According to The World Federation of Exchanges, there are more than 50,000 listed companies around the world. So choosing which one company is the most important might seem to be a fool’s errand.
Perhaps a way to begin is to look at just what is at the heart of our technology-centered economy. Right now, it is probably semiconductors.
Semiconductors are crucial and the most strategically important technology because they are the materials and circuitry needed to produce microchips that are the key to everything from smartphones to advanced satellites. You might think of these microchips as the brains inside all advanced technology.
According to the Semiconductor Industry Association, nearly 1 trillion semiconductors were sold in 2023 (the last full year on record), that’s more than 100 per person. And it’s big business, as that translated to $527 billion in sales.
Roughly speaking, there are three different types of firms in this key sector.
The first are the chip designers such as Nvidia (NVDA). This is a competitive space with low capital requirements and huge margins. The second are companies that make the equipment that makes the microchips.
Then comes the actual making of the chips in what is referred to as fabrication plants. One company dominates the production of the higher-performance chips critical to advanced technology, with a 62% world market share. It won’t surprise you to learn that it is in an emerging market in Asia. This company is Taiwan Semiconductor (TSM).
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Why Taiwan Semiconductor (TSM) Is So Important
The advanced chip-making business, which is extremely capital and talent intensive, has gone through a rapid consolidation as the number of companies producing cutting-edge, high-performance chips has been reduced from 25 to 3. Taiwan Semiconductor is the leader, closely followed by Samsung Electronics. As production has expanded in Asia, the U.S. share of chip manufacturing has fallen to 10%, according to a report by the Boston Consulting Group.
Samsung Electronics, building on its existing operations in Austin, is spending an additional $17 billion (partially fueled by the CHIPS Act) to build a chip-making factory in Texas that it hopes will begin operations in 2026.
Then there is the question of whether or not Intel (INTC) can engineer a turnaround after significant struggles this year prompted it to bring on a new CEO and initiate a cost-reduction plan.
Finally, there is the issue of China. China is about two to five years behind the leading chipmakers but is determined to catch up. Although it’s struggling with export controls, notably on ASML Holding (ASML), which produces the world’s most advanced lithography machines, China is spending an estimated $100 billion each year in subsidies in an effort to onshore their own production.
Alex Capri of the Hinrich Foundation has zeroed in on a vital techno-rivalry battleground through an excellent report: “Semiconductors at the Heart of the U.S.-China Tech War: How a New Era of Techno-Nationalism is Shaking up Semiconductor Value Chains”.
Understanding the microchip’s intricate and fragile supply chains is important for both policymakers and investors. This report outlines a typical manufacturing and assembly scenario for a semiconductor chip: from research and development in America, base silicon ingots are cut into wafers in Taiwan or Korea, and finally the microchips are imbedded into end products in China.
I recommended Taiwan Semiconductor (TSM) to my Cabot Explorer subscribers in the past but have since exited the position.
My Explorer advisory will follow this dynamic sector closely with new recommendations forthcoming. In the meantime, the Explorer portfolio is invested in other cutting-edge technology leaders, chipmakers, rare earths producers and more.
To learn their names, simply click here.
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