Chips are the next geopolitical flash points. Healthcare will require increasing investments in upgradation AND IoT based devices, going forward. The shortage of chips (or its glut) will impact business projections (and delivery). Therefore, the comments of Mark Liu are important to be understood in that context.
“It’s economically unrealistic for all the countries to build additional chip production capacity,” Mark Liu, chairman of Taiwan Semiconductor Manufacturing Co., told reporters on Tuesday. “It makes sense that all the major economies hope to bring the chips for infrastructure or defense uses onshore, but to bring a full supply chain back and try to be fully self-reliant is totally not efficient. … At the end of the day, that additional capacity could become non-profitable capacity.”
I don’t agree with the “non-profitable capacity”. Partly because the on-site capacity depends on the depth of the market the production will address. It depends on the wafer size (and electronics/design etc.) to manufacture different chips for industrial use. The chips in consumer electronics, white goods (refrigerators, etc) and the IoT are completely different. Consumer electronics requires 3nm and 5nm processes, for example, which are considerably complex, but the bulk of the sales happens in the 28nm processes onwards. This is a generic view, but TSMC will like to avoid additional competitive pressures from “nationalisation of chips”.
This is additional insight:
“People said the current chip crunch is because chip production is too concentrated in Taiwan, but that is not the reason at all,” Liu said. “It’s the supply chain disruption due to COVID-19 and the unpredictability and uncertainties brought by the U.S.-China trade dispute, as well as the digital transformation that is driving the uses of electronics because of the pandemic.”
On-shore supply chains (including chips) is preferable going forward, because no one wants disruption in critical infrastructure. If there is a silver lining to the pandemic, it is this. Nation states have become aware of importance of self-reliance. Taiwan had used a similar strategy to build up its competitive advantage in chip manufacturing using generous state subsidies.