Brief Overview of TSM:
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.
- Source: https://www.youtube.com/watch?v=Hb1WDxSoSec&ab_channel=BBCClick
(2) Air Freight is the preferred Option for Semiconductor Chips amidst tariff/trade wars between U.S & China & Pandemic Disruptions. Surprisingly Strong Synergy To Alleviate Ocean Freight Issues.
- Synergies across industries between Airlines & Semiconductor Manufacturers expected to be the band aid supply chain issue, as commercial airflights are still recovering from lack luster demand climate caused by the pandemic.
- "EVA Airways Corp (長榮航空) and China Airlines Ltd (中華航空), the nation’s two major airlines, reported accelerated revenue growth in the third quarter compared with the previous two quarters, thanks to robust air cargo business."
- Semiconductor Chips. They are flying them left right and centre.
- Source: https://www.taipeitimes.com/News/biz/archives/2021/10/14/2003766054
- Why Airfreight is only a band-aid solution in the current supply chain disruptions for semiconductors:
(3) 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 Rise of Electric Vehicles Will Make Semiconductors Infinitely More Valuable
- 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.