Automobiles, computers, phones, IoT, or any device that is digitized requires a semiconductor chip.
TSM manufactures these chips, and is one of the few companies with the strongest moat in the entire semiconductor supply chain. Think of TSM as literally the 1 Jenga block that supports the entire tower.
Supply Chain Overview:
TSMC is a major player in the entire manufacturing process. Notably Backend & Test (Sillicon Wafers).
(1) If You Don't Know This Already, TSM (TSMC) is a dominant player in Manufacturing of Semiconductor chips.
Why does TSM have a moat in manufacturing semiconductors?
Answer: High Barriers to Entry
Manufacturing Knowledge & Quality Assurance
Costly PPE to setup plants.
Costly/Custom Automation within Semiconductor Plants
High Switchover Costs with existing Customers.
Politically Agnostic Company, meaning their technology is make or break for any country irrespective of their allegiance.
Why Airfreight is only a band-aid solution in the current supply chain disruptions for semiconductors:
According to Clear Metal, which monitors over 90% of ocean freight, nearly 7% of ocean freight is not making it out of C ports this quarter. Shortages of shipping containers resulted in companies having to pay premiums for shipping and drove demand towards airfreight.
In fact, global air-cargo capacity in first quarter of 2021 is 25% less than last year. The grounding of the Boeing 777 fleet with Pratt & Whitney engines following the failure of an engine on a plane over Colorado has further exacerbated capacity constraints.
Forward Looking View
For 2022, the global semiconductor market is projected to grow by 10.1 percent to US$ 606 billion, according to some estimates. But this growth is tempered by the long-tail impact of the pandemic on supply and demand in various industries.
TSM PPE Investments into U.S, Netherlands, Germany, and Japan
The Thesis
Go long on TSM with a 3-5 year outlook because supply chain shortage is a persistent problem that won't go away after the Pandemic, and neither will the growing demand for semiconductor chips.
Airfreight will become increasingly attractive synergy in the supply chain. It may even be preferred over ocean freight IF trade wars between China and U.S continue.
Without the manufacturing knowledge & PPE required, it is very difficult to replicate TSM's infrastructure for semiconductors.
TSM is in my estimation undervalued. I set the price target at 155 in the medium term.$Taiwan Semiconductor Manufacturing(TSM)$
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