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Investors in Taipei seem to think that the foundry war between Taiwan Semiconductor Manufacturing Company (TPE:2330) and Intel (NASDAQ:INTC) might just be a limited territorial skirmish as TSMC’s stock stabilized on the Taiwan exchange during the Thursday morning trading session.
TSMC’s shares were hammered Wednesday as Intel announced IDM 2.0 overnight Tuesday local time — a major evolution of the company’s integrated device manufacturing (IDM) model that would see it spend $20 billion to build out open-door foundry capacity to compete with the likes of TSMC. During the trading day in Asia on Wednesday, TSMC’s shares lost just over 4% of their value with its US-listed ADR down 5% during the New York session. Local media reports show that foreign investors led the sell-off.
In the past month, TSMC shares lost 10% of their value, but they are up 9% on-year. The company has benefited from an incredible bull market during the Covid-19 pandemic, as its shares climbed by over 100%.
IDM 2.0 is on the mind of TSMC’s investors, but is it really the threat to TSMC that some make it out to be?
Reuters quoted Sherman Shang, a research analyst at Fubon Securities Investment Services in Taipei, who pointed out that Intel’s IDM 2.0 plan isn’t a whole lot different than its IDM 1.0 plan.
"The Intel CEO is living in a previous era, and it's quite hard for them to catch up on manufacturing," he said.
A recent report from IC Insights held that catching up to TSMC would take a $150 billion capex spend and 5-years.
Before the IDM 2.0 plan was announced, IC Insights reported: "Intel spent only about half of what Samsung spent in 2020 and is expected to once again fall far short of what both Samsung and TSMC are expected to spend this year."
What might be a bigger threat to TSMC than Intel is Taiwan’s resource-crunch. The country continues to be plagued by a crippling drought, with TSMC and other industrial users ordered by the Ministry of Economic Affairs to cut water consumption by 15% under its “Red Alert” water emergency mandate. Taiwan was last placed on a “Red Alert” in 2015 and 2002, but this time “the reservoirs are actually at lower levels than they were in either 2015 or 2002,” Water Resources Agency Deputy Director-General Wang Yi-feng is quoted as saying.
In addition to perpetual water shortages, Taiwan also has a power grid that is structurally unsustainable. With the closure of its fourth nuclear power plant, designed to replace aging plants built in the 1970s, Taiwan’s grid operates close to capacity — particularly during the island’s hot summer months. While green power is taking up some of the slack, major questions remain as to if there is enough electricity generation capacity in Taiwan to fuel TSMC’s growth ambitions.
It’s not to say that TSMC isn’t cognizant of all of this. Work is well underway on its Arizona facility, first announced mid-last year and the company recently kicked off a bond sale worth $741 million to finance construction. Perhaps TSMC’s future is beyond Taiwan, in places like Arizona with enough water and power — and out of range of China’s missiles.