Is Chip Embargo aimed at China, Huawei, TSMC or all three?

Is TSMC the real target, not just collateral damage?
Is equipment embargo threat to bring TSMC to heel?
Is an embargo a “Trifecta” of US strategic goals?

Maybe TSMC is a real target of chip equipment embargo not just potential collateral damage
It occurs to us when we talk about TSMC being caught in the middle between the US and China and being “collateral damage” in the crossfire of an embargo and trade war that maybe the US is really targeting TSMC, along with China and Huawei, and really killing three birds with one embargo stone.

Think about TSMC from a US perspective…..they have blown past beloved Intel in terms of technology dominance and clearly enabling AMD and others. They are building chips for the US’s enemies both military and commercial. They have in essence put US foundries out of business, GloFo, Intel’s foundry effort among others, and forced the US to buy all advanced chips from them with no alternate. They are getting a “bear hug” from their bigger nearby neighbor who covets them and could crush the US technologically by taking them over. And last, but not least, TSMC has refused US efforts to get them to either put a fab in the US or help with one such that the US chip supply would be protected from a hostile takeover.

Maybe if I were in power in the US government I would want to something over TSMC to bring them to heel and get them to cooperate or see things my way. Maybe I could cut off, or threaten to cut off, their “oxygen supply” of US made or controlled semiconductor equipment which could effectively put them out of business or cripple them.

The hand of the US government continues to get closer and closer to that “oxygen valve” that controls the flow of equipment. The ratcheting up of pressure and implied threat is crystal clear.

We would not be surprised to see some capitulation on the part of TSMC by preemptively agreeing to some sort of licensing arrangement that gives the US more control over their customers. We would also not be surprised to see some sort of US based foundry effort that TSMC could be part of. Maybe joint with Intel. Buy out GloFo’s fab and refit it or maybe a greenfield somewhere that gains political points.

Intel will not shed a lot of tears over TSMC getting bullied and could stand to benefit. TSMC could play it publicly as a win for them with some sort of concession to build a fab in the US. The US could say that jobs and leadership are being brought back to the US.

China’s Chip aspirations
Obviously one of the larger targets of a US chip equipment embargo would be to stave off the “made in China 2025” plans that China is focused on. Right now China is not self reliant on Chip manufacture let alone equipment to make chips.

Sooner or later China will catch up and get more and more chip technology but the strategic game plan is to delay, slow down and make as difficult as possible that goal. The longer we can keep them behind, the better for the US.
We have already seen the risk associated with China making 90% of US pharmaceuticals and probably 90% of PPE etc;. Obviously not only the US’s health is at stake but our military & intelligence superiority which is based in very large part on our advanced technology.

Cutting off Huawei and 5G
Huawei, which not that long ago was a tiny “copycat” of US router innovator , Cisco, is now threatening to dominate 5G and along with it a significant part of technology infrastructure. Obviously cutting off their supply of advanced chips would kill or effectively kill their 5G program which in turn would keep the US effectively in charge of the 5G rollout.

Neither Apple nor Cisco would shed tears. We know that Tim Cook has been close to the current US administration much as Intel’s prior management was also very close and probably whispers in high ranking ears about the threat of China, Huawei and 5G to not only US defense interests but commercial interests which translates to the all important stock market and US jobs.

The perfecta embargo “Trifecta”
All this suggests that embargoing or at the very least threatening to embargo US made and controlled semiconductor equipment gets 3 big goals; 1) slows China access to chip dominance 2) slows or stops China’s 5G plans 3) gets TSMC to “align” with US interests. Maybe not in that order of importance.

Three big birds on one stone? Is the US government really that smart? or that devious? We”ll find out……..

The stocks
Obviously TSMC’s stock is just as vulnerable as US semiconductor equipment makers. Maybe I want to be long non-US equipment makers such as Advantest, Tokyo Electron,ASMI, BESI and others and perhaps neutral to short US equipment makers and TSMC (for now).

Investors seem pre-occupied with the Covid crisis and are finally starting to realize the long term implications of Covid economic impact will in fact actually impact beloved tech stocks, perhaps as much if not more than the broader market.

Ugliness and excess risk abounds…

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