The world can hardly afford another conflict. The uncertainties of the past couple of years have led to significant turmoil across the globe. A post-COVID scenario seems elusive as the virus continues to mutate and go through periods of resurgence. The economic recovery following the pandemic has been painfully slow.
The armed conflict between Russia and Ukraine has further complicated matters. There's yet to be a return to normalcy for global supply chains. Markets are jittery as fears of a global recession loom large. Naturally, this would be the worst time for tensions to rise between two global superpowers, but that's what's happening right now between China and the United States over Taiwan.
The background of this conflict is deeply rooted in history and geopolitics. It's too much to unpack here. However, the potential ramifications of any conflict will be severe, particularly for industries that rely on semiconductors.
The Taiwan Semiconductor Manufacturing Company is the world's leading contract chip manufacturer. It manufactures advanced chipsets for a wide range of companies in diverse industries. The global chip shortage has barely eased up after the pandemic.
Any fallout of a potential conflict over Taiwan could upset the entire chip supply chain. This would ultimately lead to disastrous economic consequences as companies will be unable to supply products due to the unavailability of chipsets. They would then need to make difficult decisions to sustain the business.
The majority of TSMC's foundry facilities are located in Taiwan. Most of its highly advanced chips are made there. The company also operates a few facilities in China, Singapore, and the United States but none match the scale of its facilities in Taiwan. TSMC does have plans to set up a new advanced chipmaking factory in the United States. It will take a few years before that factory comes online. Evidently, the company is investing heavily to shield itself from similar geopolitical risks in the future.
While TSMC is far from the only contract chipmaker, it's one of two that leading the way with advanced nodes. Samsung is the other. It has been making serious investments to overtake TSMC as the top contract chipmaker. The company recently announced a new $17 billion plant in the US. It plans to invest over $200 billion to take its chipmaking business to the next level.
It has already beaten TSMC to the punch by shipping its first set of 3nm chips. This advanced node will be utilized to create high-performance computing chips for servers, data centers, smartphones, tablets, wearables, PCs, and other devices. TSMC is expected to supply its first 3nm chips in Q4 this year. Both will be competing for orders from the likes of Qualcomm, Apple, AMD, MediaTek, and NVIDIA.
In any adverse scenario where TSMC's capability to manufacture chips at its plants in Taiwan is reduced or diminished temporarily, the demand would inevitably shift to Samsung. It would become indispensable to the global chip supply chain more than it already is. That being said, the company also has a finite capacity, it alone can't possibly meet all of the demand that would shift from TSMC.
However, it would be the only contract manufacturer that has the capability to supply chips manufactured on advanced nodes at scale. Companies that are unable to secure capacity at Samsung will be in a very tough spot.
The business environment would also become very challenging if things go in this direction. Sanctions and other tough economic measures are usually deployed by governments in line with their policies. With the US making it clear that companies who do business with sanctioned firms can't trade with US businesses, navigating it all would require extreme caution.
Perhaps that's why there are increasing calls for Samsung boss Lee Jae-yong to be pardoned so that he may return to management fully. Significant decisions would require his participation and in such uncertain political and economic times, it would certainly be in Samsung's interests to have such a key figure actively involved.
There's no saying what could happen as a result of these US China tensions. Maybe it doesn't go beyond rhetoric and things don't escalate. However, with so much happening over the past couple of years, it's impossible to rule out anything these days.
