The takeaway from Taiwan's chip bottleneck? Invest in software firms, teach your kids Python
Working out a rough global average of chip consumption per capita is simple: take semiconductor device shipments and divide that figure by the population. In 2020, that was a teeny bit over 1 trillion divided by 7.79 billion, or about 128 each. To be a little more accurate, you should probably take the number of chips and divide it by the number of people globally who are considered middle-income or higher, i.e., those who can afford to buy products with chips, or about 3.05 billion according to Pew Research. That would make it about 333 each.
Do you have questions about the biggest topics and trends from around the world? Get the answers with SCMP Knowledge, our new platform of curated content with explainers, FAQs, analyses and infographics brought to you by our award-winning team.
The point he was making was that we are very heavily dependent on semiconductors whether we like it or not, and indeed these days they are found in even the most common household appliance.
At the higher end of semiconductors, the kind of microprocessors that sit in all my top tech purchases over the past year are very difficult to make. In fact, it is fair to say that they are the most complex devices ever made by mankind.
The Apple microprocessors made by TSMC are a good example of how protective the industry, and the US government, has become of its home-grown technology.
And all of this is happening in the middle of a widely publicised supply shortage of semiconductors of all shapes and sizes, which is impacting the production of everything from cars and gadgets to household appliances such as air conditioners, televisions, microwave ovens, refrigerators and washing machines.
A British technology company I know well, Commtel, which makes wireless 4G intercoms and monitoring equipment, got wind of shortages as a humidity sensor vanished from the market, only to reappear with a two-year lead time. Then it happened for a simple OLED display, and then a controller area network (Can) bus chip - all made in Taiwan. A Can bus is extensively used in the auto industry to talk to microcontrollers that operate everything from fuel management and anti-lock brakes to winding down the windows. Commtel's CFO made the point that hoarding will first drive up prices, but then, as more capacity comes online, prices crash. So inventory management will be critical to margins. I found a small supply of Can chips for them at a Hong Kong trading house - at eight times the normal price.
The shortage of chips, including Can bus chips, and the fact Taiwan can choose to feed its own industries first, is causing manufacturers of all sizes to rethink their inventory strategy and is of great concern to car manufacturers, particularly Toyota, which invented "kaizen" manufacturing efficiency. Their "just-in-time" inventory management may have to change.
This all suggests a few things to me:
1. Taiwan's success in semiconductor manufacturing, which has attracted clients from all over the world, has set the island up as a potential single point of failure for tech manufacturing. Governments, which depend on advanced semiconductors for economic and national security reasons, have just gotten a wake-up call, and sound eager to throw money at the problem immediately to bring chip making to their own shores. There will be a lot of financing in the tech sector coming up.
In the past week there have been some large spending plans announced: South Korea going head-to-head with Taiwan's high end manufacturing sector and laying out US$450 billion to the turn of the next decade; China planning to spend US$120 billion on domestic chipmaking industries; the US earmarking US$40 billion of new investment. The Japanese are taking a different approach and are going to invite US firms to set-up manufacturing in Japan, which has advanced semiconductor manufacturing capabilities and is considered by the software community to produce some of the best coders out of its universities.
We will continue to find more chips in more goods, and with those chips there will be a rising demand for software and greater demand placed on ancillary industries. This is a very big, high-growth business that is moving into its next stage of global growth. Although there will be more geographic fragmentation, it will drive design, innovation, and big salaries for university graduates with skills in those areas - you know which way to steer your kids this summer.
Neil Newman is a thematic portfolio strategist focused on pan-Asian equity markets
This article originally appeared on the South China Morning Post (SCMP).
Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.
