EDITOR'S NOTE
Let's zoom out of the ballot-counting for a moment to get a reminder of some of the thorny issues that the next administration--whomever it is--will face. The overarching strategic concern for the U.S. will be China. And that's what makes Intel's recent woes so troubling.
Yes, Intel. The chip giant has had a terrible year--or several years, really. Over the past five years, Intel shares are up just 40% while rival AMD is up 4,000% (chart below). And even those paltry gains are threatened; Intel shares are down 24% this year and fell 10% in a day last month after the company said production problems have delayed the rollout of its next-generation chips. "Enough already!" investor Nancy Tengler memorably lamented on CNBC.
What's this all have to do with national security? Plenty. Intel is losing share to rivals AMD and Nvidia--both also U.S. companies, but ones that outsource their chip manufacturing to Taiwan Semi. Investors are now wondering if Intel--a much bigger company, one of the biggest manufacturers in the U.S.--needs to do the same thing.
"Chips are the new oil," said Bernstein analyst Stacy Rasgon on Squawk Alley last week. "If Intel does wind up outsourcing that [manufacturing] to Taiwan, it makes Taiwan potentially, strategically the most important country in the world--and it's 150 miles offshore from China, who thinks they own the ground that it sits on."
Let's get this straight: the U.S. could rely on Taiwan--and already does so--for essential semiconductors that power everything from mobile phones to computers to to data centers. At the same time, most other U.S. corporate giants rely on China as their biggest growth market. As Jim Cramer is right to keep emphasizing, everyone from Starbucks to Caterpillar to Estee Lauder is being helped this year as their China business, which they've invested in heavily, rebounds post-Covid.
So what does the U.S. do if China threatens Taiwan? That's a multi-trillion-dollar question in which we would seem to lose by taking either side, even though the U.S. had traditionally defended Taiwan and has ramped up its arms sales there of late.
But China is already working to "fix" this problem by becoming itself the world's largest chip producer by 2030, as The Wall Street Journal reported yesterday. That's a gobsmacking turn of events considering that as recently as 1990, more than 75% of the world's semiconductors were made in the U.S. or Europe. Today our combined share is already below 25%.
"Analysts say U.S. government incentives could help to reverse that trend," the Journal reported, by offering financial assistance to build more American chip factories. No kidding. But could AMD and Nvidia be what they are today without Taiwan Semi? Of course not. And as long as that's the case, it pits one key part of America's economy against the interests of many other U.S. businesses.
And in the longer run, despite all the rhetoric and trade wars, the U.S. is poised to depend on China for arguably our most crucial industry. If we started now, could we even become the world's biggest chipmaker instead by 2030? That's less than a decade from now. It's just over two presidential terms. And if not, can we truly remain independent from China? I don't think we can.
See you at 1 p.m...
Kelly
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Kamis, 05 November 2020
Tiny chips, big problems
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