It’s never a good thing to have a shortage of chips.
This certainly applies at your upcoming socially distanced Super Bowl party. And this applies to the technology dependent global economy.
The problem we see with producing chips that go in everything from your smartphone to self-driving cars is that production comes down to just a handful of companies. Producing chips is such a capital intensive business that we have seen massive consolidation in the last 20 years.
In the past few days, one company in particular has been in the spotlight.
The Taiwan Economic Ministry recently received a request from German Economy Minister Peter Altmaier that something needs to be done to help ease the shortage of semiconductor chips in the auto sector. The claim being that this shortage is stalling Germany’s economic recovery.
The auto industry is struggling to get chips for everything from parking sensors to reducing emissions. Volkswagen, Ford and Toyota were all forced to halt production.
The savior, is one company that’s already at production capacity, but ensuring it is working to free up room to make automobile chips a priority.
Tawain Semiconductor Mfg Co. (NYSE: TSM) has been a dedicated semiconductor foundry since 1987. The company makes chips for a variety of uses and different companies.
This includes being the go-to-producer for Apple. This includes the M1 chips that will replace the Intel chips that have been powering Mac for the last 15-years. Both AMD and Nvidia rely heavily on TSM to produce their chips.
While I’ve talked about other semiconductor companies, TSM is in a field of its own when it comes to smaller, more powerful chips that require less energy. This is a great sell for attracting customers, but now the company is finding itself maxing out capacity.
TSM is quickly working to optimize chip production to free up more of that capacity. And as it frees up will first be diverted to resolving the automotive chip shortage.
During the last round of pricing negotiations with automakers, chipmakers raised prices by 10-15%. With the shortage at hand, automakers are in no position to negotiate those down.
Just two months ago, the city of Phoenix voted to authorize $205 million in city funds for infrastructure improvements for the $12 billion semiconductor factory that TSM plans to build.
This would be it’s first advanced manufacturing facility in the US and would help with the capacity issue that the company is currently facing.
Like I mentioned above, this isn’t an industry that will see new competitors just pop up. This makes it a great world dominator to put in anyone’s technology portfolio.
In 2020, TSM saw a 25% rise in revenue and 50% jump in profit…both record highs. And shares have been on a tear.
They are up 126% over the past year. And this is just the beginning. The demand for semiconductors isn’t going anywhere but straight up.
I predict that TSM will see new records in revenues and profit for 2021.
To your prosperity and health,
Joshua M. Belanger
Joshua M. Belanger
Joshua Belanger is founder of CounterVest and the editor of Hot Money Trader. He has been providing ordinary investors blockbuster returns since 2008. In 2018, the average return of Hot Money Trader beat the markets by over 15%
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