Tencent shares have fallen nearly 30% since the beginning of June amid a smattering of new rules and regulatory efforts. That has let TSMC, whose share price has remained mostly flat since June, creep up on Tencent’s valuation.
The breaking point came on Tuesday when a dip in Tencent stock officially made TSMC the most valuable Asian company by market cap, at $579 billion on Wednesday. Tencent’s market cap was sitting around $557 billion, while Alibaba, the next biggest Asian company, came in at $481 billion.
TSMC has soared as overwhelming global demand for its wafers has hit industries from autos to gaming. During the pandemic, too, a rise in stay-at-home purchases like video game systems and computer gear made for bountiful business in the chip industry.
The company has doubled its share price since the start of the pandemic in March 2020 – during which time TSMC has declared several multi-billion dollar capex rounds, now totaling north of $100 billion.
TSMC’s market position, earning over half of global chip manufacturing revenue, is so dominant that some analysts have even argued the company could become a flashpoint in cross-strait relations between Taiwan and mainland China.
In July, TSMC chairman Mark Liu addressed fears around a potential Chinese invasion of Taiwan, which considers the island part of its territory.
“Everybody wants to have a peaceful Taiwan Strait. Because it is to every country’s benefit, but also because of the semiconductor supply chain in Taiwan – no one wants to disrupt it,” he said.
Semiconductors are so important that they can even create national security issues when drones, fighter jets, and other critical military components are affected.
That’s one of the reasons why President Biden met with 20 top executives on Monday to discuss what can be done to fix the chip industry’s supply constraints and make sure something like this doesn’t happen again in the future.
President Biden has committed to helping the industry fix the semiconductor shortage with his new infrastructure bill. The $2 trillion infrastructure and jobs package will include some $50 billion for semiconductor research and production.
Still, despite help from the US government, experts say the global chip shortage is set to drag on. Below, Insider details how long four experts expect the crisis to continue and what it could mean for markets.
In an interview with Insider on April 6, Baird’s Ted Mortonson said he believes the global chip shortage will continue through the rest of the year.
The tech sector strategist said rising demand from the cloud sector, the 5G rollout, telecommunications firms, EV makers, and more is one of the main reasons for the shortage and noted that new capacity will need to come online to offset demand.
Mortonson highlighted semiconductor firms’ recent investments into capacity including Taiwan Semiconductor Manufacturing Co.’s $100 billion investment over the next three years that the company says will “increase capacity to support the manufacturing and R&D of advanced semiconductor technologies.”
However, the strategist said that despite new initiatives, much of the additional capacity won’t come online until the end of the year. Mortonson also noted that most semi companies have instituted “non-cancellable orders” and that lead times range from 15 weeks to over 50 weeks in some cases.
Mark Fields, former Ford CEO and senior advisor at TPG Capital
Mark Fields sat down with CNBC on April 9 to discuss the effects of the global chip shortage on the auto industry. Fields said auto manufacturers lost about 3 million units due to COVID in 2020 and he expects the chip shortage may be just as destructive.
“Through the first quarter, through various forecasts, it looks like about 700,000 units were lost…you can just do the simple math and you could see that the losses could approach the level of the Covid losses for last year,” the advisor said.
Fields also said automakers are trying to maximize their production value by focusing on selling their highest margin vehicles, but that it’s really a “game of whack-a-mole” given the breadth of supply constraints.
Fields added that the situation for automakers should get better in the second half of 2021, but the industry won’t fully recover until well into 2022.
Ganesh Moorthy, chief executive officer at Microchip Technology
Ganesh Moorthy, the CEO of Microchip Technology, spoke with CNBC on Monday about the chip shortage and said it’s the worst crisis he’s seen in the industry in 40 years.
The “imbalance between supply and demand has never been this acute in all my history in this industry,” the CEO said.
Moorthy also said that he believes supply constraints will last through the year and “most likely” continue into next year.
The CEO added that the chip shortage has been “brewing for some time” and said that it started with tariffs during 2018 which caused demand to fall. In response, Moorthy says many chip manufacturers leaned out inventory and idled some factories in response.
Then when the pandemic hit, a swath of new stay-at-home trends caused demand to skyrocket, leading to the shortage.
Moorthy said that it “takes six months of cycle time from when we say go to when production comes online full force,” so he expects the lack of supply to continue moving forward.
Anand Srinivasan, Bloomberg Intelligence analyst
Anand Srinivasan, an analyst with Bloomberg Intelligence, spoke with Yahoo Finance on Monday and said that the chip shortage could persist well into the second half of 2021.
The analyst said investors shouldn’t just be worried about their auto industry holdings due to the semiconductor shortage either.
“In the grand scheme of a $440 billion industry the auto business is only 8%, 9% of semiconductors,” the analyst said.
Srinivasan is “more worried about other areas where the impact could be larger and it affects a lot more people.”
He said a variety of products will be affected by the shortage but argued the two industries he’s most worried about are PCs and smartphones, which make up some 70% of semiconductor demand.
The good news for investors is that Srinivasan believes that the lack of supply will stretch out demand, rather than hurting it. “You’re not going to go out and buy a bicycle because you couldn’t get your Audi A4,” the analyst said.
This means that although production might be hurt in the short-term, over the long haul strong demand will remain, according to the analyst.
Taiwan Semiconductor’s stock slipped on Wednesday after Intel announced plans to spend $20 billion on two new chip factories in Arizona.
Intel’s new CEO Pat Gelsinger laid down plans to directly compete with Taiwan Semiconductor and its South Korean rival Samsung in the foundry business creating chips for companies around the world.
“Intel is back. The old Intel is the new Intel,” Gelsinger said in a March 23 virtual presentation. “We’re going to be leaders in the market and we’re going to satisfy the new foundry customers, because the world needs more semiconductors and we’re going to step into that gap in a powerful and meaningful way.”
Intel’s Arizona factories will create over 3,000 permanent high-tech jobs, 3,000 construction jobs, and roughly 15,000 local long-term jobs for the region.
Taiwan Semiconductor shares continued their more than month-long fall on Wednesday after the Intel news broke. The stock is down roughly 20% from February 16 record highs.
In a note to institutional investors on Wednesday, Wedbush’s Brad Gastwirth said he believes TSMC’s fall on the Intel news is overdone.
The Chief Technology Strategist said he sees Intel’s new foundry business as an expensive move that could have an “elongated” production timeline, not producing any revenues for Intel until 2022 or 2023.
Taiwanese Economy Minster Wang Mei-hua added a similar opinion when leaving parliament on Wednesday, saying Intel’s $20 billion investment wouldn’t be a challenge to Taiwan Semiconductor and other Taiwanese chip makers, Reuters reported.
Taiwan Semiconductor has enough of its own problems without Intel’s move into the foundry business.
A water shortage has threatened production at TSMC for over a month now, and Bloomberg reported on Wednesday that the water supply to chip makers has been cut entirely as a drought continues to lower water reserves in the island nation.
Taiwan Semiconductor traded down 4.13% as of 9:58 a.m. ET on Wednesday.