Bloomberg reported today that Apple is looking to to create its own in-house chips (therefore stripping out their dependence on Intel). There are some interesting shifts in semiconductor industries, which has serves as pretty much the foundational material in our near all-tech oriented life.
Looks like Taiwan Semiconductor (TSMC) is will soon have some competition. TSMC is the world’s largest dedicated semiconductor foundry that aggregates design from all interested parties and conduct fabrication per the needs of the clients, which strategically diversifies revenue and hence leverage risks. TSMC as is the case for other semiconductor foundries kind of reminds of Amazon as these companies spend multi-billion in capital expenditure today to capture relatively massive value in the next 2-4 years given they have relatively longer product cycle than most products out there, but that is not to say these are immune to macro consumer demand shift in technology.
Semiconductor industry is one no one likes to reports on since its boring and relatively slow moving, but a very capitalized and relatively low volatility for future revenue. In fact, China has been trying for almost a decade now to create their own semiconductor industry amidst Japan and Taiwan.
Can’t complain much if you got ~18% rev CAGR in the past 20+ years, 60%+ gross margin and 5% yield, with no direct dependence on external volatile consumer demand (consumer demand can shift like a tick vs. that of business demand) and stabilized revenue growth in 2-4 year time frame (versus the generic shorter time frame of YoY and QoQ #’s and the heavily flawed EPS). But obviously a portion of the risks was shouldered by the government in the earlier stage b/c of its strategic political/economic/financial implications and competitive nature of any country…but the highlighted quote + Dalio in the previous email thread.
More systematic shift per TSMC point above.
Facebook just announced today Facebook to design its own chips as part of hardware push.
Seems like everyone is moving up their supply/value-add chain, but in a theoretical business world, if everyone fully owns their full upstream and downstream supply chain, scale and pricing inefficiencies will result, rather than efficiencies as competitive forces act as ‘natural’ dampening pendulum on pricing mechanism of any products in a market environment (i.e. like how we pull comp sets – competition acts as a natural force on a pricing mechanism of most marketplaces not protected by external forces i.e. government, patents and legal jurisdiction).
Time will tell if this is a systematic shift or “I am doing this because everyone else is doing this aka Ray Dalio’s concensus viewpoint.
Intersection notepad 