Taiwan and the chip supply chain
The world's most critical industrial chokepoint is not oil. It is a handful of buildings in Hsinchu.
Understand the concentration risk sitting inside almost every technology company you own.
How Taiwan and the chip supply chain works, in one picture
The same argument as the text, as a chain. Each step is what makes the next one possible.
The only five moats there are
If you cannot name which of these a company has, it probably does not have one. It is merely doing well, which is a different and far more temporary condition.
- 1
One island, one company, one machine
Leading-edge logic chips are overwhelmingly made by TSMC in Taiwan, using extreme ultraviolet lithography machines that only ASML in the Netherlands can build. Each link in that chain is close to a monopoly, and each is a genuine moat.
- 2
Fabs cannot be relocated in a hurry
A leading-edge fab costs tens of billions and takes years, and the accumulated process knowledge is not in a manual, it is in the workforce. Announcing a fab in Arizona does not de-risk anything this decade.
When you hear that supply chains are being 'diversified', check the timeline. It is usually measured in half-decades.
- 3
Which is why this is a geopolitical asset
The concentration means a disruption in Taiwan would not merely raise chip prices. It would stop the production of cars, phones, servers and weapons. This is sometimes called a silicon shield, on the theory that the world cannot afford to let anything happen to it.
- 4
The exposure is in your portfolio already
You do not need to own a chip company to own this risk. Almost every technology business, and increasingly every carmaker and industrial, depends on that chain. It is one of the least diversified positions most investors hold without knowing it.
You can name the single points of failure in the chain that makes the device you are reading this on.
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