Taiwan Semiconductor is the world's most valuable semiconductor company. Its headquarters and main operations are located in the Hsinchu, Taiwan, and it is majority owned by foreign investors. It has been listed on The New York Stock Exchange since 1994. Many of the leading semiconductor companies such AMD, Apple, Broadcom. Marvell and Nvidia are customers of TSM. In addition, some integrated device manufacturers that have their own facilities, like Intel, NXP and Texas Instruments, outsource some of their production to TSM. Over half the chips commonly used by Americans these days are manufactured by TSM.
Until recently, investors in TSM has enjoyed a compound annual growth rate (CAGR) of 17.4% in revenue and a CAGR of 16.1% in earnings. However, as the picture shows, in the last year, investors have given up much of their capital gains. As of today’s close (10/26/22), TSM is down 52% for the year, and, if you were “lucky” enough to have picked the top and bought it there, you would have lost 58%!
So, if a picture is worth a thousand words, what is this picture telling you? The reason for the dramatic price decline might be that TSM has fallen due to recent economic developments, much like Facebook; or it might just be that China will invade Taiwan sometime very soon and take over TSM’s operation. That would be disastrous for many valuable American companies like Apple. So what is the Biden Administration trying to do about it? Well, as we have indicated before, President Biden has declared that the US will defend Taiwan. (Make Peace, Not War) But that’s not all.
According to the New York Times, the Biden Administration is now using US influence over global technology and supply chains to try to choke off China’s access to advanced chips and chip production tools needed to power modern computers. Other news outlets agree. According to Newsweek, “the measures are both sweeping and precise, effectively blacklisting dozens of Chinese firms from accessing high-end American semiconductors, as well as chip-making tools and know-how.” In addition, U.S. persons, would be forbidden from supporting the research and production of China's fabrication facilities.”
These restrictions are meant to deter China from developing advanced military systems, including weapons of mass destruction, hypersonic missiles and systems of mass surveillance, but it would also debilitate China's domestic industries in artificial intelligence, electric vehicles, robotics and 5G.
How will China respond? Chinese officials called the U.S. restrictions “a significant step aimed at sabotaging their country’s development.” China could respond by intensifying their efforts support their own industries. In the alternative, they could answer to what they could reasonably interpret as “economic warfare” by engaging in a little warfare of their own. Taiwan is just a hop, skip and a jump from the Chinese mainland, and they could probably subdue Taiwan with a massive invasion before President Biden could even think about how he was going to defend Taiwan, as he promised.
If that indeed happens, and China takes control of TSM, it will be China that has all the technological influence, not the USA; and that, for sure, is really an ugly picture.
Meanwhile, back in the Ukraine, Elon Musk proposed a peace plan that included the following: formal recognition of the Crimean Peninsula as Russian territory; a steady water supply to Crimea; an Ukrainian commitment to remain neutral and not join NATO; and having the United Nations oversee a referendum in the Russian controlled areas in order to ascertain whether those people would like to join Russia. Musk’s peace plan was roundly condemned and went nowhere fast.
Soon afterward, thirty Democrats in the US House of Representatives wrote a letter to President Biden urging him to shift his strategy for the Russia-Ukraine war by pursuing a negotiated settlement along with his current provision of military and economic support to Kyiv.
One day later, Democratic Representative Pramila Jayapal withdrew that letter, saying that “because of the timing, our message is being conflated by some as being equivalent to the recent statement by Republican Leader McCarthy threatening an end to aid to Ukraine if Republicans take over.” Wow! No backbone there. She urges peace negotiations to end the suffering, death and destruction, and one day later she retracts it due to political concerns. Let’s hope she never gets more power.
We note that she originally wanted President Biden to shift his strategy. Have you noticed that there has been no Biden peace plan? He says we are close than ever to nuclear war, and he still hasn’t moved an inch to use American leadership to find a way to a negotiated peace settlement!
The way we see it, President Biden is pushing the envelope, inching us closer to a war with Russia over the Ukraine, and closer to war with China over Taiwan. God help us!
Comments