Semiconductor: US Govt bet Big. TSM & INTC win Big.
Peace of mind on Semiconductor companies (in the US) ??
After reading the Yahoo Finance post, the lingering question in my mind was “Can we take comfort in US government is betting “Big” on semiconductors ?” (see below)
US renewed chip ambition.
The Biden administration laid out an ambitious new goal for the US: produce 20% of the world’s most advanced semiconductor chips by 2030, end of the decade.
Achieving that mark, Commerce Secretary Gina Raimondo said in a speech on Mon, 26 Feb 2024 morning — would be a dramatic turnabout for the US.
“Dramatic” because US currently makes 0% of the so-called leading edge logic chips that are more powerful than older-generation ones.
More important, the new-generation chips are crucial for everything, from mobile phones to artificial intelligence to quantum computing.
Speaking at the Center for Strategic and International Studies (CSIS), Ms Raimondo has conceded that the 20% goal (“a big number”).
CHIPS and Science Act (in a picture)
The Biden administration is driving America to hit that ambitious goal, with investments set aside by an 18-month-old law called the CHIPS and Science Act.
The legislation allows the White House to spend $50 Billion in taxpayer dollars.
Of which, $39 Billion has been specifically earmarked for manufacturing, in an attempt to help reignite American manufacturing in the years ahead.
Raimondo is overseeing the funds’ allocation and usage.
She says her focus will be helping projects to be online this decade, a challenge for some of these incredibly complex efforts that require specialized equipment and supply chains.
Raimondo has also highlighted — the 2030 goal means many proposals with a longer timeline will not receive a grant.
And some semiconductor companies may receive less due to limited funds.
Ultimately, the Commerce Secretary’s job is to attract the “right” companies to help US achieve the goal through tough negotiations.
Raimondo oversees a team of more than 200 people charged with implementing the legislation that was designed to confront America's falling share of semiconductor manufacturing.
According to the White House, US used to produce nearly 40% of the world's chips in 1990.
34 years on, US is producing less than 10% of the world’s chips.
It gets worse when the world's most advanced semiconductors are concerned - 100% of those are currently manufactured overseas, mostly in Taiwan.
So far, 3 smaller manufacturing awards have been given to US based semiconductor firms:
There is still a long way to go to fulfill the 20% objective.
Major part of the work to build the “leading edge” chips will fall to giant players who are still waiting for their awards to be finalized.
$Intel(INTC)$, which is building a new factory in Ohio, is reportedly in talks for as much as $10 Billion of the government’s budget.
$Taiwan Semiconductor Manufacturing(TSM)$ is another likely recipient, and the Commerce Secretary has signaled on Monday that it could be in line for help.
Raimondo has revealed that a proposed project by TSM (in Arizona) was described as "pathbreaking".
She lauded TSM for its investment in the US and made a commitment that the US government will ensure the project's success.
My viewpoints: (mine & mine only)
One “big” question I had while reading the post was “how did the US fall from producing 40% of world’s chips to less than 10%” and not the most advanced chips as well.
Below are possible reasons:
1. Globalization and Cost Advantages:
As globalization gained momentum, US’s high labour and raw materials costs, made manufacturing (in the US) less cost-competitive compared to countries like Taiwan & China — where lower production costs, made them attractive destinations.
2. Government Incentives:
Several governments, particularly in Asia, implemented policies and offered significant financial incentives to support and grow their domestic chip manufacturing industries.
This included subsidies, tax breaks, and funding for research and development, creating a more conducive “chip” environment compared to the US that offered less support.
3. Shift in US Industry Focus:
Most US chip companies chose to focus on design and innovation, outsourcing the actual manufacturing process to foundries like TSMC, helping it to emerge as a leader in advanced chip production.
This strategy allowed US companies to stay at the forefront of chip design while offloading the capital-intensive and complex manufacturing process.
US’s failure to remain as the top “advance’ chip-maker is due to its own doings, in a Capitalist economy where profits maximization is the name of the game.
With (a) a looming 2030 deadline and (b) a 20% world’s supply “goal”, of the most advanced chips - time is definitely not on the US side.
How to navigate and win?
As of Mon, 26 Feb 2024:
Nvidia was still climbing north of $790 per share. Wonder how are still buying into it?
AMD currently priced at $176 per share has also seen its stock price bubbling up, without much supporting facts to show sustainability.
It is a do or die attempt by the US government to achieve its 2030 goal (where President Biden will not see the project to fruition even if he wins a 2nd president term).
A logical & prudent approach would be, invest in semiconductor companies that have received the “awards”.
Following companies - $BAESY, $MCHP, $GFS, $INTC and $TSM will be “safer” bets in the short to medium (that’s how I see it).
The US government will “ensure” their success because they are on the same boat, sink or float together.
It will be a win-win-win situation, ultimately.
Semiconductor companies get to build their respective state of the art chip foundry,
America regains advanced chip’s “self-sufficiency”.
Investors benefit from rising prices of these 5 stocks.
Opportunities on the horizon to stake a claim in TSM or Intel or both?
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Do you think the semiconductor industry will blossom further by 2030?
Do you think it’s “wise” to invest in companies that received “grants” from US government’s CHIPs act budget?
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