Japanese or EU companies, or encouraging technology transfer to develop Chinese alternatives. It could mean moving advanced production equipment to foundries on the mainland to supply Huawei from there–making clear this output is not coming from Taiwan. I’d probably be figuring I’d shed current generation US-made equipment I already own by moving it to the new US foundry.
If I were a current US supplier to TSMC? If I wanted to keep TSMC business, I’d be starting to figure how to shift at the very least that part of my operations out of the US. The same if I were a US-based maker of semiconductor design tools.
I think this will end up being another aspect of the “chaotic disaster” that is the Trump economic policy. In this case, though, the purpose of the move appears solely to be to deflect attention from Trump’s worst-in-the-world response to COVID-19, in support of his lie that somehow not his bungling but Beijing and/or the Obama administration are responsible for the unnecessary deaths of tens of thousands of Americans.
I continue to think that Trump and his enablers in government and the media are doing enormous damage to the long-term economic prospects of the US. What strikes me most about the developing TSMC situation, however, doesn’t have much directly to do with the stock market. It’s that Trump et al are concerned only about covering up what they’ve done; their cynical strategy is to lie and to distract by doing more harm elsewhere. There isn’t the slightest hint of remorse for what they’ve done nor sympathy for the relatives of the death.